Personal finance can be something like a horror movie. In this case, the slasher is an online payday lending service.
For anyone thinking of signing up and taking out a loan, the Better Business Bureau has just released a press release, warning anyone thinking of using an online payday lending service: Don't.
I'll make it more clear, since they have a certain level of professionalism that they probably like to maintain: For the love of everything good and holy, stay away! Don't do it! Don't! You'll be killed!
OK, maybe not killed -- I went a little too far with my horror movie analogy. These services will let you live -- live to regret ever doing business with these sites.
And to be clear here: The BBB isn't warning against using the typical payday lending loan services that you might see in outlet malls or business districts. While those services don't have a great reputation, the online payday lending outfits make the rest of the payday lending loan companies look like knights on white horses.
Alison Southwick, the media relations manager at the BBB, says that some of the payday loan services they're warning customers against include sites like OneClickCash, 500Fastcash.com, rbtloans and Ameriloan.com.
When lodging a complaint with the BBB, Southwick says, "People will [typically] say they signed up to get a $200 loan and provided their bank account number, so the company then had access to their checking account. They would get the $200, so that's fantastic, but then they would continually have money pulled out in fees and interest. And their money was only going to cover the interest. People were paying thousands of dollars on a $200 loan, and they haven't paid off the principal. The only way they were able to stop it was by shutting down their bank account."
For instance, as the BBB's press release states, one Massachusetts woman received a loan from Ace Cash Services and said she wound up making more than $1,700 in payments to pay off a $225 loan. Another person in Pennsylvania had a 547% interest rate on a $300 loan from a lender called United Cash Loans.
How do these establishments get away with this? For starters, they aren't very well regulated. Brick-and-mortar payday lending establishments are. But these fly-by-night payday lending outfits? Not so much.
They also don't generally post their street addresses on their sites so a law enforcement officer isn't able to drop by and pay these companies a visit. And when an attorney is able to successfully contact them, according to the BBB, the answer from the company president is usually that the business is either located in another country or on a Native American reservation and that they are, in effect, part of a sovereign nation.
Southwick also had an interesting observation: "There are never any complaints from the state where they operate. If they're located in Oklahoma, nobody from Oklahoma complains about them, but you'll have tons of complaints from California."
Why? The people behind these companies don't want to tick off their neighbors. They know they're harder to reach when they're a few states away from their victims.
During the past few years that I've been writing for WalletPop, I've tackled the topic of payday lending services several times, and I've always been conflicted about telling someone not to use one of these services, probably because I've occasionally had to use them myself.
It's also hard to look down on them when banks are increasingly offering their own payday lending services. And if you're in debt, or broke, or both, and you don't have any options, and you have to put food on the table, I recognize that a payday loan might be a pretty decent Band-Aid. Mainly, I've always been of the opinion that these loans should be a last resort and one that should be handled very carefully.
But I'm not conflicted with saying people should steer clear of these online payday lending companies. I can't see any good reason for using one, no matter how bad someone's economic situation.
These are tough times for a lot of Americans, but if your kids are hungry, go to a food bank. That's why they're there. If your electricity is going to be shut off and you can't work something out with your utility company, you're better off letting your home go dark for awhile. I can't think of even one good reason to use an online payday lending service. It's like using an explosive device to clean out a flesh wound.
But I'll let Southwick have the last word: "There could very well be an an honest, online respectable lender," she concedes, "but to be safe, this is definitely one of those things I feel comfortable saying, flat out, 'Stay away from these online payday lending services.' "
Geoff Williams is a regular contributor at WalletPop. He's also the co-author of the new book "Living Well with Bad Credit."
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