How to Protect Yourself from Payday Loan Scams

In 2021, the FTC received over 2.8 million reports of fraud. About 34% of these reports involved individuals who lost money to some kind of a scam. While not all of these scams are related to payday loans, many of them are. In fact, tens of thousands of people are involved in a payday loan scam each year.

Although these scams are exceedingly prevalent, there are ways to spot them and prevent them from happening. And for those who’ve already lost money, there are ways to get some of that money back.

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Red flags: 10 signs of a payday loan scam

Many payday loan scams target either young consumers or the elderly since they have the highest rate of success there. Regardless of demographic, here are the biggest red flags to look out for.

1. You’ve never taken out a payday loan

Many scam artists target people who’ve completed a payday loan application but haven’t signed a contract or received funds. In some cases, the individual may not have even completed the application yet. This primarily happens to those who submit their personal information to a lead generator or illegitimate company. Once received, these companies can take the information and sell it to prospective lenders or fraudsters.

In the case of scammers, they’ll often pose as a payday loan collector and claim you owe them money. They might ask that you verify personal details, like your identity, or demand you pay what you supposedly owe. If you’ve never sent in an official application or received money, though, it’s a scam.

2. The email comes from a generic Yahoo/Gmail/Hotmail account

If you receive an email from a generic service provider like Yahoo, Gmail, or Hotmail, it’s probably a scam. Legitimate lenders don’t use these providers. Instead, they’ll have their company domain to go along with their account.

Scam emails also often use a generic subject line or greeting that doesn’t include your given name. These greetings often start with “Dear” or use some variant of your username.

Don’t open emails you don’t trust. Many cases of financial and identity fraud are related to phishing emails. These emails come from legitimate-sounding companies offering online loans, but use tactics to get the recipient to reveal personal information like their credit card numbers or passwords.

3. Written communication uses improper spelling or grammar

Some seasoned scammers will intentionally put in a spelling error or two to get around spam filters. However, your basic scam email will have multiple grammatical or spelling mistakes in it. In some cases, the email might look like it’s been generated through an online translator. It might also have random words that are bolded or in bright colors, giving it a very unprofessional look. An email from a legitimate lender will have minimal errors and a far more professional tone.

4. The lender demands an immediate decision

A legitimate lender will probably follow up with you on a completed application, but they won’t try to rush your decision to sign onto a loan.

Many scam artists, on the other hand, use urgency or threats to manipulate the recipient to respond. They might claim there’s a limited-time offer or opportunity that you need to jump on. Or they might threaten you with ruined credit or jail time if you don’t respond. Unfortunately, these tactics often result in the consumer giving out private information or clicking on links they shouldn’t have.

5. The lender demands you send a gift card

If the company contacting you requests any form of upfront payment, it’s probably a scam. Many fraudulent companies will ask for a prepaid gift card from a common retailer or app like Target or Google Play. They might promise you a low-interest loan in return.

Some scammers will set up a fake deposit into your bank account that shows as “pending.” Once they receive the gift card or other funds, however, they – and their pending amount – will disappear.

A legitimate lender will never demand payment upfront, nor will they ask for gift cards or require a wire transfer. Any fees that come with their loan will be rolled into the loan itself, not paid in advance.

6. The lender doesn’t care about your credit

If a company reaches out and claims your credit score doesn’t matter at all, then it’s probably a scam. Even online payday lenders and those who regularly work with borrowers with bad credit will look into your credit history. At the very least, they’ll perform a soft inquiry. This inquiry won’t impact your credit score since it’s not directly attached to an application. But it will give the lender the chance to determine your creditworthiness and whether to offer you a loan.

7. The lender offers you a loan over the phone

All loans must be offered in writing. It’s illegal to offer a loan over the phone. If you receive a loan offer this way, hang up immediately. Never give out or verify any personal information such as your address, date of birth, or bank account numbers.

8. Slight company name variations

Some particularly clever scammers will use a seemingly legitimate company name. Oftentimes, this name will be a very slight variant of a real company. If anyone contacts you about a loan, pay close attention to what they say. Write down any information they provide, such as their name, contact information, and website URL. Ask the caller to spell out everything so you can cross-reference it. If anything doesn’t match up, it’s probably a scam.

9. The lender is going door-to-door

Scammers sometimes go door-to-door to offer their products or services, typically for a small, upfront fee. These types of scams primarily target older individuals who live alone. They often use manipulation or scare tactics to get the person to sign up for something or pay them quickly. A legitimate lender will never go to your door or make an unsolicited offer.

