The Massachusetts Division of Banks has issued cease-activity orders to 48 out-of-state payday lenders for advertising loans with alleged illegal terms to local consumers. The letters went out at the end of May following an investigation that was prompted after a report about payday lenders marketing their services to Bay State consumers on the Boston craigslist Web site (www.boston.craigslist.org) that first ran in Banker & Tradesman on May 8.
As Banker & Tradesman reported, more than 40 listings for payday loan services were posted at the site. The DOB began working on a plan of action once it was made aware of the online activity. At the time, Senior Deputy Commissioner David Cotney had said the agency planned to issue cease-and-desist orders against the alleged violators.
Payday loans are small cash advances, usually between $100 and $1,000, for which the borrower puts up their next paycheck as collateral. Most online payday lenders require borrowers to have direct deposit and allow the lender electronic access to their bank account. Fees associated with using the service are typically between $15 and $30 per $100 borrowed, and interest rates range from 390 percent to 780 percent.
Under the Massachusetts small loan law, annual interest rates for companies with small-loan licenses are capped at a 23 percent annual interest rate, and they are not allowed to charge more than a $20 fee per year. There are currently no licensed payday lenders allowed to conduct business in Massachusetts, and that extends to online services, according to the DOB.
Of the 48 lenders receiving letters, 47 were found to be advertising on the local craigslist Web site. Regulators spotted the remaining company targeting Massachusetts consumers through ads in the Boston Herald.
“We are saying that the advertisers are operating illegally. We reserve the right to take any and all appropriate action, including a referral to law enforcement,” if the lenders refuse to stop marketing their illegal payday loan services to Bay State consumers, said Cotney.
Repeat Offenders
It is not the first time the DOB has taken action against online payday loan companies soliciting business in the state. In February 2005, the DOB issued 91 cease-activity orders to online payday loan companies for the same reason. In May 2005, another five companies were cited as violators. Cotney said 61 of the companies either complied by posting disclaimers on their Web sites or have gone out of business. However, the DOB has discovered some of the companies that were sent the more recent cease-activity letter had been issued the same demand by regulators in the past, making them repeat offenders, said Cotney.
There are a handful of payday loan outlets that had been advertising on craigslist that the DOB is still trying to track down. Cotney said once an address can be confirmed, those companies will be asked to stop as well.
Letters also were sent to craigslist and the Boston Herald asking them to stop allowing the companies to illegally advertise their payday loan services, he added.
According to Cotney, the DOB plans to monitor the local craigslist site and outlets that may be used by payday lenders to reach Bay State consumers. He said the division will continue issuing cease-activity orders as it spots and uncovers new violators.
Late last week, there were still 20 payday loan advertisements on the Boston craigslist Web site. However, that is down from 40-plus listings that had been on the site prior to the division’s action.
