Payday lenders have been around for years, offering quick-but-pricey loans to distressed borrowers. From hundreds of walk-in storefront offices, they loan out small amounts to be paid back from the borrower's next paycheck.
Today, they're getting elbowed aside by a growing cadre of online competitors who aren't licensed and who increasingly are accused of ripping off consumers. Last month, the California Department of Business Oversight warned consumers to beware of rogue online lenders -- often located offshore or overseas -- who offer enticing come-ons from splashy websites, but who may leave borrowers little recourse if something goes wrong.
"It's like Whac-A-Mole," said Mark Leyes, spokesman for the state Department of Business Oversight, or DBO. "We're trying to compile a list of unlicensed companies, but they change their company name from one week to the next."
Enforcement actions against illegal payday lenders have stepped up recently. Earlier this month, the Federal Trade Commission announced it shut down a Tampa, Fla.-based payday loan broker accused of pilfering $5 million from U.S. consumers. The company, operating under multiple names such as Loan Tree Advances and Your Loan Funding, said it represented a network of 120 payday lenders and promised to help consumers obtain loans in "as little as one hour." Instead, according to the FTC's complaint, it sucked funds from the bank accounts of tens of thousands of customers. The company's two owners allegedly used the money to support a lavish lifestyle that included a 2012 Maserati, a 2011 Rolls-Royce Ghost and a 2006 Ferrari 430.
On other fronts, state officials in New York have cracked down on payday lenders that elude state scrutiny by affiliating with U.S. Indian tribes, which operate outside the jurisdiction of state and local governments.
Payday lending is no small-change industry. In 2011, the most recent year for state data, payday lenders in California doled out a total of $3.28 billion in loans to 1.7 million customers. The average amount of those individual loans: $263.
And while the number of walk-in payday loan locations has dwindled statewide in recent years, the number of online sites has "mushroomed," along with a "slow but steady" increase in complaints about Web-based lenders, Leyes said.
"It's a problem. The risks are high," he said. "If it's a storefront payday lender, you walk in and look someone in the eye. But when you go online, you don't know who you're dealing with, where they're located or what their intentions are."
Since January 2013, California's oversight department has taken action against 11 illegal online lenders operating here and overseas, including in Belize, Costa Rica, Malta and the United Kingdom. The department's website also posts consumer alerts against U.S.-based online payday lenders, with names like EZ Cash, Cash Express Loan and Mobiloans, that are operating without state-required licensing.
In dealing with online lenders, "We can issue sanctions, but they're very difficult to enforce," Leyes said.
The California Financial Service Providers Association, which represents about 1,470 walk-in payday loan locations statewide, says the unscrupulous online guys are a problem.
"We are very concerned about unlicensed, unregulated Internet lending," said association spokesman Greg Larsen. "If you type in 'payday lending' (on a search engine), you instantly get hundreds of thousands of hits. But who knows how many of those are offshore ... out of the reach of state licensing?"