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Many Internet Payday Loans are Unenforceable

posted by Nathalie Martin

Internet payday loans are often even more impossible to pay off than storefront loans. Internet payday lenders are also among the most aggressive collectors, but maybe not for long. As it turns out, many of these loans are unenforceable.

First, why are they so hard to pay off? To get an internet payday loan, you need to share your bank account information, of course. Many loans are set up so the loan is automatically rolled over, unless the customer notifies the lender three days in advance of the due date that he or she wants to pay the loan off. I know of one consumer who mailed a certified check for the full amount, after the three day notice period but before the due date. The lender would not cash it. This happened repeatedly, making the loan virtually impervious to repayment in full.

If one gets caught up in one of these situations, the first thing to do is find a new banking relationship. Then what? Here is the good news. Payday loans made by lenders who do not comply with state laws cannot be enforced.

For example, all lenders (regardless of whether they are located inside or outside of New Mexico) loaning amounts of $2,500.00 or less to New Mexico residents must be licensed by the Director of the Financial Institutions Division and comply with all of the state rules and regulations regarding such loans. NMSA 1978 § 58-15-3(A). Payday loans made by unlicensed lenders are void and the lender has no right to "collect, receive or retain any principal, interest or charges whatsoever." NMSA 1978 § 58-15-3(E). Most if not all internet payday lenders have failed to register, or to comply with a bunch of other requirements, such as getting a license, providing a toll free number to New Mexico residents, and providing funding for the examination of their records by the public. Thus, it looks like these loans are uncollectible.


My experience leads me to suspect that internet payday lenders don't much care about enforcing their debts in court. They are willing to take what they can get by bank account assignments, and telephone harassment -- which is particularly difficult to stop when done by an internet will o' the wisp.

I also suspect that they are selling their "uncollectible" loans to debt buyers who will further harass consumers.

The payday industry's lawyers argue, based on choice of law clauses and the dormant commerce clause, that they are not bound to follow the law of the consumer's state. Bill Woodward has a paper on the contractual choice of law issue in a similar context (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1003997.)

The charges on Payday loans can add up, if someone doesn’t pay on time. Other than that, it’s a good option for someone that doesn’t want to get caught up with credit cards debts. They can also help in a tight situation, its quick, and most places are open longer hours than banks.

Today many Internet lenders offer online payday loans. Any person complete an online application and send their bank statement to the lender. After verifying the credibility of their bank account, the lender processes and sanctions the loan and transfers the cash unto person`s bank account.

I actually have a question. I wanted to know if there is a source that show the pricing for all the major payday lenders in the market? Thanks. --greg

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