10. The lender isn’t licensed

Fraudulent lenders rarely have any type of recognizable permit or license. Even if they do have one, it won’t be connected to a real company or physical address. If someone claims to be licensed but won’t provide proof, then hang up (or close the door) immediately.

Types of payday loan scams

There are three major types of payday loan scams: counterfeit payments, good faith deposits, and debt collection scams.

Counterfeit payments

Counterfeit payments are one of the most common types of payday loan scams. In this scam, someone will mail you a fake check or remotely deposit funds into your account. In return, they’ll ask you to wire them a small sum through Western Union or another institution. Once you do this, they promise to send a larger amount of money.

However, this money will never come through. Any remotely deposited funds will show up as “pending” and never clear. If they send a check, it will bounce after a couple of days. In 2019, the FTC received over 27,000 reports of fake check scams and a total loss of $28 million.

Unfortunately, even if you back out midway through, that doesn’t mean your information is safe. If you’ve filled out an online application or verified personal details via the phone or email, the scammer could still sell your information to a third party. This information includes things like your full name, mailing address, contact info, date of birth, and social security number.

Good faith deposits and processing fees

Some scam companies will require a processing fee or good faith deposit before offering you a loan. This is what’s known as an “advance-fee loan scam.” These scams mainly target those with poor credit or who can’t get a loan elsewhere.

Unfortunately, these scams aren’t always easy to recognize. A real lender might also charge an application, or processing, fee. However, they won’t promise you a loan for filling out an application or paying them in advance.

Payday loan debt collection scams

The third most common type of payday loan scam is where the scammer poses as a debt collector. Oftentimes, they’ll contact you by phone or email to say you owe them money and must pay immediately. Here are the best ways to spot these scams.

Red flags: How to spot fake debt collectors

Trust your gut. If you’re feeling panicked or rushed into paying, it’s a good sign that you’re dealing with a fake debt collector. There are strict laws around what debt collectors can say to you and what options they have when you cannot pay them.

Of course, the biggest red flag is simply not recognizing a debt that someone claims you owe. If you don’t remember taking out the loan that a collector is urging you to pay, do your research to verify whether or not it belongs to you with the original creditor.

Other warning signs include:

  • The debt collector threatens you: Some fake debt collectors will claim to work with a law firm or the authorities to intimidate you. They might threaten you with jail time or legal action if you don’t pay them. Sometimes, they’ll threaten wage garnishment or tell you you’ll get fired.
  • They demand immediate payment, by suspicious methods: Along with threats, many scammers will use strange or suspicious methods to swindle you out of your money. They might insult or scream at you to get you to agree to what they want. Or they might engage in phishing to steal your information.
  • They demand your banking info: Some scammers will ask you to verify your identity or log-in details for your bank so they can withdraw money from your account. Or they might set up a deposit into your account and ask you to send over funds. If you do this, however, you’ll be held responsible for any theft.
  • They ask for information they should already have: A legitimate debt collector should already have your personal information – address, phone number, date of birth, etc. Not only that, but they won’t ask for confidential details over the phone or in an email. If they are asking for these details, it’s probably a scam.
  • They refuse to send you a debt validation letter: Under the Fair Debt Collection Practices Act (FDPCA), debt collectors are legally obligated to send you a debt validation letter upon request. You have 30 days from the date they contact you about an outstanding debt to request this letter. Once you do, they must respond promptly to verify that your debt is, in fact, real. If they refuse to send the letter, it’s a scam.
  • Job loss: Fake debt collectors will sometimes threaten to report your debts to your employer and have you fired. However, not only is it illegal for a creditor to share the details of your debts with a third party, but they also can’t leave that information where someone could find it (like on a voicemail).
  • Any other immediate repercussions: Scam artists almost always try to push you into making a snap decision since they know their claims won’t stand up to scrutiny. So any time you’re feeling rushed into making a decision, take a moment to consider whether you’re being scammed.
  • They refuse to share their information with you: A fake debt collector will refuse to provide certain information, including:

  • Debt collector’s full name and employee number
  • Collection agency’s physical mailing address
  • Company phone number and email
  • Company’s web address
  • Company or collector’s license

Information a legitimate payday lender should need

Here’s everything a legitimate payday lender will need to grant you a loan:

  • Personal and background information: This includes your name, social security number, address (mailing and residential, if different), and basic contact info.
  • Income information: They might ask for a recent pay stub or letter of employment to verify your income amount and payment frequency. They may also ask for your employer’s details.
  • Bank account information: This includes your checking account number and routing number. The lender will use this for direct deposit and automatic debit from your account.

If the lender asks for anything else, that should be a red flag and you should look elsewhere for one.

