This Scam Makes Payday Loans Even Worse
Payday loan companies have been around for many years, lending mostly to low-income people or families who are in need of quick money but with extremely high interest rates. The practice is so dubious that 16 states have banned the predatory practice, according to the Consumers Federation of America . However, people who use these unscrupulous services have one more thing to worry about besides getting into new debt: they become a target for scammers.
According to a recent study by the Better Business Bureau , scammers and illegal companies receive millions of dollars a year from consumers who use payday loans, despite government efforts to stop it. These scammers steal the personal information of payday loan companies’ customers and use it against them to swindle them out of their money – $4.1 million has been lost so far and the number continues to rise.
How do scammers deceive users of microloans?
Fraudsters steal personal contact information of payday loan customers by leaking data (or buy it from hackers) and contact them posing as legitimate payday loan companies. They know these people are in debt and owe money, so they use that to their advantage. Here are some of the most commonly used tactics, according to BBB research:
- They contact the victims and ask for their bank accounts and social security number, pretending to be employees of the loan company, saying they need information to deposit their loan money. Instead, they steal their money or data, or both.
- Fraudsters will ask victims for a “commission” to send a payday loan, saying they guarantee the loan with it. However, the loan is not granted after the victims pay a “fee”. And if they pay with something other than a credit card, getting the money back is next to impossible.
- They will send “money” to peer-to-peer apps like Venmo or Zelle or directly to their bank accounts, but as with the “accidental” Venmo scam we covered , they will ask for a refund and eventually , the money they sent will be returned and removed from your account, leaving you with all the money you “refunded”.
- Fraudsters will call payday loan recipients and pretend to be debt collectors. They will claim that the victim has unpaid premiums or payday loan payments. Fraudsters will use information they have about the victim, such as past loans, phone numbers, addresses, emails, family members’ names, and even social security numbers, to make them look more legitimate.
How to detect scammers
- One way to find out if someone contacting you is a legitimate debt collector or payday loan officer is to ask for written proof of the debt, which they are required by law to do. According to the BBB, proof must include the name of the creditor, the amount owed, and the method of disputing the debt within 30 days of receipt of the supporting documents. Legitimate companies should be able to provide this document; but most scammers are likely to just go after the next victim.
- If a company asks for a “down payment” for a loan, it’s a scam. According to the BBB study, any fees and interest will either be deducted from the loan amount or charged to repay the loan. If they ask for money to “repay the loan”, or “in case of bad credit history”, or “for insurance”, you are being deceived.
- Google the company name and find out about them. If you can’t find information about them, that’s a red flag. Be aware, however, that sometimes they create fake websites, so having one of them doesn’t mean they’re legit.
- They will pressure you to pay right away. They will have a sense of urgency and will force you to make decisions quickly. Legitimate companies have no sense of urgency and want your business to be long-term.
- Payday loan companies do not call customers to offer them a loan. If you receive a call offering money, it is most likely a scam and they obtained your contact details illegally.
What to do if you think you have been scammed
It is best to report your case. If you didn’t pay with a credit card, it will be almost impossible to get back the lost money. However, reporting your situation can help catch the scammer and help other people avoid becoming a victim.
To report your case, go to BBB.org/ScamTracker . You can also report it to the Federal Trade Commission . Contact your state attorney general as they can often help – you can find your attorney general’s website here to see if you can apply online.
If you’re having trouble paying off your payday loan, the Consumer Financial Protection Bureau may have resources to help you put together a payment plan .