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Federal Trade Commission Suggestions on Ethical Payday Lending

It is quite a norm these days for consumers to turn to payday loans to fund their short-term finance emergencies because they believe that they will be able to pay back the money they borrow by the next paycheck. However, statistically, it has been found that it is easier said than done in most cases, because the annual percentage rate of these loans are quite high to the tune of 390 per cent. There is also a lot of illegal and deceptive practices being used to take advantage of the ignorance of the consumer and make them pay more than what is required of them.

The Federal Trade Commission (FTC) has laid down a variety of laws to protect consumer interest, they have filed law enforcement actions against payday loans who use scrupulous means to take advantage of the borrower and engage in exaggerated advertising and billing practices that are contrary to the Section 5 of the FTC Act, against the disclosure conditions mentioned in the Truth in Lending Act and against fair credit practices.

In 2011, 44.020 consumers filed complaints with the Federal Trade Commission regarding cash advances. Consumers have complained that these lenders ask for a fee in advance in the promise of giving a loan or credit card, regardless of the credit history of the applicant. When FTC went through these loans, they came to the conclusion that the business was done through unethical means. The Federal Trade Commission says that when payday loans or cash advances are offered only on the condition of an advance-fee, people should stay away from such kind of lending practices. David Torok of the director of the Planning and Information wing of the FTC says, “These people often take the money and disappear. Of course the loan is never given.”

The Federal Trade Commission says that though it is true that credit history is not required for payday loans but if the lender asks for personal information like social security number or bank account information, it is a warning that there is identity theft lurking nearby.

Also one should check for fees that are not clearly explained and a loan offer made by phone that asks you to pay in advance. The FTC website also says that before applying for the loan, the borrower should check to see if a lender is registered in the state by contacting the state attorney general office or the state department of financial regulation or banking.

Recently, Federal Trade Commission trained their guns on some online payday loans operations which claimed that they are immune from consumer protection laws because they are owned by Native American tribes. These tribes, the FTC claims, are using the Native American Tribes’ rights of ‘sovereign immunity’ to seek immunity from consumer protection laws.

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