Payday lending is an inherently predatory practice. Ignorant or desperate borrowers who have little to no financial recourse are often scared, frustrated, and uncertain due to financial stress and intimidation tactics. That makes them the perfect targets for con-artists, who have seized the opportunity to implement a variety of payday loan scams.
These scams are the last thing you need to deal with when you’re already struggling to make ends meet. Here’s everything you need to know about payday loan scams and how to protect yourself against them.
The Information a Payday Lender Needs
You should always be skeptical of someone asking for your personal information. Stay on high alert whenever you discuss or handle your sensitive data, even if it’s with a party that you know and trust.
Payday lenders actually need relatively little information from you to approve your application and transfer your funds. Both in-person and online lenders will usually only ask for:
- Background Info: Your name, social security number, address, and contact information
- Income Info: Your pay cycle frequency, employer details (if any), and income amounts
- Banking Info: Your account and routing number
If you’re asked for something outside of the list above or anything that seems unnecessary to complete a lending application, you should think twice.
Some common examples of information that payday loan scammers ask for are:
- Log-in information to your mobile banking application
- Prepaid debit card numbers as a show of good faith
- Credit card details and supporting information
In any case, the borrower should always be the one to initiate the exchange of information. You should never give your data to someone who contacts you first or share that information via insecure methods (like over the phone or through email).
How Do Scammers Get Your Information?
Personal information is a commodity that people buy and sell like any other. Knowing this, many businesses capture and keep your data on record for future use. Unfortunately, this means it’s not too difficult for scammers to get a hold of it either by breaking through weak security measures or purchasing it outright.
Some businesses’ sole purpose is to gather personal information and sell it to payday lenders or scammers who use it to generate leads. Their websites can even be disguised as an online application for a payday loan, which makes it difficult to know who to trust.
That’s why you should always be cautious when you’re giving out your information, even if it’s to someone who seems legitimate.
Red Flags: How to Identify Payday Loan Scams
Fortunately, once you know what to look for, you should be able to identify and avoid most payday loan scams. Of course, you should always be suspicious if you receive a call or email from a party you don’t recognize for a loan you don’t remember taking out.
But if you’re still not sure, you can usually distinguish scam artists from legitimate lenders by one or more of the following:
- They threaten you with legal action, arrest, or jail time unless you take immediate action
- The email comes from an account with a non-business address like Gmail or Yahoo
- Improper spelling or grammar in written communications (since the senders are often overseas)
Even if you’re the one to initiate contact with a lender by visiting their website or in-person, you should still look for confirmation of their legitimacy.
Check for verification of their license before you give them any information, and never make any sort of payment before the loan takes place.
Types of Payday Loan Scams:
Scammers are always coming up with new ways to take people’s money, but some tactics get used repeatedly. Here are a few that you should watch out for in particular:
- Counterfeit Payments: Scammers will mail you a fake check or deposit funds into your account remotely if you give them your account information. They’ll then immediately ask you to turn around and make payments in return, usually with the promise that you’ll get a larger loan amount when you do.
- Payday Loan Debt Collection: These scammers are usually just hoping to scare you into giving them your cash. They’ll contact you via email or phone call and urge you to pay off the debt they say you owe them (which you don’t).
- Good Faith Deposits and Processing Fees: These can be a little bit more subtle since they’ll often appear more like a valid lender than the others. But if your “lender” asks you to make any payment upfront so you can receive your loan funds, it’s a scam.
What if You Fall for a Payday Loan Scam?
First, take action to prevent the scammers from doing any more damage. For example, if you gave a scammer your mobile banking information, make sure to change your log-in details and notify your bank of the security breach.
Second, don’t just let the scammers get away with their crimes. At the very least, report the incident to protect others from falling for it, too. You can contact local law enforcement, support hotlines, or the Federal Trade Commission.
In some cases, it might also be worth it for you to work with an attorney to try and take your scammers to court. This probably isn’t possible if you sent money to someone overseas, but if you were threatened by a local payday lender, you may have a case.