For Immediate Release - May 26, 2006


Unlicensed lenders typically charge illegal fees and interest rates

The Office of Consumer Affairs' Division of Banks this week issued 48 cease activity orders against out-of-state payday lenders who are marketing illegal loans to Massachusetts consumers via the Boston Craigslist website and most recently in the Boston Herald. Commissioner of Banks Steven L. Antonakes has also asked the website and newspaper to cease accepting advertising from these companies. Massachusetts Consumer Affairs Director Janice S. Tatarka warned consumers of the multiple dangers these loans pose.

"The huge fees and interest rates are illegal and often lead borrowers down a path of insurmountable debt. These lenders also ask for direct access to your bank account and many of them are extremely hard to track down, making borrowers an easy target for identity theft," warned Director Tatarka.

In February 2005, cease activity orders were mailed to 91 internet-based payday lenders and 27 were returned because the companies were not located at the addresses they claimed to be.

"These companies are not licensed to offer loans to Massachusetts consumers because they charge interest rates far in excess of what our small loan law allows," said Commissioner of Banks Steven L. Antonakes.

Payday loans are short term, small sum, high rate, unsecured personal loans that use consumer checking accounts (either post-dated checks or electronic access) to secure repayment of the amount borrowed. Repayment of the full amount and lender fees is typically due within 14 days or with the borrower's next paycheck. Partial payments are rarely allowed so if a borrower can't repay the full amount within the required timeframe, the loan is usually rolled over for additional periods of time and additional fees.

How Payday Loans Work Against Borrowers

If a consumer cannot pay off a $300 loan on payday from a lender charging a $25 fee for every $100 borrowed, the $75 fee is electronically withdrawn from the borrower's checking account. The loan is rolled over for another two weeks for an additional $75 fee. If this occurs over three additional pay periods, a consumer will have paid $375 in fees for a $300 loan that remains unpaid.

Currently, there are no payday lenders licensed or based in Massachusetts. Under the state's small loan law, annual interest rates on these loans are capped at 23% and fees are limited to $20. Out-of-state payday lenders typically charge annual percentage rates averaging 300 percent and fees averaging $30.

The Office of Consumer Affairs urges consumers in need of short-term cash flow to seek less costly and risky alternatives, including:

  • Obtain a cash advance on a credit card or check to see if your bank or credit union provides short-term loans. While there are still costs associated with these alternatives, they are typically much less than what is charged for a payday loan.
  • Ask to borrow money from a friend or relative.
  • Check with your employer to see whether an advance on your paycheck can be arranged.
  • Find out if you can delay paying a non-interest bill and make payment arrangements with your service providers, such as phone and utility companies.
  • Ask your creditor for more time to pay your bills and what the late charge, additional finance charge or higher interest rate will be.
  • Contact an accredited consumer credit counseling agency in your area. Counselors can advice consumers how to get out of debt and avoid the predatory loans.

Consumers with additional questions regarding payday lending should contact the Division of Banks Consumer Hotline at 1-800-495-BANK (2265), extension 501 or the Consumer Affairs Hotline at 1-888-283-3757 or by email at