We may have one of the strongest economies in the world, but there are still many people that struggle day-to-day to make ends meet. With the increases in the cost of housing, food, bills, and other expenses of living, people may turn to temporary fixes to alleviate some of the stresses that come from needing money. This has opened a new door for opportunists and scammers to take advantage of people who may already be in a hard spot by tricking them into paying bills that they do not owe.
The Cost of Payday Loans
Payday loans are different than usual loans. Most loans come from banks and are set at reasonable interest rates that can be paid over long periods of time. Payday loans are the exact opposite. They are short-term, high interest loans that are, usually, expected to be paid back by the end of the next week.
The way payday loans are handled are relatively simple. A person writes a check to the lender in the amount they need, then the lender will hold on to the check until the next pay period. If you think that sounds too good to be true, you’d be correct.
The problem comes with the interest rate of the loan. A lending fee is applied to the total loan each time the loan needs to be extended. These fees average between 15% and 30% of the total loan amount. This may not seem too bad in the beginning, but the annual percentage rate can wind up being between 300% and 1000%.
The Federal Trade Commission has begun urging consumers to avoid using payday loans and to search for other financing alternatives that will be less expensive.
Threats of Legal Action: A Common Scam
For some, the option to use other sources of credit are either limited or unavailable. They may have no other option but to use payday loans when they are in a bind. Therefore, scammers focus more on these individuals. Scammers will use the vulnerability of these individuals to con money out of them.
The Better Business Bureau warned consumers of a scheme involving phony bill collectors in 2009. These “bill collectors” would call people and accuse them of not fully repaying their payday loans. The victims would be warned that if they didn’t wire $1,000 or give them their bank account or credit card number, they would be arrested immediately.
It’s Still Happening
Even now, after 18 years, these scams are still taking place and being perpetrated. In May of 2011, the attorney general of Arizona released a warning to people of a scam like the one above. In these instances, the scammers would claim to be from fake government agencies or law firms, and tell the victims that they owed money to a payday loan company. The scammers would threaten legal recourse if the victim did not pay immediately.
They are Convincing
The main reason people are falling for these schemes is the scammer’s ability to be convincing. They would use business names that sounded official and would have personal information about the victim, making them seem even more legitimate. Scammers would list off the victim’s social security number, driver’s license number, and/or old bank account to make themselves seem more authentic. It wasn’t uncommon for the scammer to refer to friends, co-workers, and even the victim’s employer either, in the attempt to gain the victim’s confidence.
Can you be Arrested
In the United States, you cannot be arrested for failing to repay a payday loan, or any other loan for that matter. It is even illegal for a bill collector to threaten an individual with arrest. This is credited to the Fair Debt Collection Practices Act. This act makes it unlawful for a bill collector to:
- Threaten an individual with arrest if they do not pay
- Harass or annoy an individual via repeated phone calls
- Claim that they are an attorney
- Claim that a person has perpetrated a crime
- Make threats of violence or harm against a person
It is not uncommon for a debt collector to call in regards to an outstanding debt, but you should not just believe every call you receive. You will not want to end up giving out important personal information or giving your hard-earned money to a scammer. If you do receive a phone call that seems unusual or suspicious do the following.
- Request that the caller send you a written copy of the loan information
- Inform the caller that you will not verify any credit card, bank account, or any other personal information over the phone
- If there is any harassment or threats, contact the Federal Trade Commission. They are the enforcers of the Fair Debt Collection Practices Act.
- Contact the Attorney General’s office to inquire about state debt collection and consumer protection laws that might apply to the incident
- Go to the Better Business Bureau website and file a formal complaint. This will help let other be aware of the scam.
These actions will not only help protect you, but also help others that may be targeted by these types of scams.
Even though payday loans are convenient, they come with their own set of problems. They have insanely high interest rates and open the door for scammers to try stealing your money. Remember that if you have not repaid a debt, you are not at risk of being incarcerated. So, do not give in to empty threats made by these fake debt collectors. If they do make threats, you can be almost positive that they are not legitimate. Also, never confirm any personal or private information over the phone when dealing with debt collectors. It may take more time to pay a real debt, but it is better than losing your money. If you have experienced any problems with payday loan debt collectors, call a knowledgeable and experienced attorney to set up an appointment to ask any other questions. Let an experienced lawyer help keep you safe from payday loan scams.