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Five Internet lenders are the targets of separate lawsuits filed Tuesday in Minnesota, citing unlawful lending practices. The investigation that spurred the lawsuits, brought by Minnesota Attorney General Lori Swanson, identified "unlawfully high interest rates of up to 782 percent," unauthorized withdrawals from customers' bank accounts and a phony collection scam.
"These Internet lending companies are really a sign of the times," Swanson said Tuesday. She said they're taking advantage of the turmoil in the economy and of consumers who are looking for a short, relatively small loan for anything from a car repair to groceries.
"We think it's growing," she said, noting that the total U.S. market for Internet payday loans is estimated at $10.8 billion.
The lawsuits accuse the firms of a variety of violations, including automatic extensions of the loans and rolling the loans over by paying off an old loan with proceeds from a new one.
The five companies being sued are Flobridge Group LLC, Silver Leaf Management and Upfront Payday, all of Utah; and Integrity Advance and Sure Advance LLC, both of Delaware.
The lawsuits, filed in district court in various counties in Minnesota, allege that the high interest rates and finance charges made it difficult for consumers ever to pay down a loan's principal.
The lawsuits also claim the companies weren't properly licensed by the Minnesota Department of Commerce.
A call to Flobridge on Tuesday was met with a voicemail system that kept looping back through the list of options after pressing "0" for "all other inquires." One of the options included pressing 3 "if you would like to extend your loan for another two weeks."
A customer-service representative at Sure Advance LLC of Delaware asked for an inquiry to be sent to an email address. No response had arrived by late Tuesday.
One consequence of online lenders' business models is that borrowers' information sometimes ends up overseas with criminals.
Phone calls to Diane Briseno's home in Maplewood came from India, the attorney general's office later discovered. Her caller ID showed the call was from the State of Minnesota.
Briseno's son, 20, had started applying for a loan online but never completed the form. Regardless, he had left enough information that the phone calls started almost immediately. When Briseno called back to a toll-free number, she was told her son had taken out a $700 loan and needed to pay $6,000 immediately.
When she asked about the details of his supposed transaction, "they said he got the loan two days ago," Briseno said with a laugh. "They're very demanding. They won't listen to you at all."
In a later call, she alerted the voice on the other end that she'd contacted Swanson's office. "I said, 'I'm going to put you in jail.' Then they hang up on you."
Swanson said that people in need of a loan would be "better off trying to find a bricks-and-mortar financial institution in Minnesota" that's licensed. Consumers may be able to get a small line of credit with a local bank or credit union.
"The worst then they can do is to do business with these unlicensed" firms, she said.
Earlier this year, Idaho's attorney general reached a settlement with Flobridge Group that ordered the company to pay refunds to consumers who had received collection notices, wage-garnishment requests or court documents from the company.
Under Minnesota laws, loans between $250 and $350 are capped at 6 percent interest plus a $5 fee. For loans between $350 and $1,000, payday loans are capped at an annual interest rate of 33 percent plus a $25 administrative fee.