Report: Loophole Allows 700% APR Payday Loans Online

Some payday lenders are able to circumvent state laws and charge sky-high interest rates that are above legal limits, according to a report by CNBC.
A legal loophole is letting payday firms linked to Native American tribes offer online loans that would otherwise be prohibited by state laws.
These firms are taking advantage of tribal sovereignty to offer loans with annual percentage rates of more than 700 percent in some cases, according to the CNBC article.
One website advertises cash loans of up to 50 days at an annual percentage rate of 782.14 percent. The customer would pay $10.71 to borrow $500 for just one day.
In New York State, for example, the maximum annual percentage rate permitted is 25 percent.
In some cases, the tribes get a percentage of the overall payday lending business via the online arrangement. The firms, in turn, lend cash to struggling borrowers at exorbitant rates.
But CNBC found one tribal official who he had no idea a payday lender was using the tribe’s name, and, in an interview with CNBC, accused that lender of fraud.
Payday lenders provide short-term cash loans to mostly poor or struggling consumers. The one-year-old U.S. Consumer Financial Protection Bureau now has the authority to review potential abusive policies by such lenders.
In addition, Oregon Senator Jeff Merkley, a Democrat, along with Sen. Tom Udall (D-New Mexico), and Sen. Dick Durbin (D-Illinois),  has sponsored the SAFE Lending Act, which would require online lenders to follow existing laws from the state where the borrower resides, not where the business is established.
That means a company registered in Oklahoma, for example, would have to abide by New York State regulations if it made loans there — a provision that could curtail the flexibility of many of the tribal affiliated lenders, CNBC said.
“It is unacceptable that financial predators are using the ‘Wild West’ of the Internet to strip wealth from working families,” Merkley said in a statement in July when the SAFE Lending Act was introduced. “This abusive, predatory lending hits families hard, hurting the parents and the children. We must close the loopholes that have allowed companies to utilize practices already banned in many states.”

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