A new report of the Better Business Bureau warns consumers of the many ways scam artists have found a home in the shadows of the payday loan industry.
The report released this week says new scams often leverage information stolen from legitimate lenders in order to defraud people.
Due to the rise of online payday loan companies in recent years, hackers are able to steal data and imitate real lenders more easily.
This makes it easier for them to offer fake loans, pressure people into believing they still owe money, pose as debt collectors, or demand upfront payment for loans, said Josh Planos, BBB vice president of communications and public relations.
The study also highlights how unequal state laws have allowed predatory payday loan companies to continue to thrive.
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Payday loan scams to watch out for
The BBB report lists a few different scenarios that account for more than 3,000 payday lender-related scam complaints received since 2019. Consumers have collectively lost millions to these scams, with the median amount lost per person in 2022 reaching 1,000. $.
Stolen information: If you have taken a loan from a legitimate lender in the past, hackers could access your information and contact you posing as a representative of that company. The scammers will then try to convince people that they still owe money which, in reality, has already been paid back.
Consumers should also watch for signs that the company is an impostor, such as emails from gmail.com or yahoo.com addresses instead of the company name, or slight misspellings.
“If you receive an email regarding a payday loan, verify the information after the @ sign,” the BBB report says. “Legitimate companies generally don’t send messages from a Gmail or Yahoo account. However, this is not a foolproof method, as scammers can spoof emails or even steal passwords to access legitimate emails.”
Posing as debt collectors: Fraudsters will use names that sound like law firms to convince consumers that they are collecting a debt.
“A BBB investigation into BlackRock Legal Group revealed that the alleged company was sending letters to people claiming they owed a debt to Advance America, a bona fide payday loan company. Advance America told the BBB that it (she) had no connection with BlackRock,” the report said.
A red flag for consumers in debt collection scams is failure or inability to provide written confirmation of debt.
Under the Fair Debt Collection Protections Act enforced by the Federal Trade Commission, debt collectors are required to provide, in writing, the name of the creditor, the amount owed, how to obtain the name of the original creditor, and how to dispute the debt within 30 days of receiving the documents from confirmation.
Asking for this information “really stops scammers in their tracks,” Planos said.
Request payment through apps or gift cards: Whether it’s asking for an upfront fee or demanding repayment of a debt, scammers can demand payment in a form that’s nearly impossible to collect, like gift cards, apps like Venmo, or bank transfers. from places like Western Union.
“Most legitimate transactions are still on the cash, check and credit card plan for a reason,” Planos said.
Request immediate refund of money: A scammer might say they need to test your banking information by sending you a mobile deposit which you then need to send back immediately.
“The scammer is actually taking advantage of the payment approval system and it may be that no money was sent,” the report said. “Eventually, the bank or service will get that money back, and the victim will have sent their own money to the fraudsters.”
Certain purchases or financial transactions may trigger a pre-authorization hold on your account, but these are usually in the amount of $1 and will disappear automatically.
Consumers should not “return” deposited money to a sender, the BBB report says.
Any request for money in advance: Legitimate lenders will not ask for fees or money up front to “secure” the loan, the BBB said.
The report includes the story of a BBB complainant named Shirley in San Jose, California:
“Shirley got a call from a woman who said her name was Lauren Green. Shirley had qualified for a $5,000 loan from West Point lenders. To get her loan, everything she had to do was pay a $535 fee.After that, Shirley was told by Green that another $535 was needed because her credit wasn’t good enough.
“Now at $1,070, Shirley began to have suspicions. It turns out that West Point Lenders has the same name as other financial institutions, but it’s a fake company. Green tried to get more d Shirley’s money, but she realized she had been scammed. The phone number the scammer called from no longer works.”
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No business will charge an upfront fee for a loan, according to the BBB.
All fees and interest will either be deducted from the loan amount or charged to be repaid with the loan.
“If they ask for money to ‘release the loan’ or ‘for bad credit’ or ‘for insurance’, it’s a scam,” according to the BBB report.
They call you with an offer: Shirley’s story is also an example of scammers calling unexpectedly and offering a loan. Even if you have researched or applied for loans online, beware of someone calling you.
If a company makes a loan offer over the phone or online, do some research.
“Don’t succumb to high-pressure tactics, because every legitimate business will want your business, today or tomorrow,” the BBB report warns. “If you can’t find any information, that’s a red flag. Sometimes scammers have fake websites, so a site’s presence is no guarantee that you’re safe.”
The BBBs Scam Tracker The website is a searchable database of reported scams, so pitching a company’s name is a good first step, Planos said.
Predatory payday lending practices to watch out for
Companies that do offer payday loans are not immune to predatory or unscrupulous practices, despite an attempted crackdown by the Consumer Financial Protection Bureau under the Obama administration.
For the most part, states have to regulate the industry and more than a dozen states introduces some type of payday loan legislation Last year.
But payday loans are still available in 32 states, some of which have no cap on the level of interest rates. In fact, the annual percentages in eight states can be over 400%, depending on Pew Charitable Trusts.
The BBB warns that some payday lenders will advertise their calculated interest rates on a weekly or biweekly basis, rather than giving the annual percentage rate typically advertised for credit card interest.
The report shows the calculation that someone who takes out a loan of $375 with an advertised finance charge of 15% actually pays an APR of 391.07%.
How to report a scam
If you are the subject of fraud, there are ways to report your case in addition to BBB.org/ScamTracker.
Federal Trade Commission (FTC): ReportFraud.ftc.gov
State Attorneys General: Find your state’s Attorney General website to see if you can file online.