Payday loan scams and bogus debt collection cause problems for consumers
Never underestimate how far scammers will go to get your money back.
A Utica man ended up being tracked by fake debt collectors who claimed he owed money on a small loan taken out nearly 10 years ago, according to the Better Business Bureau Serving Eastern Michigan.
The man was told he had to pay something quickly or someone would show up at his house soon to serve legal papers. He feared the worst, paid $500 and agreed to pay an additional $100 per week.
But it was a scam. He never received any papers and the debt was not on his credit report.
People are short of money and vulnerable
The scammers know where the money is – or apparently isn’t – because they have devised several strategies to steal money from people in financial difficulty. Consumers are warned to watch out for scams related to collecting debt from old payday loans, finding a short-term loan online, fake loan eligibility texts, and relief scams debt.
According to reports from the Better Business Bureau nationwide, people victimized by payday loan and advance loan scams suffered a median loss of $1,000 this year through July.
The local BBB has received over 100 reports of payday loan, debt relief and credit repair scams in the past 12 months since early September 2021.
“That’s a lot for Eastern Michigan,” said Laura Blankenship, chief of staff and chief marketing officer for the Better Business Bureau Serving Eastern Michigan.
Financial stress points can come from anywhere – a recent job loss, a budget that has been squeezed by inflation and higher gas, utility and grocery costs, and old bills that never seemed to get resolved.
“Sometimes when people try to get these loans, that’s it for them,” Blankenship said. “They are more vulnerable because they want to believe they can be approved.”
Consumers want to act quickly to perhaps make the next car or rent payment or even qualify for a larger loan to cover a large expense or emergency. But rushing only leaves the scammer in control.
Loan scams can vary
Fraudulent activity takes different forms, according to a new BBB study of payday loan scams and other debt-related scams.
Some scams involve upfront fees to get a loan; others involve bogus debt collection schemes. Typically, scammers will catch consumers off guard by pretending to be a trusted company to convince potential victims to send money or hand over bank account information.
The BBB report listed one case in San Jose, California. The consumer received a call from a woman who said her name was “Lauren Green” and Lauren – who probably never watched the former TV show “Bonanza” starring Lorne Greene – told the consumer that she was entitled to a $5,000 loan from West Point Lenders.
“To get her loan, all she had to do was pay a $535 fee,” the BBB report said. The consumer returned the money — then was told she had to pay $535 more because her credit wasn’t good enough.
She lost a lot of money
She lost $1,070 and received no loans. West Point Lenders is a similar name to other financial institutions, the BBB said, but it was a fake transaction.
Sometimes a fake loan offer pops up out of the blue in the form of an SMS. The scammers could imply that you have just qualified for an SMS loan.
“SMS scams are still very real,” Blankenship said. “If you haven’t contacted a business to apply for a loan, you haven’t been approved for a loan.”
Red flags? The scammers might say that you will be approved for a loan regardless of your credit history, but they will ask you to put a lot of money up front.
“Legitimate lenders won’t promise you a loan or other credit without knowing your credit history, but will ask you to pay it first,” according to an alert from the Federal Trade Commission.
While legitimate lenders may charge an application or appraisal fee before considering your loan application, the FTC notes, a real lender won’t tell you that paying a fee guarantees you’ll get a loan.
“It is illegal for telemarketers to promise you a loan or other credit and ask you to pay it before delivering it,” the FTC says.
If you are looking to borrow money, carefully read any email about a payday loan. Look at the information after the @ sign. “Legitimate businesses generally do not send messages from a Gmail or Yahoo account,” according to the BBB report. “It’s not a foolproof method, however, as scammers can spoof emails or even steal passwords to access legitimate emails.”
“If you got an email out of nowhere,” Blankenship said, “those are red flags. They’re casting a wide net to see how many fish they can catch.”
Scammers will want you to pay through hard-to-trace avenues – payment apps, like Venmo or Zelle; gift cards; cryptocurrency and money orders.
Another key warning: scammers could send you money for this loan on an app like Venmo, Zelle or use your real bank account. But the BBB warns that scammers could say they sent you too much money and ask you for a refund. All of this is bogus, much like a bogus check system.
“The scammer is actually taking advantage of the payment approval system and there may not have been any money sent,” the BBB said.
“Eventually, the bank or service will get that money back, and the victim will have sent their own money to the fraudsters.”
Someone who is short on money may go online looking for a payday loan, only to end up clicking on a fake website that links them to a bad outfit or scam artists.
Someone with too much debt might jump at the chance for debt relief, but the consumer ends up paying way more than the debt to get it and the consumer has no idea what was actually done.
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Why do scammers think you took out a payday loan?
It’s hard to say. But Blankenship warned that some key information the scammer might claim to have – such as your street address or phone number – can be seen online fairly easily before a scammer contacts you.
Savvy hackers in a scheme, the BBB noted, stole information about payday loan companies’ previous customers and put it online to sell, making it readily available to those running scam operations for buy and target certain victims.
Blankenship noted that scam rings have been known to contact scam victims, using a list of people who have been scammed, saying they can help them get their money back from a previous scam.
“It was a scam in and of itself. The scammer had bought the names and contact details of other scammers,” Blankenship said.
The tactics, advanced background research of targeted victims and scam planning are amazing, she said.
What’s a good clue to a debt collection scam?
A huge red flag in debt collection scams is the failure or inability to provide written confirmation of the debt. The written confirmation must include the name of the creditor, the amount owed and how to dispute the debt within 30 days of receiving the confirmation documents. If you receive a call out of the blue, ask for written confirmation of the debt.
If someone threatens to collect a debt, it is advisable to contact the company or financial institution directly to find out when you are supposed to have borrowed the money. Check to see if there is a record showing that you have taken out a payday loan or other loan. Don’t just call the phone number listed on the caller ID, follow-up letter, or text. Make sure to go to a statement or find a legitimate number for the lender.
Chris Nettleman of Dearborn Heights received a call last year about about $700 or so that was believed to be related to extremely old credit card debt. The debt collector, who was allegedly hired to collect the money, wanted Nettleman to pay through a website.
“I really had no proof that the website was legit – and I was pretty sure I owed nothing,” they said.
Nettleman, who works on the assembly line at the General Motors Romulus Powertrain plant but is now on disability, didn’t believe the caller – who eventually started texting and calling repeatedly.
“They called me several times – and no matter what I told them, they disagreed that I didn’t have this debt.”
Nettleman had proof of this after calling the financial institution directly, where there was no record of old debt or collection activity.
At one point, the scammers said that Nettleman could pay them $5 within 24 hours to show their good faith.
While this may have seemed acceptable to some, Nettleman was concerned that giving $5 would give scammers access to bank account information and allow scammers access to that account.
Nettleman’s advice: Always be skeptical of a strange text or call, especially when asking for money.
In general, consumers should not click on links in text messages. And never give out social security or other personal information to anyone who contacts you out of the blue. Remember that scammers try to appear legitimate by impersonating well-known companies or agencies.
Beware of advertisements on social media or online for quick loans. Discover the history of the company. See what information is available on complaints or scams.
Anyone who threatens to take immediate action – or get extra money quickly for a fee – is likely a scammer. You would get a lot of correspondence about an old debt and it won’t be a surprise. And no real lender is asking you to put money on gift cards to get a loan.