Recognizing PayDay Loan Scams and Protecting Yourself From Fraud
Our goal at Allied Wallet is to make processing online payments as safe and secure as possible. In that regard, we want to warn merchants and consumers about the high risks associated with PayDay loans. A PayDay loan scam, which we will explain in detail below, puts customers at risk for long term financial trouble, harassment, loss of sensitive information, and many more inconveniences.
What is a PayDay Loan?
At first glance, PayDay loans appear to be for people seeking temporary financial relief until their next paycheck. However, there are both hidden and obvious dangers involved with taking a PayDay loan, which are often approved online after a very fast credit check.
Many won’t consider a PayDay loan scam to be dangerous because they are very upfront about how they work: customers receive a loan with a very high interest rate. Yet, most PayDay loan providers will downplay just how much they charge. When you break it down by APR, this type of loan can be almost 1000% of the loan when not paid off in a short period of time.
Even when paid off in the intended period of time—about two weeks for standard paychecks—a typical loan can charge anywhere between 10 and 40%, which is exorbitant by most standards. Even worse, the specific amount will also vary based on the person’s credit. People with poor credit and an unstable financial situation will feel the negative effects of the loan more.
It’s Very Easy to Get a Fast PayDay Loan
Some might read this and not feel sympathy for those who take a loan or subsequently face troubles after taking one. Yet, PayDay lenders not only prey on vulnerable populations, they are often unregulated and rely on shady tactics to intimidate stressed out individuals who lack many options. They make it very easy, too. One PayDay loan scam website gives a decision in minutes and provides loans for people who have bad credit, have declared bankruptcy, and have fixed incomes. These consumers often cannot get emergency funds elsewhere and are all but forced to take a risky PayDay loan.
After being trapped in debt, people who take out PayDay loans will often be harassed by lenders. These PayDay loan scam lenders, who often protect themselves from legislation in the fine print of the loans, will threaten jail time and call multiple times a day. It’s no wonder this ruthless harassment is a part of their business model.
This Kind of Loans is a Long-Term Trap
According to the Consumer Financial Protection Bureau, it’s no surprise that about half of all people who take PayDay loans end up taking 10 or more total loans. This is very frequently for the purpose of paying off other PayDay loans, proving that these companies depend on their customers staying in debt. Customers who take one PayDay loan will often find themselves receiving offers from other PayDay loan companies, via mailing and online. How do these companies get consumer information?
Hidden PayDay Loan Scam Costs
Something that concerns us at Allied Wallet, besides the predatory nature of PayDay loans, is how unsafe these transactions often are. Online retailers take a fair amount of sensitive, personal data to calculate their decisions. They require bank account information, as well as personal ID like social security numbers.
If a cyber-criminal was targeting you, then you could be the victim of phishing through a fake PayDay loan site or malicious software from other online activities. Phishing is the attempt to obtain personal information, such as credit card and bank account numbers and email passwords, through email, phone calls, or installing outside software.
Legitimate PayDay loans are often hard to distinguish from phony ones for many reasons. For one, financially desperate populations aren’t always the most discerning, especially in times of crisis. As previously mentioned, PayDay loans are often unregulated and, when they are, it’s solely on a statewide basis. This makes it hard to distinguish between a legitimate PayDay loan from a scam. Unfortunately, phishing is just one type of commonly-seen PayDay loan scam.
PayDay Loan Scam: Phantom Debt Collectors
Phantom debt collection is an indirect PayDay loan scam. Consumers will find themselves contacted by phantom debt collectors who say that it is time to pay up for unpaid debt or upcoming due dates, and even debts taken illegally in their name. They threaten legal action and even possible jail time, neither of which they can actually pursue.
Then, the consumer will submit their personal and financial information. Though it might seem like an obvious mistake, a customer might act out of ignorance, fear, insecurity, or wanting to deal with the debt right away. The scammers then steal these funds through third party websites without proper safeguards.
Its relevance to PayDay loans are that phantom debt collectors will often find their victims from consumers by simply inquiring about PayDay loans online or through a phone call. A fly-by-night website can be set up and gain many hits and inquiries before being closed or shut down.
People in debt, essentially those most likely to want a PayDay loan in the first place, are especially susceptible to these tactics. Money woes and being unclear on the law can lead to hasty decisions to send money to legitimate-seeming scammers. Plus, financially struggling individuals might not keep sterling records and could believe the scammers to be authentic.
A Real PayDay Loan Scam Example
Since 2013, a PayDay loan scam has been operating under the name of Cash Advance Group. This company and its related entities (all with some variation of “Cash Advance” in their names) use scare tactics to target people who don’t actually owe the debts they claim. Many of these consumers recently applied for PayDay loans from an unlicensed online lender.
