Payday Loan Scams – How To Avoid Them

Illegal Lenders & Loans Sharks
Part 1 How To Tell Lenders From Loan Sharks
Part 2 Loan Frauds – Protecting Yourself From Predatory Lenders
Part 3 Payday Loan Scams – How To Avoid Them

If you are taking out a payday loan from a local lending store, there will be a license in the store that you can check. However, many people now choose to go online to obtain a loan and even though most lenders are reputable, there are some that operate payday loan scams. In this article we look at:

  • How scams work and how to avoid them
  • The payday loan collection scam
  • Protection from payday loan scams
  • Legal online payday loans

All payday loans are going to be expensive unless you live in a state where the interest rate and fees are capped. So, how do you recognize a scam when you go online to get a loan?

How payday loan scams work and how to avoid them

There are three basic payday loan scams that you may come across on the Internet. Scammers may try to gain sensitive information and use this to gain access to your bank account. They may also try to charge you fees for setting up a loan. Finally, there are some fake lending websites that can also result in money being taken from your account.

Asking for an upfront fee

This is how this scam works. A person posing as a lender will ring you and offer you a guaranteed loan. In return for this loan they will ask you to send an upfront fee before the funds are released.

Scammers may try to gain information to obtain access to your bank account

The scammer will ask for the fee to be sent as a wire transfer, money order or even in the form of a gift card. Basically, they are asking for the fee to be sent in a way that will be difficult or impossible for you to reclaim. As soon as the fee is received you will never hear from the scammer again.

A legitimate and legal lender will never ask for a fee before approving a loan. Any fees relating to a payday loan are included in the agreement and are charged after the loan has been granted. Never send money to anyone who has phoned you without your prior request.

The payday loan collection scam

This scam is usually perpetrated on vulnerable people who have an unpaid payday loan. Someone calls you claiming to be a debt collector and threatens you with legal action or even arrest for non payment of a debt. Even if the caller has your personal details it does not mean that the call is legitimate.

It is possible that the debt has been sold to a collection agency but it is equally possible that this is a scam so do not send money. Always check with the original lender to find out what is happening and how you can deal with the debt.

The fake application form

Some scam artists set up a website pretending to offer payday loans. If you land on the site you are asked to complete an application form so that you can get a payday loan. However, once you have passed over all your personal details and bank account number, there will not be a loan forthcoming.

A man is shown filling out an application form

Instead of lending you money the scammers will enter you into a fake membership program that will take money from your bank account. It is very important to be sure that any lending website is legitimate and to read the terms and conditions very carefully before providing any sensitive and personal information.

Protection from payday loan scams

The Consumer Financial Protection Bureau has been instrumental in helping to protect consumers from these kinds of scams and in September 2017 it imposed a $100,000 fine on a company in California. The company was identifying potential borrowers and selling their names to lenders who did not keep to the state rules for payday lending.

As online payday lending crosses state lines it is sometimes difficult for consumers to know whether a lender is legal or not. The company concerned did not make it clear that it was acting as a broker and then selling leads to the payday business offering the most commission.

Finding an online lender for a payday loan can be a good option but it is important to ensure that the lender is legal within your own state.

Subsequently it was revealed that borrowers were not aware that they were taking out illegal loans, However, the good side of the story is that those who had taken out loans did not have to repay them as they were deemed illegal under the laws of the state.

Legal online payday loans

Finding an online lender for a payday loan can be a good option but it is important to ensure that the lender is legal within your own state. Payday loans are not allowed in some states and in others there are strict regulations relating to interest rates and charges. You can find the regulations for your home state be clicking on the link here.

Once you have established which online lenders are operating legally in your state you can make some other quick checks to make sure the site is genuine. Look for the key or padlock symbol that ensures the site is secure and check the address in the browser. A secure site will show ‘https’ and not ‘http’ in the web address. The ‘s’ stands for secure.

A woman is searching for legitimate lenders in her home state on her laptop

Genuine online businesses will always display a physical address and there should be contact details where you can ring or email for more information. Reputable lenders will also provide details of their license. Beware of websites that have constant pop ups as these are often not legitimate.

Go to the website for the loans regulator in your home state and you will find a list of legitimate lenders. You can also check online reviews although not all of these are real. Finally, ask friends or family for a personal recommendation.

Protect yourself from scams and illegal lenders

There are some basic ways to protect yourself from illegal lending and scams and these are all listed in this article. The main points to remember are that you must be careful about giving out your personal details and bank account number and you should never send money up front in order to obtain a loan.

If you are looking online for a lender, make sure that your computer is updated and has enough security features to protect your information from being accessed.

If you want to read more about payday loans and other types of credit the other articles in this series are easily available.

Illegal Lenders & Loans Sharks
Part 1 How To Tell Lenders From Loan Sharks
Part 2 Loan Frauds – Protecting Yourself From Predatory Lenders
Part 3 Payday Loan Scams – How To Avoid Them

About the author

Mark Larsen

Mark Larsen has worked in the finance industry for over 20 years. Over the course of his career, Mark has amassed experience in personal finance and especially short-term lending. He shares his valuable insights on onlinecreditusa.com