This feeding frenzy is driven in part by online lead generators that sweep cyberspace for prospective borrowers and, for a fee, steer them to Internet lenders who make the actual loans. They've become important players in the evolving payday loan ecosytem.
Eric Barboza, a plaintiff in a lawsuit filed by the Federal Trade Commission in April, found his US Fast Cash payday loan through a television commercial for Money Mutual, a lead generator who uses Montel Williams as its pitchman. Of the sites Robert Bradley borrowed from, CCS Loan Disbursement of New Castle, Delaware and PDL Loans of Nevis, West Indies, are lead generators, although they may not have been in 2010.
"Here's how we see it," says a federal regulator who spoke on background. "A lead generator puts an ad on late night TV or a Website. The consumer goes to that Website and gives up his banking information, drivers license, and Social Security number. The lead generator churns out a profile on that prospective borrower and passes it to lenders who compete for that loan, along with other people with a similar profile. All this happens in a matter of seconds. If that person is on the lead generator's Website, he will be directed to the lender's Website and get an offer. After the first loan is made, the borrower will be offered additional loans so the lender doesn't have to keep going back to the market place to recapture — and pay for — those customers."
Some payday lenders will have a list of states where they don't make loans. But lead generators simply send borrowers to a lender that makes no such restrictions.
According to Jean Ann Fox, director of consumer protection at the Consumer Federation of America, the use of lead generators makes it an even higher priority for payday lenders to push borrowers into multiple loans. "The price structure for marketing payday loans online makes loan flipping economically essential for lenders to make a profit," she says. "Payday lenders pay up to $125 per qualified lead, which requires several loan renewals just to recoup the cost of acquiring the borrower."
As some of the larger storefront chains move into the Internet business, they too may come to rely on lead generators. EZCorp, for example, a publicly traded company, is planning to enter what it called "the online, short-term consumer lending business" and described the importance of lead generators in its 2011 filing with the Securities and Exchange Commission. "[T]he success of our online consumer lending business will depend substantially on the willingness and ability of lead providers to send us customer leads at prices acceptable to us," the company reported. "The loss or a reduction in leads from lead providers…could reduce our customer prospects and could have a material adverse effect on the success of this line of business."
This article was reported in partnership with The Investigative Fund at The Nation Institute with support from the Puffin Foundation.