| Susan Tompor: 139% interest rate?! Crushing quick-loan rates turn $2,500 debt to nearly $14K Aug 12th 2013, 13:27 9:35 AM, August 12, 2013 | Woman facing 139% interest rate calls her lender: Patricia Guy took out a loan from Western Sky for $2,600. At an interest rate of139.13% and after all payments are made she will be paying $13,937.12. Guy says the loans are designed to "take advantage of poor people." Mandi Wright/Detroit Free Press  Detroit Free Press Personal Finance Columnist
Patricia Guy shows her loan documents. She said she applied for the loan over the phone and wasn't told the total potential payments. It could cost her nearly $14,000 to repay. / Mandi Wright/Detroit Free Press 3 questions to ask about loans ■ Do you really know how much the loan will cost? The Federal Trade Commission warns that some online payday lenders have strange practices. It gave an example in which a consumer borrowed $300 and expected to pay a one-time fee of $90. But the lender had access to the consumer's bank account and began a series of withdrawals over time, with a $90 finance charge each time. Ultimately, the borrower would have paid $975 instead of $390 to pay off the loan.
■ Is the lender licensed to do business in the state? Check with regulators. In Michigan, any business offering payday loans must be licensed. To find out whether a company is licensed, call 877-999-6442 or contact the Michigan Department of Insurance and Financial Services at www.michigan.gov/difs. Complaints regarding a business offering payday loans can be made to the Department of Insurance and Financial Services, too, through an online complaint form.
■ Do you know whether the online lender is real? Laura Udis, senior advocate for financial services for the Consumer Federation of America, said some online outfits ask for bank account information, which could lead to identity theft. Others are lead generators for other lenders. Worse yet, some rogue outfits have made threatening collection calls for loans that weren't even made, but the consumer had searched online for a short-term loan.
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