Community Dividend

Consumer group surveys payday lending sites

Published May 1, 2005  | May 2005 issue

Based on the results of a survey it recently conducted, the Consumer Federation of America (CFA) warns that online payday lending sites can be a risky choice for consumers seeking small loans. Such sites collect loan applications online, and borrowers send necessary paperwork—like checks and bank statements—via fax. Loans are deposited automatically into a borrower's checking account, and payments are automatically deducted from the account on the borrower's next payday. In the case of insufficient funds, the borrower incurs fees from the payday lender and the bank.

For its survey, the CFA sampled 100 payday loan Web sites and collected information on loan costs, contract terms and the identity and regulatory status of the lenders. The surveyed sites offered loan amounts ranging from $200 to $2,500, with $500 as the most frequently offered amount. The most common finance charge was $25 per $100 borrowed, which is equivalent to an annual interest rate of 650 percent if the loan is repaid in two weeks. Only 38 of the 100 sites disclosed the annual interest rate. Eighteen of the sites had no posted privacy policy, and 28 did not provide secure connections on pages requesting personal financial information. The survey also found that fewer than half of the lenders listed their street address or phone number, and nearly a quarter listed no contact information at all. Of the sites that listed their addresses, many were located in states with few or no consumer protection laws related to payday loans.

To read the full survey results, visit