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The study found rampant fraud and abuse in online payday loans.

2 minute read

If you think payday loans are risky, wait until you see online payday lending.

Payday lenders made about $49 billion in 2012 on loans designed to help people get by between paychecks. But these lenders are often viewed as predatory, because their high fees trap can people in a cycle of debt.

A new report by Pew Charitable Trusts takes a look at the online side of the industry. Pew says it’s the first to really study this, and what they found isn’t pretty even for payday loans. Collections & Credit Risk, an online news service for financial professionals, called it “scathing,” and here’s why…


That would be a typical annual interest rate for online payday loans. It’s about 250 percentage points higher than a typical traditional payday loan — which is already an insane number compared to the APR on credit cards. They’re usually below 30 percent.


Percentage of borrowers who report being harassed by a debt collections agency or the payday lender. Debt collector harassment is illegal, and Pew says it happens way more often in online lending. Those who reported harassment said debt collectors called family, friends, and employers; some were threatened with arrest.


Number of online payday loans that were purposefully structured to encourage long-term debt. How? By automatically renewing itself each payday, increasing the borrower’s cost and stretching out repayment periods to earn more money for the lender.


Percent of borrowers who report that a lender overdrew their checking account. (Which triggers more fees.) That number also includes 39 percent who said their information was sold to an outside party without their knowledge, 32 percent who experienced unauthorized withdrawals, and 22 percent who said they closed a bank account or experienced a bank closing their account due to online lenders.


Number of payday loan complaints made to the Better Business Bureau that involved online lenders. Online lenders make up only a third of the payday loan market, but they make up 90 percent of complaints.

If the numbers aren’t scary enough, check out this story of this NPR reporter who applied for an online payday loan with fake, made-up information and was approved.

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About the Author

Jess Miller

Jess Miller

Miller is the former assistant editor of

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