A Bank of America spokeswoman said the bank has always honored requests to stop automatic withdrawals. Wells Fargo declined to comment. Chase spokeswoman Kristin Lemkau said, “We are working with customers to resolve these cases.” Online lenders say they strive to follow state laws.
Payday lenders have been dogged by controversy almost since their inception two decades ago in check-cashing stores. In 2007, federal lawmakers banned lenders from focusing on the military. Across the country, states have routinely imposed caps on interest rates and fees that effectively prohibit high-rate lending.
Although there is no exact measure of how many lenders have migrated online, about three million Americans obtained payday loans over the Internet in 2010, according to a July report by the Pew Charitable Trusts. By 2016, internet lending will account for about 60% of total payday lending, up from about 35% in 2011, according to John Hecht, an analyst at investment bank Stephens Inc. Payday lending was $13 billion, up more than 120% from $5.8 billion in 2006.
Faced with increasingly inhospitable states, lenders have also established themselves abroad. A former owner of a used car dealership, who runs a series of online lenders through a front company in Grenada, highlighted the benefits of operating remotely in a 2005 deposition. Simply put, it was “protection from lawsuits and tax reduction,” he said. Other lenders are based in Belize, Malta, the Isle of Man and the West Indies, according to Federal Court records.
At an industry conference last year, payday lenders discussed the benefits of going offshore. Jer Ayler, president of payday loan consultant Trihouse Inc., identified Cancún, the Bahamas and Costa Rica as particularly fertile locations.
State prosecutors have been fighting to stop online lenders from illegally lending to residents where lending is restricted. In December, Lori Swanson, Minnesota Attorney General, settled with Sure Advance LLC over claims that the online lender was operating without a license to provide loans with interest rates of up to 1,564%. In Illinois, Attorney General Lisa Madigan is investigating a number of online lenders.
Arkansas Attorney General Dustin McDaniel is targeting illegal lenders in his state and says internet businesses are tough to fight. “The internet knows no borders,” he said. “There are layer after layer of cyber entities and some are difficult to trace.”