SHARON JACKSON and her family were about to drive to Florida in July on their first vacation in many years when their truck broke down.
With Jackson's husband between jobs, they didn't have an extra $200 to fix the truck. And the Ohio family didn't want to cancel the trip because they would forfeit money they had paid in advance.
An Internet pop-up ad offered a solution: Up to $500 in immediate cash. Jackson bit. The next day $300 was deposited in her bank account, and the fee for this two-week loan was $93. That's an effective annual interest rate of 806 percent.
Jackson repaid the debt after the trip, but was soon borrowing again. This time it was harder to repay the loan on top of other bills, and she found herself borrowing from other online lenders. By September, online lenders were withdrawing about half of her paycheck from her bank account to cover loan fees.
The 36-year-old accounting assistant at a law firm fell into the familiar debt trap of payday loans, this time with a new and potentially riskier twist - Internet payday lending. These loans come over from faceless people in other states or countries, who gain access to borrowers' bank accounts to assure repayment and fall outside easy reach of state regulators.
Payday loans are small cash advances, usually $500 or less, on the borrower's next paycheck. Web sites advertising these short-term loans charge as much as $30 per $100 borrowed, or an annual percentage rate of about 780 percent on a two-week loan, according to the Consumer Federation of America, which recently released a survey on Internet payday lenders.
Payday lenders sprang up in storefront operations in the 1990s. With these operations, borrowers get a cash advance and, in return, give a postdated personal check for the advance and finance charge that the lender can cash after their payday. Some states, including Maryland, have made it tougher for these storefronts to operate.
But with the Internet, borrowers fill out an application online, print it out and send it to the lender. Instead of using a check, borrowers give online lenders permission to debit their bank account. Borrowers often can renew the loan and pay only the finance charge.
Online payday lenders easily skirt consumer protection laws, sometimes by locating in states with weak regulations or moving outside the country, the Consumer Federation said. When problems arise, borrowers and regulators often have trouble tracking down online lenders.
And giving lenders access to bank accounts can backfire.
"It makes it possible for a lender to ding your account over and over," said Consumer Federation's Jean Ann Fox. "It's hard to turn it off. You can't find them."
To qualify for these loans, borrowers generally must be 18 or older with a checking account and monthly income of at least $1,200, or $800 for those on Social Security.
Internet lenders, like their storefront counterparts, also market to members of the armed forces. Storefront lenders have targeted service members, knowing they have steady paychecks, lower incomes and could face serious penalties from the military for not repaying loans, experts said. "I have seen one payday loan contract that says, 'I agree I will be court-martialed if I don't repay this loan,' " Fox said, referring to a scare tactic used by a storefront lender.
Fifteen states prohibit payday loans. Maryland, for example, caps the annual interest rate on loans at 33 percent, effectively putting the kibosh on payday lending.
Nevertheless, some Internet payday lenders target Maryland.
Payday Connection, which says it serves Maryland, posts examples of its loan terms online that range from an annual rate of 521 percent for $100 borrowed for three weeks to 1,564 percent for a $500 one-week loan. Payday's managers didn't return phone calls, but an employee answering the phone said the company follows Maryland law.
Calvin Wink Jr., an investigator with the Maryland Department of Labor, Licensing and Regulation, said out-of-state lenders must comply with Maryland law when lending to residents. His office hasn't received complaints about online payday lenders, but people desperate for cash aren't likely to quibble about loan terms if they get the money, he said.
(Maryland is investigating whether some lenders are trying to disguise payday loans by giving cash upfront to those signing up for Internet access, and then charging them hefty fees for the service.)
The Community Financial Services Association of America, a trade group in Virginia that represents about 60 percent of storefront payday lenders, says these lenders provide a needed service.
A payday loan, which typically charges $15 for every $100 borrowed, is less expensive than bounced check fees, which often are what consumers are trying to avoid when taking out a short-term loan, said spokesman Steven Schlein.
But the group doesn't support its Internet competition.
"We agree with the CFA that these offshore lenders and fly-by-night lenders should be put out of business," Schlein said.
Jackson said she might not have gone to a payday lender outlet, but the Internet made borrowing easy. She admits she didn't read the fine print, and didn't realize the high cost of the loans. She borrowed a total of $3,125 from seven payday lenders.
Her husband initially was unaware of her loans, and only discovered them later when he started working again and saw the money he deposited in their joint account being depleted by payday lenders.
"I thought my marriage would break up after 16 years," she said.
Jackson said she had no success when she wrote the lenders and tried to negotiate a repayment plan. She closed her bank account to stop the debiting, and then bill collectors started calling.
All of the online lenders violated Ohio law that limits loan charges, said Rachel Robinson, a lawyer with Equal Justice Foundation who is working with Jackson. The online lenders set up hurdles to make it difficult for consumers to take complaints to court, Robinson said. One of Jackson's lenders, for example, is based in Ireland and requires disputes to be arbitrated under Irish law by the International Center for Dispute Resolution at The Hague.
If you find yourself in a debt trap with online lenders, contact your bank for help, Fox said. "In some cases, the bank can put a freeze on withdrawals," she said.
Also, notify the attorney general and credit regulators in your home state, in case the loans violate state law. "If they don't have a victim, they don't have the basis to go after these lenders," Fox said.
And set aside a little cash for emergencies.
"If you saved $300 for the next financial crisis, you don't have to go borrow it from somebody at 650 percent annual interest," Fox said.
To suggest a topic, contact Eileen Ambrose at 410-332-6984 or by e-mail at eileen.ambrose @baltsun.com.