Last week’s column on the risks of payday loans ran just after a news release on the same topic. That release included a number of quotes from Maine people:
“I owe about $1,700 to five payday lenders. I’ve been paying about $800 a month in interest. I paid them back three times what I borrowed and have no more money to give.”
“I paid $360 for the $300 loan, and they say I owe another $593.84.”
These are excerpts from last year’s complaints to Maine’s Bureau of Consumer Credit Protection. Superintendent William Lunt says the complaints covered about 60 out-of-state lenders. In some cases, state regulators have been able to help consumers get refunds or erase their debt.
Payday lenders are termed “supervised lenders” under Maine law, so the practice is not illegal here. However, lenders must be licensed and post a $50,000 consumer protection bond with the state. There are also caps on the interest they may charge, for example, $15 on loans up to $250. There’s also a 30 percent annual rate ceiling, although Lund says some unlicensed lenders have charged $30 a week on a $100 loan, for an APR of 1500 percent.
Internet-based lenders transfer the initial loan electronically to a borrower’s bank account. Usually they collect two weeks later, sometimes transferring only the interest amount. If unable to repay the loan plus interest, the borrower can renew the loan and face another round of interest payments.
Consumers sometimes get in deeper by seeking additional payday loans. Eric Wright, BCCP’s staff attorney, notes that one borrower owed $16,000 to six different firms. “She was using the proceeds from one loan to pay the interest on the others.”
Unlicensed lenders sometimes put pressure on borrowers at payment time, calling them or their employers in an effort to collect. They also may use intimidation, although regulators have had some success in curbing that practice.
Lenders even threaten court action, which attorney Wright considers an empty threat. “No prosecutor is going to side with an out-of-state, Internet lender’s attempts to collect on an illegal loan,” he says.
Right now, 10 companies hold licenses in Maine as payday lenders. These companies have offices in Bangor, Brunswick, Rockland, Portland, Biddeford, Lewiston and Windham. Virtually all other payday lenders are Internet-based, and that’s where Lund says most abuse occurs.
“Consumers must learn to protect themselves,” he says. “Check our Web site to see if a company is licensed as a supervised lender.” At the site, www.Credit.Maine.gov, look for the Jan. 9 news release listing more than 50 companies the bureau has told to stop offering payday loans in Maine.
One option is working with a licensed credit counseling agency. As a final resort, you can work with your bank or credit union to close your checking account. The BCCP can help. If you need assistance, call the bureau at 800-332-8529 (800-DEBT-LAW).
Consumer Forum is a collaboration of the Bangor Daily News and Northeast CONTACT, Maine’s membership-funded, nonprofit consumer organization. Individual and business memberships are available at modest rates. For assistance with consumer-related issues, including consumer fraud and identity theft, or for more information, write: Consumer Forum, P.O. Box 486, Brewer 04412, or e-mail firstname.lastname@example.org.