E-loan sharking: the latest loan shark tactic used to evade Virginia law

Monday, July 29th, 2019

Loan sharks—payday lenders that catch borrowers in debt traps by offering small loans at high interest rates—have learned to survive despite attempted regulation by taking on a new disguise: e-loan sharking.

E-loan sharking refers to massive, interstate internet-based payday lending. These operations are illegal in Virginia but have evolved to survive, working around state laws by setting up offshore shell companies, manipulating federal tribal sovereign immunity laws, and concealing tracks online.

Hundreds of Virginians have suffered because of these loans. “After graduating from college, I was desperate for money to pay off my bills. I went to Cashnet USA and took out a loan for $500,” one client shared of her experience with predatory internet loans. “It was impossible to pay off the initial loan, so I took out another loan to pay off the first loan. Even though I have a full-time job with a decent salary, I did not have enough money to pay these loans back on top of my modest living expenses. I continued to take out loans from Elastic Credit, Red Pine Loans, and Advance Financial/Shiva Finance to the point where I had up to four different loans all at the same time—all debiting my bank account. Each loan was taken to pay another loan.”

E-loan sharks often attempt to hide behind American Indian tribes to claim sovereign immunity from state laws around predatory internet lending, setting up complicated business relationships with a tribe and pretending the tribe is making loans. In reality, the funding actually comes from elsewhere, and only a small percentage of profits go to the tribe.

A recent decision from the US Court of Appeals for the Fourth Circuit led to some confusion around the legality of internet loans associated with an Indian tribe. To clarify, these loans are not lawful under Virginia law, and the decision does not confirm that other e-loan sharks using this tactic are immune from being sued. Even if a company or tribe being sued is immune from lawsuit, the loans are often illegal, and the e-loan shark cannot enforce the loan if the borrower does not pay.

For years, the House and Senate Commerce and Labor committees of the Virginia General Assembly have refused to pass legislation that would stop e-loan sharking. Rather than serve their constituents—who at 70% in the polls overwhelmingly support proper regulation of payday lenders—these legislators serve the lobbyists working on behalf of e-loan sharks.

If you’re dealing with one of these loans, it’s important to know that you have the right to stop an internet lender from taking automatic payments from your bank account even if you previously allowed the payments. To combat these lenders, tell your legislator to stop taking campaign contributions from these companies. It’s time to put common sense regulations in place and reject exploitation of Virginians.

If you need assistance dealing with predatory internet loans, call our predatory loan hotline at (866) 830-4501.

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