Scam Alert: Watch Out for Dodgy Payday Loan Offers

Payday lenders have become controversial, for all the right reasons: they charge very high interest and fees, focus on economically disadvantaged communities and often lock people into an endless cycle of expensive debt. And that just describes the legitimate ones.

Now comes word from attorneys Bond & Botes, who are warning consumers about scam artists who pose as legitimate lenders.

It’s not hard to see why payday lending would be a ripe area for scammers to exploit. After all, the whole premise of payday lending is to offer people cash with nothing but a pay stub as collateral. It’s meant to be an easy way to borrow when immediate needs, (such as rent and food), compel borrowers to seek out these options.

Often, the borrower has no other option for getting immediate funds – and this leads far too many of them to overlook the often severe terms of these loans. Payday lenders count on desperate people not asking too many questions. And this creates a rich opportunity for crooks.

Bond & Botes points out that there are more payday loan locations in the US than Starbucks and McDonald’s combined, with about one-in-20 Americans taking advantage of their services.

Depending on state regulations these loans can exceed 700% in APR, with harsh terms for repayment that often lead borrowers to pay off previous loans with new ones. This leads to a cycle of crippling debt that can be almost impossible to escape from.

This ubiquity of “easy money” leaves many people open to scam offers for “loans.” Bond & Botes said that scammers often pose as debt collectors for these lenders, using a random approach that has a very good chance of “hitting” someone who has an active payday loan in effect.

Essentially, the scammers use strong-arm tactics to collect on debt that the victim owes to someone else. By coercing the victim to hand over money, the scammers steal what little cash the victim has left. The victim, meanwhile, will still owe the payday lender the money originally borrowed – plus all that interest.

Scammers use the phone as a tool – and are increasingly using email as well. Victims get nasty emails claiming that they are going to be legally prosecuted in the court within a few day, and need to settle their debt to avoid wage garnishment, property seizure or even a possible jail sentence.

Remember, the victim thinks that this message is coming from a payday lender that he/she actually owes money to. This is what makes the scam so effective.

With so many millions of Americans owing money to payday lenders, it’s not hard to find many easy victims simply by sending out millions of emails – or even by making random phone calls to hundreds of people. Scammers have excellent odds of finding someone who owes money.

Of course, Bond & Botes recommends that you only respond to these bogus messages by saying, “talk to my lawyer,” and giving their firm’s number. If you do have a lawyer, this is the best approach.

But for the many of you who don’t have a lawyer, the best defense is knowledge. Anyone claiming to be a debt collector, who threatens you with jail time (or any criminal penalties), is breaking the law. So, these types of messages are fraudulent, no matter how convincing they may seem.

You can find out if any debts you owe are in collection simply by calling up your lender directly, and using your account information to access your records. You should also get in the habit of keeping track of your credit reports on an ongoing basis. You can go to freecreditreport.com for an annual “pull” of your records from the Big Three credit bureaus.

Credit karma – a free service – tracks your credit year-round, and makes note of any derogatory information being entered into your report. Any time someone tries to threaten you with legal action over a debt, you should check first with credit bureau sources to see if anyone has you down as being delinquent on a loan. And, as we advised, you should go directly to the lenders with whom you have open accounts, and see if your account is in good standing.

With identity theft on the rise, it is also possible that collectors are coming after you for debt in your name that you didn’t even know you had. This is all the more reason for you to know what’s in your credit files. Knowledge is power, after all.