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High-Interest Loans Drawing Attention At State & Federal Level

Michael Rapp Aug. 27, 2014

As an article in the New York times details, many state and federal organizations are fighting lenders who attempt to rip off desperate consumers by inflating loans with bogus “account protection” fees.

Several consumers, like Loralty Harden of Illinois, are chipping away at loans wondering why their balances remain unchanged.

The answer is that several payday loan companies, such as All Credit Lenders of Illinois, are taking advantage of desperate consumers by charging them fees that are extremely high in relation to the amount borrowed in attempt to by pass state interest laws.

Ms. Harden was unknowingly charged a $15 fee for every $50 she borrowed from All Credit Lenders, effectively turning an initial 18% interest rate into 350% . Ms. Harden is just one example of consumers making regular monthly payments that only cover the arbitrary “account protection” fees, essentially never paying off the actual loan amount.

Illinois attorney general Lisa Madigan has filed a lawsuit against All Credit Lenders, and believes, “This is one of the more egregious products I have come across.”

Companies like All Credit Lenders attempt to bypass state laws on maximum interest rates by disguising high fees as “account protection” in the event of a job loss or similar circumstance.

Other payday lenders have attempted to circumvent state laws by adjusting loan terms, relocating the location of the business outside of the U.S., or increasing the amount of time borrowers have to pay back loans so that they do not fit state definitions of payday loans. All are done in an effort to disguise payday loans as legitimate offers for consumers.

Both states and federal agencies are taking notice. The Consumer Federal Protection Bureau and SEC are investing lenders such the World Acceptance Corporation for violations of consumer protection and fair lending laws.

Payday lenders have countered arguments about their shady and fraudulent operations by claiming they offer loan opportunities to customers who would otherwise not be able to obtain credit.

The battle between states and federal consumer protection agencies and payday loan lenders is likely to continue so long as there are consumers desperate enough to agree to loans with ambiguous terms and fees.