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Payday loan scams consumers should be aware of: fake loans, stolen information, fraud

A recent upsurge in the amount of fraudsters posing as payday lenders has led to a warning from the Better Business Bureau.

Update:
A recent upsurge in the amount of fraudsters posing as payday lenders has led to a warning from the Better Business Bureau.
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Payday loans in the United States are an extremely predatory industry, and now the landscape is getting worse as scammers posing as popular lenders try to defraud people.

A new report from the Better Business Bureau on these scammers highlighted the story of Shirley, who “received a call from a woman who said her name was “Lauren Green.” Lauren told Shirley that she “had qualified for a $5,000 loan from the West Point Lenders” but that she “needed to do was pay $535 as a fee” before the money would be deposited in her account. Then, Green again said that “another $535 was needed because her credit was not good enough.” However, once Shirley had handed over the $1,070, Lauren disappeared with Shirley’s money, and when she went to do some research, she found that the company was fake and that her information had been stolen.

Be on the lookout...

Many scammers are using names that are close to major payday lenders to work off of the name recognition that some of these companies have. The BBB has warned that fraudsters who pose as debt collectors can also use the same tactics to “make their threats sound more serious.”

How many payday lender scams have been reported this year?

While the total number of scam attempts reported to the BBB has decreased, the amount that has been taken from those frauded has increased over the years:

  • 2019 - Reports: 1,151 | Losses: $856
  • 2020 - Reports: 741 | Losses: $900
  • 2021 - Reports: 760 | Losses: $765
  • 2022 - Reports: 403 | Losses: $1,000.

These numbers should be taken with caution since the BBB estimates that only around ten percent of fraud cases of this nature are reported to the organization - meaning that the scale of the issue is much larger than what these figures represent.

The federal government should take note of people’s willingness to go through with the scam because many reported falling for it because “they were already in debt due to payday loans.” After being defrauded, some victims also reported: “falling months behind on rent and other bills, because of the financial tolls these scams took.”

A general warning for those who are interested in a payday loan

Payday lenders are one of the most unregulated aspects of financial services. The BBB reported that their scam trackers show “that despite efforts across the country to rein in the power of payday lending companies, many Americans are still trapped” in cycles of debt after taking on one of these loans. These agencies use complicated formulas to mask high-interest rates applied to loans that can reach more than four hundred percent. BBB researchers shared the story of Wanda, a senior in Georgia who took on a payday loan worth $1,000 to build her credit.

Buried behind all of the fees and paperwork, her real interest rate was nearly 450%. She soon regretted the decision,” reads the report, highlighting that these firms often take advantage of older people. “They charge you every two weeks, and it adds up to about $400.00 to $600.00 a month to pay back such a small amount,” said Wanda when speaking to the report’s authors.

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