The Pew Charitable Trusts has released the fourth report in its “Payday Lending in America” series. The new report examines issues with the online payday loan market and draws distinctions with the storefront-based payday loan market. Pew asserts that its study is “the first formal analysis of online lending practices to use surveys and focus groups, consumer complaints, company filings, and information about lenders’ spending on advertising and prospective borrower leads.”

According to Pew:

• Unlike storefront loans, online loans primarily use electronic access to borrowers’ bank accounts.
• Fees for online payday loans are generally higher than those for storefront loans.
• Because of concern about losses from unpaid loans, online lenders are more selective about which applicants will be approved for a loan.
• The majority of online applicants enter their information on a lead generation site rather than a direct lender’s site. Lead generators are generally online companies that match borrowers with lenders.

Based on the findings of its study, Pew concludes that:

• Many online loans are designed to promote renewals and long-term indebtedness.
• Thirty percent of online payday loan borrowers report being threatened by a lender or debt collector.
• Unauthorized withdrawals, aggressive practices, and disclosure of personal information are widespread in online lending, placing borrowers’ checking accounts at risk.
• Nine out of 10 payday loan complaints to the Better Business Bureau are made against online lenders, although online loans account for only about one-third of the market.
• Online payday loans are usually more expensive than store loans.

Despite characterizing the practices it found as widespread across the online payday lending market, the Pew report acknowledges that most of the complaints against online lenders concerned only a small group of companies operating through multiple websites. The report further noted that the abusive practices described in the report were concentrated among the approximately 70 percent of lenders that are not licensed by all the states where they lend.

In fact, the Pew report observed that the largest online lenders are the subject of very few complaints and are urging a crackdown on those companies that mistreat customers. Many of the abusive practices described in the report violate the best practices of the Online Lenders Alliance, the trade association and self-policing organization for online payday lenders.

Additionally, Pew acknowledges that it had difficulty determining whether the abusive practices described in the report were from actual payday lenders, debt collectors, or fraudulent entities that had purchased information from lead generators or list brokers. The report states that federal data suggest that many of the threats came from scam artists or fraudulent third-party debt collectors. Rather than confining its study and findings to the behavior of online payday lending companies, the Pew report included within its definition of online lender “any companies that appear to be scams associated with online payday loans.”