The Minnesota Department of Commerce is warning Minnesota consumers not to borrow money from unlicensed lenders who advertise and offer short-term, payday, or installment loans over the Internet.

“When you need cash, the offer of immediate cash can be very attractive, but these loans often include interest rates and fees that exceed what is allowed by state law,” said Trade Commissioner Jessica Looman. “There’s a good chance you’ll end up paying more interest and fees than the original amount you borrowed.”

Additionally, consumers may have little or no recourse if they have a problem with an unlicensed online lender. Some actually operate overseas or may claim sovereign immunity from federal and state consumer protection laws.

If a business is not authorized to make loans in Minnesota, those loans are illegal, void, and unenforceable. While this means that you are not legally obligated to repay the loan, it cannot stop the lender from trying to collect from you anyway, including direct withdrawals from your bank account.

What can happen if you are dealing with an unlicensed online lender?

  • You may be charged illegally high interest rates and fees.
  • The lender can have direct access to your bank account, automatically withdrawing money without your knowledge.
  • Your personal financial information can be misused, including for identity theft.
  • You may be the victim of harassment or abusive debt collection tactics.
  • If there is a problem with your loan, you may find it very difficult to locate the lender for help.

To help consumers protect themselves, the Minnesota Department of Commerce offers these tips:

Check that any lender is authorized in Minnesota to provide short and short term consumer loans. Check the license finder on the Department of Commerce website. The company must hold a “small consumer loan”, “industrial and savings loan” or “regulated lender” license. If the lender doesn’t have a license, don’t do business with them.

Lily the fine print. No matter who you borrow from, always get a statement that clearly details all the costs of the loan. Make sure you know how much you will owe, when payments are due, and how they will be collected. Never sign or accept anything that you do not fully understand.

Borrow only to the extent that you are able to repay. When you take out a loan, make sure you know how you will pay it back on the due date. Interest and fees add up quickly when a loan needs to be extended or “rolled over”.

Consider alternatives. These short term loans tend to be an extremely expensive way to borrow money. If you’re having trouble paying your bills, contact your creditors to request extensions or negotiate repayment schedules. Try to get a loan from a local bank or credit union. You might want to talk to a family member or friend, or ask your employer for an advance on your paycheck.

Contact a local consumer credit counseling service. Assistance is available from nonprofit groups who, for free or at low cost, can help you with budgeting, debt repayment, and credit repair. To find a service near you, check with the National Foundation for Credit Counseling (www.nfcc.org).

Anyone who has a problem with an unlicensed online lender can file a complaint with the Commerce Department. A consumer complaint form is available on the Commerce website (mn.gov/commerce). Email also [email protected] or call 651-539-1600 or 800-657-3602 (Grand Minnesota).