According to the FTC's press release:

An international Internet payday lending operation will pay $1 million to settle Federal Trade Commission and State of Nevada charges that it failed to disclose key loan terms and used unlawful debt collection tactics.

The defendants operated from the United Kingdom and targeted consumers in the United States, who were misled into believing that the defendants operated from Nevada. According to a complaint filed by the FTC and Nevada in 2008, the defendants told consumers that the loans had to be repaid by their next payday with a fee ranging from $35 to $80, or the loans would be extended automatically for an extra fee debited from consumers’ bank accounts until the loans were repaid.

The FTC charged the defendants with violating the FTC Act by using unfair and deceptive collection tactics. The Commission alleged that they falsely threatened consumers with arrest or imprisonment, falsely claimed that consumers were legally obligated to pay the debts, threatened to take legal action they could not take, repeatedly called consumers at work using abusive and profane language, and improperly disclosed consumers’ purported debts to third parties. They also allegedly failed to make required written disclosures to consumers before consummating a consumer credit transaction, such as the amount financed, the annual percentage rate, payment schedule, total number of payments, and any late payment fees, in violation of the Truth in Lending Act (TILA) and Regulation Z.

The settlement order requires the defendants to pay $970,125 to the FTC and $29,875 to the State of Nevada. The order prohibits them from falsely claiming that consumers may be arrested or imprisoned for failing to pay debts, that they are legally obligated to pay the full amount of a purported debt, and that for nonpayment they are subject to lawsuit, seizure of property, or garnishment of wages. The defendants also are barred from repeatedly calling consumers’ work places, using obscene or threatening language toward consumers and third parties, and disclosing the existence of consumers’ purported debts to third parties.

The order bars the defendants from violating the Truth in Lending Act and Regulation Z, including by requiring them to make the required TILA disclosures in extending closed-end credit. The defendants must disclose clearly, in writing, in a form consumers can keep and before a transaction is made, the interest rate and other key terms of their loans; a repayment schedule showing dates when consumers’ bank accounts will be debited for the loans; payments and fees for late or non-payment of the loans; and a statement that payday loans may be limited or prohibited in some states. In addition, the order requires them to obtain consumers’ written confirmation that they have received the required disclosures before making a transaction and, when collecting debts, the defendants must provide consumers, upon request, a written statement of amounts and fees paid and due. The order contains record-keeping and reporting provisions to allow the FTC to monitor compliance.

This is good news for consumers and payday loan borrowers. However, even thought the FTC is watching out for you, you still need to do your own homework. Whenever you take out a payday loan (whether it is through NextDayCheck or another site), make sure that you read the terms and conditions of your loan agreement closely. Remember — you do not need to accept the terms of a loan, you can always refuse to sign an agreement and find a different payday lender if you are uncomfortable with the terms.

Here's the short answer — "no".  Or, more accurately, you can't get an online payday loan directly deposited to your account if you don't have a bank account.  Also, many prepaid debit cards cannot be used for direct deposit payday loan purposes either.  Here's the reason – if a payday lender is unable to: (1) deposit your loan funds into a bank account using ACH, and (2) withdraw the fees that are due by directly debiting your bank account using ACH, then most online payday lenders will not allow you to get a loan without a valid bank account.

Many prepaid debit cards do not allow lenders to directly debit your debit card account using ACH.  As a result, if you fill out a loan application and enter in your prepaid debit card bank account information, you will likely get denied a loan, as the payday lenders check to see if your account is the kind that they can directly debit using ACH.
If you have a prepaid debit card account, and really need a loan, you can check into prepaid debit cards that have loan features as options (for example, you can check out the excellent AccountNow Prepaid MasterCard which has an optional credit line many people can qualify for).

So how has the law faired?

It looks like it is working.  Even the Consumer Federation of America (a vocal detractor of payday loans) agrees that the Military Lending Act is working.  They claim that "Early signs are encouraging" (and that lenders appear to be complying with the Act).

However, the CFA still wants more prohibitions against Military Lending.  Here's what they suggest:

The Military Lending Act prohibits loans based on personal checks held for future deposit or on electronic access to borrower's bank accounts.  The Department should remove any limiting factors in definitions of payday loans in order to extend that protection to all lending on terms that violate the MLA.

