A payday loan is a small, short-term loan, usually just a few hundred dollars. You repay a payday loan as soon as you get paid again—whether from your job, social security, or other source. You can get payday loans from a payday loan store or from online providers.
Of course everything is online these days, so people often prefer the convenience of getting a payday loan online, rather than visiting a physical store. To get a payday loan from an online vendor, you find a lender through a web search and fill out an application.
Now, imagine this scenario: You’re pressed for cash and go online looking for a loan, because you need some quick cash to get you back on your feet. You go to a website that looks legitimate and apply for the loan. You get an email saying you’ve been approved, but they need your online banking credentials to deposit the approved loan amount, and require a deposit as a sign of faith. You’ve just become the victim of an internet payday loan scam.
The First Scam: Counterfeit Payments
These scammers remotely deposit some bogus checks into your account, and you send them money via Western Union, MoneyGram, Green Dot MoneyPak, or Walmart to Walmart transfer. The checks or ACH credits bounce after a few days. Many of these scammers are overseas organizations—and you probably will never recover your money if you pay them.
Even if you don’t actually take the loan, if you’ve provided your personal information in an online application on a payday loan website, you’re still likely to get scammed. All the personal information you provided—name, date of birth, social security number, bank account number—is likely to be sold to a third party, who may or may not use that information maliciously. This can include identity theft.
If this happens, you may begin receiving phone calls that start out with the caller asking if they are speaking to (your name). They may provide your address, birthdate, and/or social security number under the guise of verifying an account of some kind. Many people believe that if a caller already has this much personal information, the call must be legitimate.
But beware! If you’ve verified your personal information over the phone, now scammers know it’s correct information. And what’s likely to happen next is that you’ll start receiving threatening phone calls from scammers impersonating debt collectors.
The Second Scam: Payday Loan Debt Collection
Of course, no one likes getting a call from a debt collector — and receiving a call from a fake one is even worse. These swindlers will try to intimidate or just plain frighten you into paying them on the spot. They may say they are a police officer, a judge, or with a law firm or even the government. They’re likely to threaten you with arrest if you don’t agree to pay immediately.
You should also be aware that this type of scam isn’t limited to payday loans. Student loan scams are also popular with these charlatans, who often pretend to be collecting other types of debt not limited to online loan scams.
These lowlifes will literally yell and scream at you, using foul language and insults. They may tell you the police will be there within the hour to throw you in jail if the debt isn’t paid. They may even tell you that your wages will be garnished, or that you’ll be fired from your job if you don’t pay the debt.
What if This Happens to You?
If you believe you’re being targeted by a con artist, first you need to cease all communications with whoever has been calling you. If you answer the phone and end up on a call with a debt collector, just hang up. If you use a mobile phone, you may be able to block the number from calling you again. If not, don’t answer any further calls from that number. If these scammers leave voicemails, delete them and don’t return the call.
Even if you are threatened jail time or loss of employment, you can rest easy. Debt collection agencies (legitimate or not) have no authority to follow through on either of those threats. Debtor’s prisons were abolished a long time ago; you cannot be arrested for not repaying a payday loan. And they can’t garnish your wages, either: wages can only be garnished after a legitimate collector follows a strict court-mandated process.
Report the Scam
After you the call or hear the voicemail, immediately file a report. The Consumer Financial Protection Bureau (CFPB) wants to hear from those who feel they’re being targeted by scammers pretending to be debt collectors, so file a complaint with the CFPB as soon as you can.
You can also report these kinds of scams to the Federal Trade Commission (FTC) and to your state Attorney General’s office.