Payday loans, long held as predatory lending have a new nemesis. Payday loans target those with poor or bad credit, or even no credit at all. Payday loans often result in what is called a debt trap. The debt trap occurs because most payday loans have outrageous interest often APRs of 300% to 456%, with very short repayment terms, often only 2 weeks. The consumer then needs to take out another loan to pay of fees from the first loan. It is not uncommon to roll a loan over 9 times. Victims of predatory lending often include the middle class, the working poor and retired poor. Customers often will spend $3900 per year to borrow just $500 due to loan rollovers. This is why payday loans are banned in many states. Yet online payday lenders often ignore state bans and loan consumers in these states money anyway.
Enter a new company and venture, LoanReverse.com. This start up company advocates for consumers who got duped into paying on loans that do not and never will comply with state lending laws, and in some cases federal lending laws. The start up contacts these predatory lenders to obtain refunds for consumers who borrowed from lenders who do not comply with state laws. LoanReverse.com is the new threat to the payday loan industry which is already being investigated by numerous attorney generals of various states and even the Federal government.
While it is true that some payday loan companies offer legitimate loans and fair interest rates, and follow state and Federal laws, they are few and far between. Some lenders are claiming they are immune to lending laws, such as native American payday loan companies which have exploded onto the payday loan industry, back by powerful investors keen on taking advantage of Americas fastest growing demographics: The middle class, the working poor and the retired poor. The native American lenders claim sovereign status yet do business online and hence do business in the states where they lend to consumers.
LoanReverse founder Alex Shogren aims to make payday loan companies that fail to comply with state laws pay. Many of these loans are illegal loans in the first place. Consumers are not obligated to repay loans which are illegal. Banks that withdraw funds via ACH transfers automatically from a borrowers account are obligated to repay the consumer says Alex Shogren, thanks to the Federal Reserve regulations which govern unauthorized money transfers. Since the loans themselves are illegal the deductions that result from the lender debiting a consumers bank account via ACH are are by definition unauthorized and illegal.
LoanReverse helps consumers deal with the banks to recover any money the consumer has lost. The start up then takes 35% of the money recovered as a fee for services rendered,which is a deal for consumers who otherwise would have received none of the funds back and potentially a negative mark on their credit report. Negative marks on ones credit report for illegal loans can be disputed and removed however if the consumer understands that the debt was illegal and words the dispute with the credit reporting agency the right way.
Online lenders are concerned and rightfully so, they know the new venture is right but are still trying to spin it into a favored light for themselves. Online lenders are contending their loans are legal and legitimately help people and they also contend that loanreverse is duping victims of predatory lending into using loanreverse’s services. The Online Lenders Alliance contends that loan reverse is violating Federal law. Yet Federal and state agencies are and have been investigating and even charging payday loan lenders with violating financial laws.
The fight between the payday loan lenders, Indian tribes and loanreverse may end up in legal litigation as the payday loan lenders are considering fighting back. For example the Lac Vieux Desert Band of Lake Superior Chippewa Indians has sent loanreverse a letter threatening adverse legal action should loanreverse continue to advise its loan clients to not repay the loans and get refunded by their banks. The Online Lenders Alliance issued a cease and desist request to loanreverse.com. Lisa McGreevy, OLA’s president who has been firing back at loanreverse.com, is worried about “regulatory enforcement activity, as well as unflattering and demonizing media articles”.
It is clear that illegal lenders and the Online Lenders Alliance is already reeling from the losses of funds. Alex Shogren, co-founder of Loanreverse has stated that his company has already recovered $15 million dollars to “customers who had no idea they were tethered to an illegal payday loan.” Loanreverse’s website takes in your loan data and compares it to state laws, licensing status of the lender and then determines if the loan was an illegal loan or not. If a customer is eligible for a refund then contact the bank or credit union of the customer to facilitate the “loan reversal;” recovering interest, fees and principal, as well as ceasing any further unlawful withdrawals from the customers account. Loanreverse then takes it cut of 35% of the funds recovered. Based on the figure of $15 million recovered for customers that puts Loanreverse.com profit since June 27th at $4,500,000.00.