WASHINGTON — Banner on top the website features a wide-eyed baby in an adult’s hands with the words, “Did that special vacation for two end up producing a third? Castle Payday has life’s unexpected expenses covered.”
A number of sites like Castle Payday offer short term loans online, regardless of past credit, overdrafts, and bankruptcy.
The interest on these loans are higher than 400%. Castle indicates a 888 annual percentage rate. A $500 loan for 14 days will cost a borrower $675.
Sometimes borrowers can’t pay off the first loan along with other financial obligations; therefore, the borrower may take out a 2nd short term loan to cover the 1st loan. This may leave the borrower in a never ending cycle of debt.
Advocates complain that payday loans companies try to avoid laws in some states by setting up shop on the internet.
“More and more states are cracking down on payday lending and it’s a lot easier to hide online than it is to hide in a storefront,” said Ed Mierzwinski, consumer program director for U.S. PIRG, an advocacy group.
Industry groups believes that internet payday loans are a vital services for those that are struggling and have less credit options.
Fifteen states do not allow payday lending, including North Carolina, Georgia and Pennsylvania. Nine states enforce strict rules on payday lending – among them Washington and Florida.
State and federal regulators, especially New York, have intensified pressure on banks to stop working with online lenders. The payday loan industry is fighting back in the courts.
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