It is estimated that up to 12 million Americans take out payday loans each year. These loans can be a lifeline during emergencies or when faced with unexpected expenses, offering quick and convenient access to credit. This can be especially beneficial for individuals with a poor credit history or limited access to traditional forms of credit from banks. However, it’s important to be aware of the potential pitfalls of payday loans and to use them responsibly.
As loan scams continue to rise, it’s important to be aware of scammers and other dishonest lenders promising quick cash in exchange for exorbitant fees among other fraudulent activities. This article will help you to become aware of the types of payday loan scams so you can spot a fraudulent lender.
Advance Fee Loan Scam
In this type of scam, the lender asks the borrower to pay an upfront fee to secure the loan. The lender may claim that the fee is for “processing” or “insurance” purposes, but in reality, it’s a way for the lender to make money without actually providing a loan. Once the borrower pays the fee, the lender disappears, and the borrower is left without the loan and out of pocket for the fee. These types of loan scams tend to target consumers who have a poor credit history or limited access to traditional credit sources.
Payday lenders are required to be licensed by state regulators. Before accepting a loan, check that the lender is properly licensed such as My Canada Payday, and authorized to conduct business in your state.
Phantom Debt Scam
In this scam, the lender contacts the borrower and falsely claims that they owe a debt on a payday loan that the borrower never took out. The lender may use aggressive and intimidating tactics, such as threatening legal action, wage garnishment, or even arrest if the borrower does not pay the supposed debt.
These scare tactics can be incredibly distressing for the borrower, causing them significant emotional as well as financial harm. It’s crucial to know your rights as a borrower and to seek legal advice if you believe you have been the victim of this or any other type of payday loan scam.
Fake Lender Scam
Here, the lender poses as a legitimate payday lender, in order to steal the borrower’s personal information, such as their Social Security number or bank account details. Once the lender has obtained this information, they may use it to commit identity theft, drain the borrower’s bank account, or apply for credit in the borrower’s name. It’s essential to exercise caution when dealing with payday lenders and to protect your personal information to avoid becoming a victim of this type of scam.
In this type of scam, the lender preys on the borrower’s desperation for quick cash by sending them a check for more than the loan amount. The lender asks the borrower to deposit the check and wire back the excess funds. Since the check is fake, once the borrower wires the money, they are left with no loan and out-of-pocket for the excess funds so it’s essential to never wire money to someone you’re not familiar with or trust.
By being aware of the different forms of payday loan scams you can avoid falling prey to fraudulent lenders.