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How to Protect Yourself from Payday Loan Call Scams
If you’ve had an unexpected bill pop up and you’re considering a payday loan to cover the cost, you may want to think again. Cuz no matter how imposing that bill seems to be, these short-term, high-interest loans could pose an even greater threat to your finances in the long-term. There are likely better ways to pay for emergency expenses.
But here’s the thing, even if you decide not to take out a payday loan, you can still end up getting taken for a ride. That's right. A scammer could get ahold of your information and try to collect on a loan you never borrowed. Here’s how payday loan call scammers work, and what you can do to fight back.
What exactly is a payday loan, again?
Payday loans are a type of no credit check loan aimed at folks with lousy credit scores and, more often that not, lower incomes. They're usually no larger than a few hundred dollars and are designed as an “advance” on the borrower’s paycheck. That’s how they got their name: the due date is usually set for borrower’s next pay day. They're also called "cash advance" loans for much the same reason.
These loans have an average length of only two weeks but they come with an average APR of almost 400%! That’s because a two-week payday loan with a flat-rate interest charge of 15% works out to an average annual cost of 391%. Those small weekly rates add up over time.
To learn more, check out Payday Loan Rollover: How Short-Term Loans Turn Into Long-Term Debt.
There are two ways you can apply for a payday loan. The first is by walking into payday loan storefront and filling out an application. You’ll know these stores from the giant signs outside that screech “fast cash now!” and “easy cash guaranteed approval!”
The second way to apply is to fill out an application online. You go to the lender’s website, enter your info, and click “submit.” That’s where the trouble starts.
Here’s how the payday loan call scam works.
Many times when you are applying for an online loan, you aren’t actually going to the lender’s website. Instead, you are submitting an application to a lead generator, which then sells your information to lenders looking to get your business.
So even if you don’t end up taking out the payday loan that you’ve applied for, there is a record of your application that contains a whole bunch of personal information, plus how much you were looking to borrow. That record can easily end up being purchased by scammers.
Those scammers then call you and try to collect on a debt you never owed. They pretend that they are a representative from a payday loan company. Sometimes they’ll even say that they’re a lawyer for the company, because getting a call from a lawyer is always intimidating. They might also pretend to be from a government organization.
Once they get you on the phone, that’s when the threats begin. These scammers will use all sorts of low-down tactics to bully you into paying. They will yell and swear at you, they’ll threaten to sue you, to garnish your wages, or have the funds taken out of your account.
They’ll promise to call all your friends and family members and your employer to shame you into paying. They might even threaten to have you arrested! Basically, they will do everything they can to pressure you into paying them. It’s blackmailing a person who never did anything worth getting blackmailed over in the first place.
Protecting yourself from a payday loan call scam.
Remember, these guys (or girls) don’t have anything on you. They are putting on a big show to scare you. If you hold your ground and don’t give in, there really isn’t anything they can do to hurt you. It’s all bark and no bite.
The first thing you should do is ask for written confirmation that you owe the debt. Any caller who refuses to produce one is a scammer. And if they do provide you with a written record, you can check that against your own records. For instance, you can request a free copy of your credit report and see if this collection notice has shown up there as well.
Next, ask for all of the business’s information. Get the caller’s name and the name of their company. Get their address and their phone number too. Scammers don’t want people checking in on them so they won’t give you this information. Some quick research will reveal whether or not they’re a real company. Legit debt collectors on the other hand, will gladly offer it up.
And while you should be collecting all of their info, you should not be giving them any of your own. This is a tip that holds true for all phone scams. Do not give your personal information—account numbers, social security numbers—to anyone who calls you over the phone
Even if this scammer can’t get you to pay this fake debt, they might be able to steal your identity with the information they get from you. Do not let them bully you into giving them what they want. Stand firm and push back.
Lastly, report them. File a complaint with your state attorney general’s office, the Consumer Financial Protection Bureau (CFPB), and/or the Federal Trade Commission (FTC). Local police probably won’t be much help, as the scammer themselves is likely out of their jurisdiction, but these larger agencies might be able to do something.
With their sky-high interest rates and large lump-sum payments, payday loans are bad enough on their own. They don’t need any help. Don’t let one of these scammers turn a moment of desperation into further financial hardship.