Information a scammer might ask for

While a scammer might ask for the same information as a legitimate lender, they might also ask for the following:

  • Log-in information to your checking account
  • Prepaid debit card numbers (as a show of good faith)
  • Credit card number, expiration date, CVV/CVC code on the back, and other supporting details
  • Date of birth
  • Any other detailed financial information, such as your financial history or other bank account numbers

Do not provide any of this information over the phone, email, or another unsecured method. You should only provide personal information to a verified lender. Remember, a legitimate lender will not contact you first. If you did not initiate the exchange of information, hang up or ignore the email.

How do cash advance scammers get your information?

Individuals and companies take and sell personal information for a profit. Unfortunately, since it is so valuable, many businesses keep this data on record for future use. As a result, it’s relatively easy for scammers to access it by purchasing it or hacking through weak security measures.

Some businesses, including lead generators, exist solely to collect personal data and sell it to payday lenders or scammers. These businesses use legitimate-looking websites and online applications to attract people who might be looking for certain products or services. Not all lead generators are like this, but they may still be susceptible to fraudulent practices.

With advancements in technology, it’s not always easy to differentiate between a legitimate website, business, or application and a scam. That’s why you should be cautious when providing information, regardless of how legitimate they seem. Before filling out anything, check the company or website’s online presence on sites like the Better Business Bureau (BBB) to make sure they’re legitimate.

Top ways borrowers are being scammed

Most people end up getting scammed via an imposter, phone call, or text message. Here’s what you should know.

Imposter scams

Imposter scams are the number one way in which people are being scammed. An imposter scam is done by someone who claims to be someone they’re not. This person is usually someone you’re likely to trust like a debt collector or legal representative. They’ll often say things like:

  • They’re calling about a problem you’re having with a loan product or another financial service.
  • You’ve received more money than you should have for something, such as a tax return or loan, and you need to return the extra funds.

According to the Federal Trade Commission, consumers lost over $3.3 billion in 2020 due to imposter scams.

Phone calls

According to one report, nearly a fourth of American consumers were victims of a phone call scam in 2021. The total amount of money lost that year due to these scams was over $29 billion. In fact, people have lost their entire life savings to phone scams.

The person on the other end of the line could seem friendly, polite, and knowledgeable. Or they could try to scare or threaten you into doing what they want. Whatever method they use, their goal is to either get you to part with your money or personal information so they can sell it.

Text messages

The FTC has found that text messages and phishing are some of the biggest ways scammers try to steal your personal information. These fake messages might promise something like a low-interest loan or free gift card. In exchange, you have to provide things like your bank account number, Social Security number, or other basic details.

Oftentimes, these text messages include links to spoofed websites where the scammer can steal or sell your personal information. Some messages will come with malware that infects your phone and steals your data that way.

Verify that the debt is yours

Don’t take any lender or debt collector at their word when they claim that this payday loan debt is yours. You should always do your due diligence.

Start by inquiring about the identity of the person who contacted you. They’re required to disclose who they are, which may help you match the debt they’re trying to collect to one of your previous loans.

Confirm the information provided by the debt collector. If that checks out, here are the next steps:

Request a debt validation notice

The Fair Debt Collection Practices Act (FDCPA) requires debt collection agencies to notify you of the amount of your debt and the names of the original and current creditors. They do this through a debt validation letter. If you haven’t gotten one, or the debt collector refuses to validate the debts when you ask them to, they are violating your rights.

If they provide a validation notice and you don’t recognize any debts, something’s probably wrong.

Check your credit reports

If you’re still unsure whether the debt belongs to you because you don’t have a perfect memory or record of your loan history, you can retrieve a copy of your credit reports to see a detailed log.

The three major credit bureaus offer free annual credit reports, including a detailed history of your debts. You can get copies at

Learn your rights

It’s worth noting that even if a debt is yours, a debt collector can invalidate their claim by It’s worth noting that even if a debt is yours, a debt collector can invalidate their claim by violating the law. There are rules about collection calls. For example, a debt collector cannot contact you at work if you tell them that your employer prohibits personal phone calls.

Take a good look at the details of the Fair Debt Collections Practices Act and learn your rights. If you believe your rights have been violated, contact a law firm. You may be able to take legal action.

READ MORE: How to get out of payday loan debt

What to do if you’ve been scammed

Fortunately, even if you don’t have the money to hire a law firm, there are a few steps you can take to try to recover your money.

Contact the following authorities

The first step is knowing who to contact. Here are your best options.

