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Three payday lenders on the Internet have been sued by Minnesota Attorney General Lori Swanson for charging illegally high interest rates and late fees, and for not being registered to do business in the state.
"These companies are trapping citizens in a spiral of debt," Swanson said at a Wednesday news conference at her State Capitol office.
The three firms, East Side Lenders of Delaware, Global Payday Loan of Utah and Jelly Roll Financial of Virginia, are short-term lenders that typically make high-interest loans of less than $500 to workers until their next paychecks arrive, and often require repayment in 14 days or less, the attorney general's office said.
Money is electronically deposited in a borrower's bank account after submission of an online loan application. Payments, interest and penalties also are electronically withdrawn from the borrower's account. The online firms typically charge two to four times the interest rates allowed by Minnesota law for two-week loans, Swanson said.
"These interest charges can quickly snowball as borrowers take out other loans to repay the original payday loans, ultimately leaving the borrower in worse financial shape," she said.
The suits seek restitution of excessive interest and fees, compliance with the law and, possibly, civil penalties, said Ben Wogsland, a spokesman for the attorney general's office. The total amount of excessive charges in Minnesota isn't known yet, but will be determined by examining customer lists from the three companies as part of the lawsuits, he said.
A 2009 Minnesota law required online payday lenders to be registered with the state and to obey state limits on interest rates and financial penalties, just as non-Internet payday lenders do, Swanson said. But the three firms being sued have been unwilling to comply, Swanson said.
Representatives of Jelly Roll Financial, Global Payday Loan and East Side Lenders could not be reached. Swanson said East Side asserted in a letter that it was not covered by Minnesota law.
In addition to unlawfully high interest rates, the companies often make it complicated for workers to repay loans on time, which allows them to charge late fees and additional interest, Swanson said. The late fees can be as much as 20 times what Minnesota law allows, she said.
Hundreds of complaints:
"These companies don't want you to pay off the loans on time," Swanson said. "Where they really make money is if you don't pay back the loan."
The attorney general's office has received numerous complaints about the companies, Swanson said, but the identities of affected consumers weren't disclosed Wednesday.
Dana Badgerow, president of the Better Business Bureau of Minnesota and North Dakota, said the bureau had received hundreds of complaints about the firms.
Consumers also are putting themselves at risk by disclosing Social Security and bank account numbers to online loan companies they know nothing about, Swanson said.
Badgerow said one woman complained that she had money improperly withdrawn from her checking account after doing business with an online payday lender.
"She was billed $280, and never got the $300 she had borrowed," Badgerow said.