Payday loan companies have been available for many years, providing mostly low-income people or families who are in financial need fast money—but with extremely high interest rates. The practice is so questionable that 16 states banned the predatory practice, according to Consumer Federation of America. However, people who use these bad-faith services have yet another thing to worry about besides falling into more debt: They are being targeted by scammers.
According to a recent study from the Better Business Bureau, scammers and illegitimate companies are bringing in millions of dollars a year from consumers who use payday loan services, despite efforts from authorities to stop it. These fraudsters steal the personal information from payday loan companies’ customers and use it against them to scam them out of money—totaling $4.1 million lost so far, and counting.
How are fraudsters scamming payday loan users?
Scammers steal the personal contact information of payday loan customers via data breaches (or buy it from hackers), and contact them pretending to be legitimate payday loan companies. They know these people are in debt and owe money, so they use this to their advantage. Here are some of the most commonly used tactics, according to the BBB study:
- They contact the victims and ask for their bank accounts and social security number, pretending to be employees of the payday loan company, saying they need the information to deposit their loan money. Instead, they steal their money or data or both.
- Scammers will ask victims for a “fee” to send the payday loan, saying they’ll guarantee the loan with it. However, there is no loan once victims pay the “fee.” And if they pay with anything other than a credit card, it’s almost impossible to recoup the money.
- They’ll send “money” on peer-to-peer apps like Venmo or Zelle, or directly to their bank accounts, but like “accidental” Venmo scam we’ve covered, they will ask for the money back and eventually the money they sent will bounce and be taken away from your account, leaving you out whatever money you “returned.”
- Fraudsters will call the payday loan recipients and pretend to be debt collectors. They’ll claim the victim owes unpaid fees or installments on the payday loan. The scammers will use the information they have on the victim, such as past loans, phone numbers, addresses, emails, family members’ names, and even Social Security numbers, to make them seem more legitimate.
How to detect the scams
- One way to know whether someone contacting you is a legitimate debt collector or payday loan employee, is by asking for a written confirmation of the debt, which they are legally required to do. According to the BBB, the confirmation should include the creditor’s name, the amount owed, and how to dispute the debt within 30 days of receiving the confirmation documents. Legitimate companies should be able to provide this document; but most scammers are more likely to simply chase the next victim.
- If the company asks for an “advanced fee” for a loan, it’s a scam. According to the BBB study, any fees and interest will either be taken out of the sum of the loan or charged to be repaid with the loan. If they ask for money to “release the loan” or “for bad credit” or “for insurance,” you’re being scammed.
- Google the company name and learn about them. If you can’t find information on them, that’s a red flag. Keep in mind, though, that sometimes they build fake websites, so just having one does not mean they are legitimate.
- They will pressure you to pay right away. They will have a sense of urgency and pressure you to make decisions quickly. Legitimate companies don’t have a sense of urgency and want to have your business long-term.
- Payday loan companies don’t call customers to offer them loans. If they call you offering money, it’s most likely a scam, and they got your contact information illegally.
What to do if you think you’ve been scammed
The best thing to go is to report your case. Unless you paid with a credit card, it’ll be next to impossible to recoup your lost money. Reporting your situation can help potentially catch the scammer and help other people not fall victim, though.
To report your case, go to BBB.org/ScamTracker. You can also report it with the Federal Trade Commission. Contact your state attorney general, as they can often help—you can find your state attorney general’s website here to see if you can file online.
If you are having problems repaying payday loans, the Consumer Financial Protection Bureau may have resources to help you set up a payment plan.