Online cash advances can be risky for borrowers.

The payday loan industry has demonstrated a lot of resilience when it comes to legislation. While insisting that their products are legal, necessary and wanted by the public, cash advance lenders find themselves under increased scrutiny by legislators at both the state and Federal level. While primary concerns center around the fact that these lenders seem to prey upon members of the military and the poor, some legislators with good common sense are also concerned about whether the public at large should be borrowing money at interest rates that often exceed 400% per year.

Some states and a few municipalities have created strict legislation that regulates these business, either by changing zoning laws or by enacting strict interest rate caps for loans. With those restrictions in place, lenders have simply turned to the Internet, and are offering their loans there. There are literally hundreds of sites that offer loans via the World Wide Web, and many of those businesses are located in states that have no laws regarding interest rate caps. As such, those who borrow may find themselves borrowing at astronomical rates. They may also find their bank accounts drained. That’s the problem with doing business via the Internet. You don’t know with whom you are doing business, and you are giving them access to your checking account.

California has had enough of this, and in order to curb predatory lending within the state from without the state, the California Department of Corporations has issued cease and desist orders to forty different online lenders.

The Department of Corporations, or the DOC, is a state agency that is responsible for the regulation and enforcement of securities, franchises and financial services. The agency has recently asked forty online lenders to stop offering financing to residents of California, as these lenders are not licensed by the state. It is difficult to say what effect, if any, this will have on lending. While the DOC can fine such lenders should they continue to offer loans to California residents, it seems unlikely that they will be able to do so. In some cases, the lenders in question are located outside the United States, which would make it rather difficult to enforce payment of the fines.

Still, by issuing the cease and desist orders, the DOC can make public their actions and in doing so can make consumers more aware of the risks associated with taking out high-interest loans via the Internet. If their actions discourage a few people from doing business with potentially shady companies, then their cease and desist orders may have had some positive effect, after all.

Of course, cash advances offered within the state are still legal, provided that the lenders are licensed businesses. The city of San Diego has recently tried, with little success, to regulate the industry due to the large number of lenders located near the city’s military facilities. That fight wages on, as lenders have so far been able to successfully lobby against such legislation at the state level.

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