Don’t fall for this fake payday loan scam

Payday loan companies offer quick money to people who need it, often those with low incomes. But these loans come with very high interest rates. Because of this, 16 states have banned this risky practice, says the Consumer Federation of America. However, there’s another big problem for those who use these services: scammers are targeting them.

The Better Business Bureau has found that scammers and fake companies make millions of dollars each year from people who use payday loan services. Despite efforts to stop these scams, they continue. These criminals steal personal information from payday loan customers and then use it to trick them out of money. So far, people have lost over $4.1 million to these scams.

How are fraudsters scamming payday loan users?

Scammers steal the personal information of payday loan customers through data breaches or by buying it from hackers. Then, they contact these customers pretending to be legitimate payday loan companies. Since they know these customers owe money, they use this to trick them. According to a BBB study, here are some common scam tactics:

Pretending to work for the payday loan company: Scammers ask for bank account details or Social Security numbers, claiming they need the information to deposit loan money. Instead, they steal the victim’s money, data, or both.

Charging fake fees: Scammers ask for a “fee” to guarantee or send the loan. Once victims pay the fee, there’s no loan. If victims pay using anything other than a credit card, it’s almost impossible to get the money back.

Fake refunds: Scammers send “money” through apps like Venmo or Zelle or deposit it directly into victims’ bank accounts. Later, they ask for the money back, pretending it was sent by mistake. Eventually, the original payment bounces, and the victim loses the amount they “returned.”

Fake debt collectors: Scammers call victims pretending to be debt collectors, claiming there are unpaid fees or installments on a payday loan. They use personal details like past loans, phone numbers, addresses, emails, family names, and even Social Security numbers to appear legitimate.

How to detect the scams

Here’s how to tell if someone contacting you about a payday loan or debt is legitimate:

Payday loan companies don’t call to offer loans: If you get a call offering you a loan, it’s likely a scam. Legitimate companies don’t call customers with offers, and scammers probably got your contact information illegally.

Ask for written confirmation of the debt: Legitimate debt collectors or payday loan companies are required by law to provide this. The confirmation should include the creditor’s name, the amount owed, and instructions on how to dispute the debt. Real companies will provide this, but scammers usually move on to their next victim.

Beware of “advanced fees”: If the company asks for money upfront to release the loan, cover bad credit, or pay for insurance, it’s a scam. The BBB says legitimate fees and interest are taken out of the loan amount or added to your repayment.

Research the company: Search the company’s name online. If you can’t find information about them, it’s a red flag. But be careful—scammers sometimes create fake websites, so just having a website doesn’t prove they are real.

Watch for pressure to pay quickly: Scammers create urgency and push you to act fast. Legitimate companies won’t pressure you like this. They want to build a long-term relationship with their customers.

What to do if you think you’ve been scammed

The best thing to do is report the scam. If you didn’t pay with a credit card, getting your money back will be almost impossible. However, reporting what happened can help catch the scammer and prevent others from being tricked.

Here’s how to report your case:

  1. Go to BBB.org/ScamTracker to report the scam.
  2. Report it to the Federal Trade Commission (FTC).
  3. Contact your state attorney general. They may be able to help. You can find their website online and see if you can file a report there.

If you’re struggling to repay payday loans, the Consumer Financial Protection Bureau has resources to help you create a payment plan.