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Personal Internet Loans: Convenience vs. Consequences

Internet lending is very commonplace nowadays, as many mortgage and auto lenders may rely substantially on information submitted via the internet to process loan applications.  This reduces the amount of face-to-face time which may be necessary to close the loan, ideally reducing the expenses for all involved.  But while many lenders use the internet to supplement prudent lending practices, there is a growing amount of lenders who use it as a shield to prevent or obstruct any litigation for abusive lending and collection procedures.  These loans, alternatively described as “personal” or “payday” loans may appear to be a quick fix to a temporary budget shortfall, as the money is electronically deposited into the borrower’s bank account, but can quickly spiral a small financial crisis into a much bigger problem.

Some states prohibit short-term payday loans, or restrict the amount of interest that can be charged.  However, internet lenders can evade these restrictions by basing themselves in states that have fewer regulations.  Some internet lenders go even farther, and are based on Indian reservations or even out of the country.  This can present a dilemma for an individual in Georgia who has been harmed by a lender, but would have to file a suit against the lender in another state or country.  In addition, these lenders seem to be more willing to pursue illegal collection activity, such as threatening criminal prosecution or lawsuits against relatives.  Many internet payday lenders do not even provide a mailing or street address, making them impossible to locate by the standard consumer.

Payments to such lenders are almost always made by drafting the money from the borrower’s checking account.  The problem arises when there are insufficient funds to accommodate the internet lender payment when it is due.  This can result in the account becoming overdrawn, and important bills being return unpaid, such as for mortgages, car payments or insurance.  Preventing the deduction can be tricky, as many of the larger banks are not quick to assist consumers in blocking or postponing such payments.  Even if the borrower is able to stop the payment, many internet lenders will resubmit the request with a variation of the name or amount to throw off a bank which has been notified to dishonor the draft.  Because of the inability to contact the lender other than by e-mail, it will be difficult if not impossible to restore the bank account to normalcy.  Many times, the borrower has to close out the account due to the assessment of overdraft fees, creating additional debt when they are already financially strapped.

Keep this in mind when dealing with short-term internet lenders, as they offer little flexibility in the event that adequate funds may not be on hand until a few days after the due date.  And keep track of any communications between the lender and the bank in the event that you seek to stop the debit, in case some of the problems described above occur in your case.