Unlicensed online lenders are illegal in Kentucky

Josh Goodnewt attended a webinar hosted by the National Association of Consumer Advocates last week about what to do to help victims of online lending schemes. This post contains some general information about steps you may want to consider taking if you are tangled up with an online lender. As always, please consult with legal counsel about your particular situation before acting.

Hopefully you found this post before you ever borrowed money from an internet lender, and you’re just searching for information about whether you should get a loan from an internet lender. If so, don’t do it. Unlicensed online lending is illegal in the Commonwealth of Kentucky. And it’s a trap.

Well, actually it’s several traps:

First, before you ever borrow, just putting your information into an internet lender's website opens you up to wrongdoers. The website you give your information to is most often not the lender. Instead, it is a lead generator — meaning you give them information, and they sell it as a “lead” to potential lenders who will then offer you a loan. Once that information is in that lead generator’s hands, they may keep selling it or misuse it and you could lack much of a recourse if they do.

Second, once you get the loan you’re charged exorbitant interest rates so that even if you timely make your payment, you may never actually pay down the principal balance.

Third, you are often required to authorize the lender to take money directly from your account via ACH (automated clearinghouse) transactions or EFT (electronic funds transfer) payments. The lender will continue to withdraw these payments until the balance is paid off. Since the interest rate is so high, you won’t likely be able to pay down the loan and the withdraws will continue perpetually.

Fourth, if you find a way to stop making payments, you’re in for a lot of harassment. Any information you gave that lead generator now may be used to harass or threaten you. They will not necessarily limit to calling you on whatever phone number you left them, but may call your employer if you listed it, or anyone you listed as your references. They may report the debt to credit reporting agencies and damage whatever credit you may have, which may affect your ability to gain future employment or an apartment.

So, hopefully you didn’t open yourself up to any of that! Unfortunately you probably have, and if so there are a few steps you can take.

1. Withdraw your ACH authorization for ALL DEBITS by notifying the lender in writing. You can mail it to their address or attach it to an email.
2. Notify your bank immediately that you have withdrawn your authorization for ALL DEBITS from that lender. Tell your bank that these and future debits from that lender are “Unauthorized Debits”
3. Open up a new bank account at a different financial institution and notify any direct depositors of the new account.
4. Close the account the lender is debiting.
5. Dispute with the bank ALL of the debits made by the online lender.

If you have borrowed money from an online lender, following these steps may be your best bet to ending the constant withdrawals. Remember, you have done nothing wrong. If your lender lacks a license in Kentucky, you are being scammed by an illegal lender and you are under no obligation to pay the lender back. KRS 286.4-991.

Unfortunately, there is rarely much that can be done to these scammers. However, if you have any questions about any of the above, feel free to contact us at Ben Carter Law, PLLC.