When I served as California’s Commissioner of Corporations, Internet commerce was just finding its legs and we were concerned about how to apply the Corporate Securities Law to this new technology. For state regulators, the challenge has been how to prevent unlicensed activity from entering the state through the Internet. This week, the Department of Business Oversight announced an initiative with three of the giants of the Internet: Bing (Microsoft), Yahoo and Google.
The Department’s initiative targets payday lenders. Payday loans are regulated under the California Deferred Deposit Transaction Law, Cal. Fin. Code § 23000 et seq. A deferred deposit transaction is a “transaction whereby a person defers depositing a customer’s personal check until a specific date, pursuant to a written agreement for a fee or other charge”. Cal. Fin. Code § 23001(a).
Many consumers find payday lenders on the Internet. Using an unlicensed payday lender is likely to be a cruise down a river of troubles. Among other things,
- The lender may withdraw funds directly from your bank account.
- The lender may charge an interest rate far higher than is permitted by California law. According to the Department, one lender charged interest at an annual rate exceeding 2300%.
- The lender may steal personal financial information.
Moreover, an Internet lender can be anywhere in the world. This makes it very difficult, if not impossible, to obtain any kind of redress.
Under this new initiative, the Department will notify Microsoft and Google when a cease and desist order against an unlicensed lender becomes final. These companies will then block advertising by those lenders. Already, 39 lenders have been blocked. By opposing unlicensed lender advertising, the Department will not end illicit activity, but the effort should prevent at least some consumer ripoffs.
Consumers can find find out whether a payday lender is licensed by performing a search here.