We'd love to hear from Servicemembers — what do you think about the MLA? Has it had a big effect (positive or negative) on your ability to manage your finances?

In the hearing, Barbara Fox testified on behalf of the Consumer Federation of America, and Troy McCullen testified on behalf of Finance America of Louisiana (a large payday lender in Louisiana). What is interesting (at least to us) was the testimony of an individual (Ms. Gerri Guzman) from California. Ms Guzman is a teacher, and she has had to resort to payday loans in the past.

Here's an excerpt from her testimony.

Personally, I consider payday loans to be a necessary evil. If I had the choice, I would never have been in a situation wehre I needed a payday loan. I'm sure this rings true for the tens of milions of other payday lending customers around the country. In a perfect world, we would all have money set aside in savings to deal with expenses as they come up. Unexpected, but unavoidable expenses, such as a broken down car, a medical bill, or a child's college application form.

But having much money in savings is not the reality for many families, especially with the economy the way it is today.

I first became a payday lending customer when I decided to leave my job to become my Mother's primary caretaker for the 14 months prior to her passing. I do not regret for a moment my decision but I would be lying if I said it didn't create a temporary financial hardship.

At the time, my options were to take out a payday loan or not to replace a water heater.

I was aware of the cost of the payday loan and decided that it was the best option for me at the time. No, they are not cheap, but they can be the least expensive, or only choice.

Ms. Guzman's views match that of many payday borrowers. While we don't want to pay outrageous fees, we do want reliable and prompt access to funds in the event of emergencies.

You can read a transcript of her whole testimony here.

In the hearing, Barbara Fox testified on behalf of the Consumer Federation of America, and Troy McCullen testified on behalf of Finance America of Louisiana (a large payday lender in Louisiana). What is interesting (at least to us) was the testimony of an individual (Ms. Gerri Guzman) from California. Ms Guzman is a teacher, and she has had to resort to payday loans in the past.

Here's an excerpt from her testimony.

Personally, I consider payday loans to be a necessary evil. If I had the choice, I would never have been in a situation wehre I needed a payday loan. I'm sure this rings true for the tens of milions of other payday lending customers around the country. In a perfect world, we would all have money set aside in savings to deal with expenses as they come up. Unexpected, but unavoidable expenses, such as a broken down car, a medical bill, or a child's college application form.

But having much money in savings is not the reality for many families, especially with the economy the way it is today.

I first became a payday lending customer when I decided to leave my job to become my Mother's primary caretaker for the 14 months prior to her passing. I do not regret for a moment my decision but I would be lying if I said it didn't create a temporary financial hardship.

At the time, my options were to take out a payday loan or not to replace a water heater.

I was aware of the cost of the payday loan and decided that it was the best option for me at the time. No, they are not cheap, but they can be the least expensive, or only choice.

Ms. Guzman's views match that of many payday borrowers. While we don't want to pay outrageous fees, we do want reliable and prompt access to funds in the event of emergencies.

You can read a transcript of her whole testimony here.

Here are a few highlights from the Bill:

First, the payday loan bill would increase the maximum amount of a check used to obtain a payday loan from $300 to $500. Next, it would require each payday lender (or "licensee") to pay to the commissioner a fee of 5 cents for each deferred deposit transaction paid in full during the previous calendar year, prohibit licensees from passing this fee on to their customers, and require the commissioner to use this fee to provide financial literacy education programs relative to payday loan transactions in California.

The bill would also impose a number of operational requirements on lenders, including obligations to screen employees and control advertising. Finally, the bill would require that lenders allow a payday loan customer who is unable to repay his or her payday loan when due to elect, once in any 12-month period, to replay his or her payday loan using an extended payment plan.

You can read more about the proposed payday loan bill here.

The FDIC thinks so.  Here's their conclusion:

After one year, the FDIC’s Small-Dollar Loan Pilot Program has provided evidence that banks can offer reasonably priced alternatives to high-cost, short-term credit.

But we are not so sure. Here's a snapshot from the FDIC report:

It shows that while a number of lenders are participating, the volume of loans is quite small. Almost any bank could issue a small number of small loans if the profitability is not an issue.

