Internet Loans: A Bad Idea Gets Worse When You File Bankruptcy

25 Dec Internet Loans: A Bad Idea Gets Worse When You File Bankruptcy

Why would anyone take out an Internet payday loan? Bankruptcy lawyers scream this out loud at least once a week. It tends to frighten the neighbors.

Small, high interest loans are often the last gasp effort folks use to make payments on other debt (like mortgage or car loans) — before they give in and call a bankruptcy lawyer for help. They’re the proverbial “last straw.” But they also can make your life a living hell — and cleaning up your finances a nightmare.

“Payday loans” are basically high interest small loans — $3-500 often — where the borrower promises to pay the loan off in a short period of time, often when their next payday comes. In local offices, it’s usually “secured” by a post-dated check. Over the Internet, you agree in advance to have the payment plus interest deducted electronically from your bank account.

Post-dated checks are bad enough — bankruptcy law allows them to be cashed even after you file a case. But giving out your bank account information to a website and authorizing that faceless site to deduct money from your account? Your mother didn’t raise you right, if that doesn’t worry you.

If you take out a loan from a store down the street, you know how to find them. Do you know how to find the lender you take out an Internet loan from? Sure, in some cases the website is just another outlet for a business that has actual street addresses and phone numbers. You can see them on the website and you can find their business registered in their respective states. That is a lender trying to play by the rules.

But often the Internet lender has no physical location mentioned anywhere on the website — and their website ownership and registration is masked behind privacy services too. It turns out quite a few of these are offshore, outside the United States often theoretically existing in places like Malta or Caribbean island countries, which offer drop box address services so it becomes almost impossible to locate a person or business. They are corporate phantoms that infest the Web, obeying only the laws of the most convenient forum, if even those.

And you would like to take a loan out from them? And give them access to your bank account? It’s like giving your bank account a financial virus.

When you file bankruptcy, it’s even harder to deal with them. I spend a lot of time trying to find anything like a valid address for these companies to send written notices. Or FAX them. Or, sometimes, to even e-mail them information to stop collecting debts. Of course, if I do track them down and give them notice and they ignore it, what can I do? Sue them? That’s hard without anyone I can actually serve papers to — and even harder to collect from them when I win.

It means, effectively, they obey bankruptcy law only if they feel like it.

Most states regulate — more or less — small lenders like these. They often have very liberal rules allowing them to get away with lending terms that make a loan shark blush. But at least they’re here and we can find them.

Borrowing from “some guy” who registered a business last month on the Island of Lost Dreams, and built a payday loan webpage — and wants to keep his name, address and phone number out of this? And giving him all of your most personal financial information? How crazy does that sound?

It’s a business that should not even exist if people did not go a little crazy when they’re desperate for money. That it is thriving and there are (at least) thousands of these websites tells you a lot about economic desperation these days.

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I have been a bankruptcy attorney since 1989. Our firm represents consumers filing bankruptcy almost exclusively, although I have represented bankruptcy trustees as well as creditors. For 2017-2018 I am also serving on the American Bankruptcy Institute's Commission on Consumer Bankruptcy. If you live in Eastern Missouri, visit our website, send an e-mail or give us a call (314) 781-3400. Our website:
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