These fake debt collectors threaten lawsuits, asset and bank account seizures, wage garnishments, disclosing debt to the customer’s employer, and even arrest. They use phone calls and emails and claim to have the support of law firms and the U.S. District Court. Of course, these scammers want immediate payment, sometimes with credit cards and other times with pre-paid cards. Victims suffer a loss of funds and are also considered to be victims of identity theft for all intents and purposes.
This company is in no way unique. A PayDay loan scam will often top the list of consumer complaints, even outranking annoyances like robocalls, retail disputes, and landlord issues in a recent poll in Michigan.
Further Harassment is Expected
Another PayDay loan scam occurs when debt escalates from a defaulted PayDay loan and is bought or transferred to a third-party collector. These debt collectors use the same lies and intimidation as the groups above—as well as surprisingly cruel tactics like calling workplaces and family members to pressure the consumer to pay. They say they can take legal action against the customer, though it is always untrue. Regardless, these phone calls and emails get adequate results that these third-party PayDay loan scam groups make enough money to continue intimidating new customers.
An Asset Recovery Scam Might Hit You Again
What is an asset recovery scam? A fraudulent group or individual might contact a consumer after they’ve been scammed, offering to recover their lost money or investment. They’ll either provide no service and accept money up front or, if the victim is lucky, they’ll file a business complaint on their behalf that consumers can file for free. Following a PayDay loan scam, consumers might be desperate, upset, and susceptible to believing the lie put forth by asset recovery scammers.
Scammers trade and sell lists of their victims, even from less costly scams like raffles or promotions that they never receive. It’s very probable that those hit once will be hit again, as contact information is passed around.
If PayDay Loans Are Your Only Option
You should be aware of the likely risks of a PayDay loan scam. If you’re having a financial crisis, lack a financial plan, and truly believe a PayDay loan is your only option, then please follow these steps to enhance your financial security:
Distinguish Scams from “Legitimate” PayDay Lenders
Use the information above to empower yourself on the difference between a PayDay lender and a PayDay loan scam. If you still can’t tell, consider the aggressive nature of the lender you’re considering. Trust your instincts.
There are a few things to look for that a law-abiding lender should have:
- A license or certification from your state or the state where the business operates. This should be easy to verify online. Consider that different states have better regulations when it comes to PayDay loans.
- Readily available contact information. If you can’t find a phone number or email, then the people you communicate with should have a willingness to openly share information about their company. Before you accept a loan, see if you can get a number or email and cross-reference it through an online search.
- A listing on the Better Business Bureau website. You can also check the company with other government websites and even crowd-sourced review sites.
A PayDay loan scam, on the other hand, might ask for money up front or incorporate strange fees into their contracts.
Use Certified Payment Processing Solutions
At Allied Wallet, we want to empower consumers and our customers to know when an online transaction is legitimate. The e-commerce certifications and steps towards compliance that we take—such as PCI-DSS compliance, First Data certification, FSA certification, Bank of America certification, and our own proprietary certification—should be par for the course. These certified and compliant services provide true security during online financial transactions.
Another preventative technique involves using secure payment processing like Allied Wallet’s effective eWallet. These secure credit card processing services allow the customer or business owner to make purchases online by logging into the secure credit card payment processor. This way, you don’t have to type out your payment and personal information, protecting you from your data being accessed or seen through harmful software. Even if you don’t use our services, keep an eye out for similar certifications and consider using a secure payment processor.
Report Any PayDay Loan Scam You Encounter
A company or individual doesn’t have to succeed at scamming you to be committing a crime. Whether you’re defrauded or you strongly suspect illegal activity, it’s the right thing to report fraud. You can contact your state’s regulation agency, the Federal Trade Commission, the Consumer Financial Protection Bureau, and the Internet Crime Complaint Center if the crime involves online activity. These groups can help you protect yourself from future fraud and, ideally, punish the criminals. It’s also recommended that you contact your bank and the three major credit bureaus.
About Allied Wallet
Hundreds of millions of consumer records have been compromised in the last decade because of online fraud and scammers. The Allied Wallet team recognizes that online shopping and business loans are convenient and here to stay, which is why we want to make credit card processing and e-commerce transactions as secure as possible. Through education and innovative security measures, we can make the internet a safer place to spend money, while providing better services to our customers.
Whether you want a safe, industry-tested way to accept payments for your business or you want to protect your financial identity when shopping, check out Allied Wallet’s methods for protecting payments from fraud. We offer competitive rates, 24-hour customer service, and technologically advanced solutions to payment issues, including PayDay loan scam prevention.
Business owners need to be especially strong when it comes to preventing fraud. One tactic involves a scammer making a purchase and then requesting a chargeback once the services are delivered. Chargeback protection like we provide is essential for buffering businesses and individuals from this financial strain.
We can also help verify their customers through our proprietary Fraud Scrub. This service verifies their legitimacy through stringent IP checks. Keep these features in mind as well when looking at PayDay loans. A PayDay lender who doesn’t value their business enough to maintain these standards should set off a red flag immediately.