The Federal Trade Commission recently settled a case involving an online payday lending service that apparently tricked consumers into spending much more than they wanted to – and into giving the company permission to take payments directly from their bank accounts.
Here’s a look at how the scam worked and what will happen to the scammer.
Online Payday Lender & Debit Cards
According to the FTC’s website, the scam went like this:
- The company Swish Marketing, Inc. had web sites that provided “payday loan matching services.” In other words, the company claimed to connect cash-strapped consumers with a payday lender.
- When customers filled out online loan applications, they were directed to online offers for products not affiliated with (or related to) the loans they wanted. These offers came with pre-checked “yes” and “no” boxes.
- One of the products, a debit card, had its “yes” box pre-checked. Most consumers, it seems, did not notice this (because of type size) and so essentially signed up for a debit card they neither needed nor wanted, and for which they had to pay.
- In the fine print of the debit card’s agreement, there was a clause that gave the scammers permission to debit the customer’s bank account for missed payments on the payday loan.
- By clicking the final button that took them to their payday loan match, consumers agreed to open the debit card, which added as much as $54.95 to their purchase!
The result of all this devious Internet trickery was that many customers ended up paying far more than they intended to for payday loans, which themselves are often a money source of last resort for people in or headed for serious financial trouble.
FTC Gets Settlement from Both Companies
The good news here is the FTC settled with both companies for hefty fines ($52,000 for the debit card company and $850,000 for the payday loan company).
Generally speaking, most financial gurus advise people against taking out payday loans if at all possible, because of the enormous interest rates often attached to them and the unpleasant and burdensome debt cycle they can lead to. If you’re in need of cash, before you turn to a payday lender, consider:
- Asking friends or family for a loan;
- Asking your employer for an advance on wages;
- Asking a creditor for an extension on your payment deadline;
- Selling your blood or plasma; or
- Bartering.
Though legislators and consumer advocacy groups like the FTC have been cracking down on payday lenders in recent years, payday loans are still often too expensive to be useful, and may land you in a debt pattern difficult to break with filing for bankruptcy.
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