Google dealt a big blow to the payday lending industry, when it recently decided to ban the short-term/high-cost lenders’ ads from search results. At the same time, federal regulators are pushing for stricter regulations on these controversial financial products. Now a payday lending trade group is hoping to do some damage control by creating a program to identify companies making misleading claims in online ads.
The Los Angeles Times reports that the Online Lenders Alliance (OLA), which represents short-term lenders and the lead generation companies that target customers, recently launched a monitoring project to identify lenders who misrepresent the payday lending process.
Specifically, the system currently searches the Web for sites using the terms “no credit check,” an advertisement that many lenders use despite actually pulling at least partial credit checks on customers.
“We’re trying to be the cop on the beat,” Lisa McGreevy, CEO for the OLA, tells the L.A. Times. “We’re not interested in having bad actors or people who do fraudulent business giving our good lenders a bad name.”
While the system has been focusing on groups making inaccurate claims about not pulling credit reports, OLA notes that generally when they identify that issue others are presents, as well.
“When sites have one thing wrong, they probably have other things that are noncompliant,” McGreevy said.
Once the system picks out a lender’s site making a false claim about credit checks, OLA will look for other issues that might be present.
OLA then sends the site’s operators a notice asking them to fix the issues.
Companies that don’t fix the problem could be kicked out of OLA, McGreevy said. For instance, if a loan advertising site isn’t following rules, other OLA members are notified not to buy customer information from them, the L.A. Times reports.
McGreevy admits that while the system is working to separate the bad actors from the good ones, it’s a job that lenders should be doing themselves.
“Staying on top of it is a constant monitoring challenge,” she said. “It takes every part of our industry to look at what’s happening.”
Consumer advocates say they appreciate any efforts to identify bad practices in payday lending, but point out that OLA’s program doesn’t fix an industry that frequently charges triple-digit interest rates, and imposes high fees — all under the guise of helping cash-strapped borrowers.
“Voluntary investigations are not enough to ensure proper oversight and accountability to the public,” Suzanne Martindale, policy counsel for our colleagues at Consumers Union, tells Consumerist. ” Online lenders have had a poor track record when it comes to their treatment of consumers. It’s not just about the marketing – the products themselves are inherently expensive and risky.”
All too many borrowers have been trapped in expensive loans, and then suffered repeated bank account overdrafts and even account closures due to lenders’ aggressive collection tactics, Martindale says, adding that these actions — which will likely continue no matter what an ad says — are why advocates lenders should be required, by law, to determine that a borrower has a reasonable ability to repay the loan before the loan is approved.
The Consumer Financial Protection Bureau is currently finalizing rules to rein in predatory lenders, and Martindale says the Bureau needs to “the cop on the beat” for borrowers, setting “strong ground rules for high-cost lending, be it from a storefront or online.”
There are no shortage of examples of sketchy payday lending operations.
Earlier this year, the Department of Justice arrested the operators of one of the scammiest payday lending networks we’ve ever reported on.
According to the indictment, the defendants — who did business as Ameriloan, Cash Advance, One Click Cash, Preferred Cash Loans, United Cash Loans, US FastCash, 500 FastCash, Advantage Cash Services, and Star Cash Processing — deceptively promoted the costs of their loans.
For example, a $500 loan was displayed as having a finance charge of $150. In reality, it cost $1,425 — on top of the $500 — to take out that short-term loan.
In 2015, the Federal Trade Commission levied the largest ever fine against payday lenders, who were using misleading math to market their loans.
In that case, a $300 loan would be advertised as having a total repayment cost of $390, when in fact the borrower would be charged nearly $1,000.
And almost exactly two years ago, the CFPB brought an enforcement action against one of the nation’s largest payday lenders for allegedly engaging in illegal debt collection practices in order to push consumers into taking out additional loans they could not afford.
Trade group promises stricter scrutiny of payday loan ads [The Los Angeles Times]
by Ashlee Kieler via Consumerist
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