  • The Federal Trade Commission (FTC) is a government agency that protects consumers and businesses from anyone engaging in unfair or fraudulent business practices. If you’ve been scammed, report it by using the FTC’s fraud reporting page, or at Be prepared to provide your name and basic contact information, as well as any details about the scammer and what happened.
  • The Consumer Financial Protection Bureau (CFPB) exists to ensure financial institutions like banks and lenders treat all consumers fairly. The CFPB recognizes that payday loan scams are a major problem and is constantly working to put an end to the payday debt trap altogether. Their website has a lot of information and resources for those who are either involved in a scam or who know someone who is.
  • Your state’s attorney general: Every state has its laws and regulations regarding payday loans. Some states outlaw payday loans entirely, while others place strict limitations on lenders. If you’ve been scammed, contact your state attorney general to learn your state’s laws and what you can do to protect yourself. You can either use the toll-free hotline or file a consumer complaint online.
  • Some attorneys and law firms will work pro bono, or free of charge. Reach out to a local law firm and ask for a free consultation about your case. They might work with you if they believe they can win and successfully sue a payday lender to get a settlement. If that fails, reach out to a nonprofit credit counselor. They can help you formulate a plan that will get you out of the financial situation caused by the scam.
  • Local law enforcement: If you’ve already been scammed, it might be too late for local law enforcement to get involved. But by informing them of the scam and giving them a detailed account of what happened, you can help ensure nobody else ends up in the same situation.

The next steps

Here are a few other ways to protect yourself after a scam.

  • Close or freeze your bank accounts: Contact your bank or credit union immediately if there’s a chance that any of the associated accounts could be compromised. Inform them of what’s going on and they should provide you with a new bank account number. Depending on the institution, you’ll be able to do this either online or via the phone.
  • Call your credit card company: Reach out to your credit card issuer and report your card as either lost or stolen. They should immediately cancel the card and stop any future transactions. Depending on their policy, they might also be able to refund any fraudulent purchases that have already been made. Once this is done, they’ll send you a new credit card with new numbers.
  • Freeze your credit: While you’re at it, ask the three major credit bureaus (Experian, TransUnion, and Equifax) to put a freeze on your credit until you’ve figured out what’s going on. That way, nobody can open any new accounts in your name. Keep a close eye on your credit report for any accounts you don’t recognize.

How to avoid payday loan scams

The best way to avoid a payday loan scam is to never take out a payday loan in the first place. Try one of these more affordable alternatives instead.

  • Payday alternative loans (PALs) are offered by credit unions. Although they’re similar to payday loans, they are subject to more regulations. For one thing, their interest rates are capped at 28.00%. For another, they usually come with longer repayment periods. This makes it easier for most borrowers to repay them without hurting their credit or falling further into debt.
  • Cash advance apps, or paycheck advance apps, are a much less expensive alternative to traditional payday loans. These apps allow you to borrow against an upcoming paycheck, based on the hours you’ve already worked. In most cases, cash advance apps are either free or come with a very small service fee. However, since you’re not technically taking out a loan, they don’t come with interest

The bottom line

Payday loan scams are highly prevalent in society, but there are ways to protect yourself from fraud and identity theft. Before filling out any type of online application, verify that the website is legitimate. Contact your state attorney general’s office or check online for reviews about the business or lender. Finally, before agreeing to anything, review the terms carefully.


What happens if you never pay back a payday loan?

Failure to pay back a payday loan comes with its share of consequences. You’ll have to deal with interest and late fees. If the lender tries to withdraw the funds from your account, your bank might also charge an overdraft fee.
Besides this, defaulting on any loan will damage your credit score. The longer it goes unpaid, the greater the damage. Eventually, the account will be sent to collections, which will hurt your credit score even more and result in calls from debt collectors.

What is a debt verification letter?

A debt verification letter is a letter that proves you owe a specific debt. If a debt collector has contacted you about an account with an outstanding balance, you can send them a debt verification letter for more information. They must respond with a debt validation letter that confirms the account, the current balance, and any other relevant information.

How long can a debt collector harass you?

Each state has its statute of limitations, but most allow debt collectors to try to collect for four to six years from the last payment.

What is a payday loan?

A payday loan is a short-term loan that, in most cases, must be repaid on the borrower’s next payday. These high-interest loans typically range from $200 to $500. The average APR of a payday loan is 391.00%. Lenders will either require a post-dated check covering the entire amount (plus interest and fees) or authorization to withdraw the funds from your account on the due date.
Unfortunately, many people who take out a payday loan are unable to repay it on time. This is largely due to the high interest rates and short repayment period. As a result, they have to take out a second loan to cover the first. Since the new loan also has its own interest and fees, it’s even harder to pay back. This leads to an ongoing cycle of debt that can take months or years to escape. In fact, more than 90% of payday loan borrowers have said they regret their original payday loan.

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