The question remains: can big banks profitably issue short term loans to lots of consumers?

Payday lenders are set up to do this quite efficiently. The demand for the product is high (many payday lenders issue as many loans in a week as all of the FDIC pilot banks did in a year), and payday lenders are able to do it despite high chargeoff and loss rates.

It would obviously be better for consumers if they were able to get short term, small dollar loans from their local banks. However, we believe the reality is that they can't… and won't, despite the good intentions and work by the FDIC.

What do you think?

By the way, you can read the FDIC report here.

At a recent conference held at the Federal Reserve in Chicago, there was a great panel presentation that included a discussion of bank overdraft fees. One of the panelists compared overdraft fees to payday loans.

Here's a snippet from one of the presentation slides:

OD are Payday Loans at Banks

• Credit based on access to bank account
• Due in full immediately, repaid by next pay
• Triple digit or higher rates to borrow
• Not based on ability to repay
• Consumers tend to get trapped in repeat borrowing

We agree that overdraft fees can be quite unfair to consumers, particularly when they are charged for overdrafts at ATM or point of sale machines. Studies have shown that consumers are simply not aware that they could possibly be charged an overdraft fee when they use their bank issued debit card at an ATM or at a point of sale terminal. Consumers (wrongly) think that the bank will simply decline the transaction if there is not enough funds in the account. Unfortunately, this is not always true — in 2008, a shocking 81% of banks allowed overdrafts at ATM machines and point of sale terminals.

The FDIC estimates that the APR of a typical overdraft is an astonishing 3,520%!

Compare this to payday loans, with APRs of 200%, 300%, etc. Also, with a payday loan, borrowers are actively seeking out the loan for a specific purpose. With overdraft loans, consumers are blindsided with high fees that could have been avoided.

If you want to see the original powerpoint presentations from the conference, you can see them at the website of the Chicago Federal Reserve.

First, you need to figure out why you have been denied. Under the Fair Credit Reporting Act (or "FCRA"), a lender is required to send you an "adverse action letter" or statement of why you were denied credit. You should receive this letter within a few days (or weeks) of when you were denied credit.

If you can't wait that long, you may want to be proactive and get copies of your credit reports to see why you may have been denied. Here's the thing – the credit reports that payday lenders use are different than the credit reports that credit card or mortgage lenders use. Here are the four main credit bureaus that are used by payday lenders. If you have been denied a payday loan, you might want to get in contact with all four of these credit bureaus and let them know you've been denied credit, and want your free copy of your credit report.

Here are the four main credit bureaus used by payday lenders:

1. Teletrack (their website is here).

2. CL Verify (here's their website)

3. Clarity Services (check their website here for contact info)

4. DataX Ltd. (here is DataX's website).

When you get copies of your reports, read them carefully. Check back here in the next few days, and we'll discuss how to read your reports (and give you a few tips about what to do if there are errors on the reports).

Even one hundred years ago the critics of "salary loan lending" called such people sharks and leeches. Today consumer advocates call payday lenders "predatory" and "legal loan sharks." Borrowing money at triple digit interest rates is never the right answer for people in debt. Consumers in need of short term cash should avoid particularly expensive short term loans, and] instead should build up an emergency savings account to cover financial emergencies. They should also seek budgeting and debt management advice from non profit consumer credit counseling services, and shop for credit based on both the dollar finance charge and the Annual Percentage Rate.

Yet people short on money often ignore the advice of the experts and instead turn to the scurrilous moneylenders. This was true a century ago, and the behavior is still with us today. The best estimates peg the payday loan industry as growing from a few hundred stores at the start of the last decade to roughly 12,000 today, lending over $15 billion a year.

Some feel that consumer's financial literacy is not necessarily high enough that they are aware that an 18 percent overdraft loan on their checking account is better than a 350-to-700-percent payday loan. However, according to a Georgetown study, three out of four customers pegged the dollar cost of their loans accurately. The annual percentage rates may well be excessive, but payday loans are often less expensive than the alternatives. The payday lenders are assailed for collecting $1.8 billion in fees a year, but some advocates say the banks charge $7.3 billion a year for bounced checks. If you convert that to an APR it goes up to more than 5,000 percent.