Minnesota Attorney General's Office
1400 Bremer Tower
445 Minnesota Street
St. Paul, MN 55101
M - F 8 am - 5 pm
Tuesday, September 6, 2011
Attorney General Swanson Sues Five Internet Payday Lenders
Warns Consumers About Pitfalls Of Online "Short Term Loans"
Minnesota Attorney General Lori Swanson today filed separate lawsuits against five Internet lenders that made loans to cash-strapped Minnesota borrowers that were marketed as providing “cash between paydays,” but that contained unlawfully high annual interest rates of up to 782% percent and that were often illegally extended from paycheck to paycheck, trapping the borrower in a cycle of expensive debt. The Attorney General warned Minnesotans against taking out loans over the Internet from unlicensed lenders, citing a growing list of complaints to her office from consumers who have done business with such companies.
“Many people are living paycheck to paycheck right now, and unlicensed Internet lenders offer easy credit. This credit comes with a hefty price tag and often leaves a rash of problems in its wake,” said Attorney General Swanson.
The Internet payday loan industry is estimated to have a total loan volume of $10.8 billion in 2010. Attorney General Swanson said that, in recent months, consumers who have taken out or even just explored the option of short term loans from unlicensed Internet companies have experienced the following types of problems:
- High interest rates. Minnesota law caps the interest that licensed lenders may charge. Unlicensed Internet payday lenders regularly violate these caps, charging annual interest rates of up to 782 percent.
- Auto-extensions. A 2009 Minnesota law prohibits a short-term lender from extending payday loans of less than $350 for over 30 days and from using the proceeds of one payday loan to pay off another. Online lenders routinely violate these laws by either extending the loan and withdrawing only interest charges or by “rolling over” the loan, paying off the old loan with the proceeds from the new loan. These practices can turn a payday loan--advertised as a short-term financial fix--into a long-term financial nightmare where borrowers pay far more in interest than they intended to borrow.
- Unauthorized withdrawals. When consumers take out an online loan, they must provide their banking and personal information. Some consumers report that unlicensed lenders made unauthorized withdrawals from their accounts, sometimes of hundreds of dollars.
- Unlawful debt collection tactics. Consumers report that some online lenders and their collectors use illegal debt collection tactics, such as threatening that the consumer will be taken to jail and prosecuted for a financial crime, or attempting to illegally garnish their paycheck.
- Phony collection scam. Some consumers who did not even take out a payday loan, but who only explored the option online, report being hounded by overseas scam artists who threaten to have them arrested if they do not pay, even though the consumer does not owe any money. These scam artists contact the consumers, often impersonating attorneys or law enforcement, demand large payments, and frequently attempt to scare or intimidate consumers into paying with threats of arrest or legal action against them or their families.
The five companies against which the lawsuits were filed are:
- Flobridge Group, LLC of Utah, which touted its loans as “cash flow ‘til payday” and “a little emergency money…to get you to your next payday.”
- Integrity Advance of Delaware, which advertised its loans as a way “to get a cash advance until your next paycheck” and that its loans are “designed as a short-term cash flow solution.”
- Silver Leaf Management of Utah, which states that its loans “provide you with emergency cash…”
- Sure Advance, LLC of Delaware, which represents that its payday loans “are not intended to meet long-term financial needs.”
- Upfront Payday of Utah, which states that online payday loans offer “cash when you need it most … usually between paydays!”
The lawsuits allege that the loans have high rates of interest and other finance charges that violate Minnesota law, making it difficult for consumers to pay down the principal. The lawsuits allege that the companies sometimes unlawfully “extend” or “refinance” the payday loans far beyond the consumer’s next payday, trapping the consumer into high interest payments over an extended period of time. The lawsuits also allege that the companies violated Minnesota law by making loans to Minnesotans without being properly licensed by the Minnesota Department of Commerce. The companies sued each charged interest rates of about 782 percent on a two week loan. The interest spirals when the loan is not paid back in two weeks.
Under Minnesota law, for loans less than $350, Minnesota law caps the fees that may be charged on a sliding scale as follows: $5.50 for loans up to $50; 10 percent plus a $5 fee on loans between $50 and $100; 7 percent (minimum of $10) plus a $5 fee on loans between $100 and $250; and 6 percent (minimum of $17.50) plus $5 fee on loans between $250 and $350. For loans between $350 and $1,000, payday lenders cannot charge more than 33 percent annual interest plus a $25 administrative fee.
Attorney General Swanson issued the following advice to consumers:
- Before doing business with an Internet payday lender, make sure it is licensed to operate in Minnesota. You may check the Commerce Department website online at www.commerce.state.mn.us, or you may call (651) 296-6319.
- Check if the Internet payday lender is complying with state interest rate caps and other state consumer protections.
- Be wary about giving out information online to unknown Internet companies. This can expose you to potential privacy and fraud risks. Disreputable Internet companies can use your bank account number to make unauthorized withdrawals and drain your account.
Individuals who wish to file a consumer complaint may contact the Minnesota Attorney General's Office by calling 1-800-657-3787 or 651-296-3353. Consumers may also download a Complaint Form from by clicking here and mail the completed form to the Attorney General's Office at: 1400 Bremer Tower, 445 Minnesota Street, St. Paul, MN 55101-2131.