If you can’t get money elsewhere, you might be tempted to apply online for a payday loan to help get you through difficult financial times. These loans typically come with punishing interest and short repayment times. But that’s not their only drawback: Even if you end up not taking out the loan after filling out an application, scammers might try to con you into repaying money that you never borrowed.
Understanding Payday Loans
Payday loans are small, short-term loans—usually around $500 or less—that generally come due on your next payday or the next time you get income from another reliable source, like Social Security.
You can get a payday loan from a brick-and-mortar payday loan store or from an online vendor. These days, people often prefer the convenience of going online to get this type of loan, rather than visiting a store. To get a payday loan from an online vendor, you simply find a lender through a web search and fill out an application.
Qualifying for a payday loan online is relatively easy if you have a steady source of income. You’ll have to provide proof of your income by showing a copy of a recent paystub or a bank statement that indicates regular deposits. You’ll typically also have to provide your Social Security number, a checking account number, your bank’s routing number, a copy of a government-issued ID (like your driver’s license), references, and a phone number. In almost all cases, the lender won’t bother to look at your credit report before making the loan.
After you’re approved for the payday loan, you sign a contract with the lender. Once you sign the contract, the loan money is deposited directly into your bank account. To repay the loan, the lender makes an electronic withdrawal from your account on the due date, which is pre-authorized in the contract you signed.
Collection Scams Involving Non-Existent Payday Loans
In many instances, people fill out an online application for a payday loan, hit the “Submit” button on the screen, but decide not to take out the loan (they never sign the actual contract). Consumers often decide not to go through with these loans when, in the process of getting the loan, they learn about the downsides involved with them, like high interest rates and excessive fees. But even though they’ve decided not to get the payday loan after applying for one online, they may fall prey to scammers who insist that they owe the scammers money.
A typical scam works like this: The scammer calls you and poses as a payday loan collector. The fake collector then accuses you of failing to repay a payday loan. The scammer says that you’ll be sued if you don’t immediately wire a payment or provide a bank account or credit card number to pay off the supposed debt. The caller may claim to be from a law firm or a government agency like the Federal Trade Commission, and may threaten to garnish your wages or levy your bank account. Other intimidation tactics include threatening to tell your employer or family members you’re a deadbeat, and saying that you’ll be arrested if you don’t pay off the debt.
Of course, the scammer won’t offer any proof that you actually owe money on a payday loan—because you never took out the loan in the first place. But sometimes the calls are so convincing that people panic and make a payment on a bogus debt.
How Scammers Get Your Information
If you fill out an online application for a payday loan, you may be giving your information to a “lead generator” rather than a company that actually offers loans. Lead generators earn money by gathering your personal information (your Social Security number, bank account information, date of birth, address, and other confidential data) and selling it to payday lenders or others, including scammers in some cases. Courtesy of a large online network of people trying to buy and sell payday loan leads, your personal and financial information could easily end up in the wrong hands.
Tips to Avoid Becoming a Victim of a Scam
If you have submitted an online application for a payday loan and did not actually take out the loan, you may nevertheless receive a call from someone pretending to be a payday loan collector. Here are a few tips to avoid becoming the victim of a scam:
- Get the caller’s name and the company’s name, street address, and telephone number. A legitimate collection outfit will usually comply, but a scammer probably won’t give you this information. If the caller does provide this information, check out the company online to learn if it’s legitimate. The Better Business Bureau is a good place to start your research.
- Request a written confirmation of the debt before you make a payment. If the supposed creditor refuses to provide one, it is likely a scam.
- Do not provide the caller with any personal, financial, or confidential information. The scammer will likely try to convince you to make a payment immediately. Don’t do anything until you find out if the debt is real.
- If you believe the call was a scam, file a complaint with the Federal Trade Commission and your state Attorney General's office.
Questions for Your Attorney
- How can I stop a scammer from repeatedly calling me about a payday debt I don't owe?
- If a scammer calls me and knows my Social Security number, what should I do to protect my identity?
- What should I do if I really am late in paying off a payday loan?