Division of Banking and Financial Institutions

HELENA, MONTANA – The Montana Division of Banking and Financial Institutions (Banking Division) urges consumers who are seeking short-term and/or small loans on the Internet to be vigilant and careful in reviewing the terms of the loan agreement. Consumers are strongly encouraged to contact the Banking Division to inquire if a business is licensed prior to utilizing these services.

 

Montana consumers in particular should be aware that Internet payday lenders not licensed in Montana may also not be conforming to the Montana Deferred Deposit Loan Act (Act). It has been common for unlicensed Internet lenders to ignore limitations on fees that may be charged as well as the amount and duration of the loan as provided in the Act. 

 

"The majority of Internet payday lenders are not licensed to make these loans to Montana consumers," said Annie M. Goodwin, Commissioner of the Division of Banking and Financial Institutions. "It is troubling to see Montana consumers who fall deeper into debt with these unlicensed lenders who have no regard for our state law."

 

The passage of Ballot Initiative No. 164 (I-164) reduces the annual interest that a deferred deposit (payday) lender can charge to 36 percent on loans made on or after January 1, 2011. In response to I-164 the Banking Division anticipates that the majority of licensed deferred deposit lenders, most of which are physically located in Montana, will cease making new loans at the end of 2010. 

 

There are countless websites operated by unlicensed Internet-based payday lenders. Often these websites provide little or no actual contact information about the business entity making the loan. Many of these unlicensed lenders claim to be physically located outside of the United States in an effort to evade state regulations. 

 

Most websites operated by unlicensed Internet payday lenders require consumers to type in their personal information including social security and bank account numbers. The amount of the loan is usually deposited into the consumer's account within hours. The loan payments are then deducted from the consumer's account.   Many internet payday loan websites are run by loan brokers. A loan broker is a third party not related to the internet payday lender. If a consumer uses one of these websites, the consumer is providing their personal information to an unknown third party who will forward it to any number of lenders. This means the consumer will not know the identity of the lender or lenders with whom they are dealing. The consumer may end up with more than one loan at the same time and have no means of contacting the lenders. 

 

"The reality is that if a consumer goes on line to get an internet payday loan, often there is very little the Banking Division can do to protect them, and little we can do to lenders in foreign jurisdictions that do not comply with our law," said Commissioner Goodwin. 

 

"One of the biggest problems that we see in complaints against unlicensed Internet payday lenders is that the loan payments are continually debited from the consumer's bank account in a manner that automatically extends or renews the loan at an additional cost to the consumer," said Commissioner Goodwin. "This is particularly troubling because Montana law expressly prohibits renewing deferred deposit loans. The automatic rollover of these loans can quickly result in fees charged that exceed the amount of the original loan."

 

The Banking Division urges consumers to verify a lender's license prior to signing any loan documents. The Banking Division also cautions consumers to carefully read and understand all of the terms contained within loan documents before committing to borrow any funds from a lender.

 

Information regarding Montana deferred deposit loan regulations including the list of licensed lenders is available online at http://www.banking.mt.gov. Consumers with questions or complaints pertaining to deferred deposit (payday) loans should contact the Banking Division at (406) 841-2920. The Banking Division's website contains the complaint form that can be filed by consumers who may be experiencing problems with unlicensed Internet lenders.

 

 

###