WHITE HALL — Internet payday loans harm consumers and put them in a major debt trap.

Last week, the Office of West Virginia Attorney General Darrell McGraw filed a lawsuit against eight companies for their involvement in Internet payday loans.

Assistant Attorney General Norman Googel said seven of the companies being sued were making Internet payday loans to people in West Virginia. While the eighth company wasn’t directly making loans, it ran a website that consumers in the state could contact to get information about how to obtain payday loans.

“Any company that plays any role in making Internet payday loans is engaging in illegal activity,” he said. “They’re not legal here.”

After receiving complaints from consumers and learning that the companies were involved in this activity, the Attorney General issued investigative subpoenas requesting that the entities provide information on the debts they collected in the state. However, all of the companies either refused to respond or sent a letter stating that they didn’t believe the office had jurisdiction over them, Googel said.

Because the companies didn’t comply, the Attorney General’s office brought suit against them, he said. The office is asking the court to order the companies to comply and also prohibit them from doing business in West Virginia. If the entities still don’t follow through, the court can bring a contempt action or a fine against them.

The Attorney General’s new lawsuit involves the following companies: Payday Loan Resource Center LLC and Moe Tassoudi of Scottsdale, Ariz.; Cash West Payday Loans and Mike Brewster of Chandler, Ariz.; First American Credit, LoanPointe LLC, Joe E. Strom, Benjamin J. Lonsdale, James C. Endicott and Mark S. Lofgren of Highland, Utah; Ecash and GeteCash of Provo, Utah; National Cash 12 of Elsmere, Del.; www.LakotaCash.com and Martin Webb of Timber Lake, S.D.; and www.ACHLoans.com of Emeryville, Calif.

"When a company sets foot in West Virginia, whether in person or over the Internet, my office has a duty to ensure the enterprise complies with state law,” McGraw said in a press release. “Any company that makes payday loans must halt its usurious business and produce records identifying its victims.”  

Googel said that Internet payday loans, which are typically for small amounts of money, may seem innocent enough — but they trap consumers.

A common loan that he’s seen over the Internet is one in which a person pays $90 to borrow $300 for two weeks. The company electronically deposits the $300 into the consumer’s checking account, and the person authorizes the loan entity to debit $390 from the account in 14 days.

If people are in such desperate circumstances that they get a loan just to make it to the next payday, they’re most likely still not going to have that money in two weeks. The establishment assumes that the individual won’t be able to pay the money, and just takes out $90 and continues to do that indefinitely, Googel said.

While the consumer has avoided default by rolling over the loan, they still owe the $300, he said. Six months down the road, they will have paid $2,340 in fees to borrow $300. Over a period of a year, that represents 780 percent interest.

“This is what we call the debt trap of payday loans,” Googel said.

He said these consumers often end up getting multiple payday loans. In fact, the whole industry depends on and profits from repeat customers.

“Before you know it, they don’t have any money left for anything,” Googel said of the victims. “They can’t pay for any of the necessities of life because the payday lenders have literally commandeered their checking accounts.” 

With these Internet payday loans, consumers get scared because they don’t know how to stop the fees from being taken out of their bank account. The lender tells them that they can’t stop the debits, which isn’t true. Consumers just need to go to their bank and close their account, Googel said.

“Only I can give somebody permission to take money out of my account and only I can stop it, and I can stop it anytime I want,” he said.

The Attorney General’s office has been very active in investigating Internet payday lenders since 2005.

West Virginia has usury laws, which set a legal limit on how much interest can be charged. Although the state has decided that it’s harmful when interest rates are above a certain amount, the Internet payday lending industry continues to defy the laws, Googel said.

“Ultimately we see it as simply enforcing our laws,” he said. “We’re simply saying, ‘Yes, we can do something about it.’”

To file a complaint against a payday lender, contact the Attorney General’s Consumer Protection Hot Line at 1-800-368-8808 or visit www.wvago.gov to download a complaint form.

E-mail Jessica Borders at jborders@timeswv.com.