Financial scams are becoming increasingly common today, with scammers continuously devising new ways to exploit people’s vulnerabilities. Scams involving payday loans are one sort of financial fraud that preys on people who require quick cash.
It is essential to remain aware and watchful when handling financial problems as we move into online loans and banking. This article will cover typical financial scams, such as payday loan scams, and offer advice on preventing falling for one
You should report any suspected scams to the relevant authorities, such as the FTC, CFPB, or the attorney general’s office in your state.
Scam #1: Advance Fee Fraud
The practice of asking a victim to pay upfront for a service or good that never shows up is called advance fee fraud, also known as upfront fee fraud. This frequently refers to a lender promising to offer a loan in the context of payday loans after the borrower pays an up-front charge. Advance fee fraud is one of the most prevalent types of financial scams in the United States, according to the Federal Trade Commission (FTC).
Red flags of advance fee fraud include lenders who:
- Make a payment request before disbursing the loan
- Request wire transfers or gift cards as payment methods
Never pay a loan application fee upfront; be aware of lenders who request payment in unusual ways to avoid being a victim of advance fee fraud.
Scam #2: Fake Lending Websites
Scammers frequently develop fake lending websites that look official but are intended to steal users’ financial and personal information. The Better Business Bureau (BBB) reports that phony loan websites are becoming more prevalent, with many victims losing thousands of dollars.
Red flags of fake lending websites include the following:
- Websites that could be better designed or appear more professional
- There is no physical address or telephone number
- No https:// secure connection
Look for a secure connection, clear contact information, and a businesslike appearance to spot reputable lending websites. Investigate the lender’s reputation and that of the BBB and other consumer protection organizations.
Scam #3: Debt Collection Fraud
Debt collection fraud happens when scammers pose as debt collectors to collect money that is not owed or to get personal information. According to the Consumer Financial Protection Bureau (CFPB), financial scams involving debt collection ranked second in 2020.
Red flags of debt collection fraud include:
- Using legal or arrest threats
- Refusal to produce written proof of debt
- Attempts to collect debts that you do not recognize or that have already been settled
When dealing with dubious debt collectors, obtain written confirmation of the debt and confirm the collector’s legitimacy by looking up the company online.
Scam #4: Identity Theft
According to the FTC, there will be over 1.4 million identity theft cases in 2020, which is a growing threat. Scammers may exploit your personal information to apply for payday loans in their name by using stolen data.
Red flags of identity theft include the following:
- unexpected credit checks or loan requests
- accounts or transactions on your credit record that are unfamiliar
Use strong passwords, exercise caution when disclosing sensitive information online, and watch for irregularities in your credit report to secure your personal information.
Scam #5: Unlicensed Lenders
Payday loan providers who lack a license may not adhere to state standards when offering their services, placing borrowers at risk of high fees, exorbitant interest rates, and predatory lending practices. The CFPB has documented numerous instances of unlicensed lenders taking advantage of borrowers.
Red flags of unlicensed lenders include the following:
- There needs to be a mention of a license or registration number on their website
- Lending in states where they are not permitted to conduct business
Check a lender’s registration with your state’s financial regulatory body or on the Nationwide Multistate Licensing System (NMLS) Consumer Access website to confirm that they are licensed.
Scam #6: Hidden Fees and Terms
Some payday lenders may include unfavorable terms and hidden fees in their loan agreements, which can cause consumers financial hardship and unforeseen charges. Several lenders have faced enforcement actions from the CFPB for concealing fees and terms.
Red flags of hidden fees and terms include:
- The loan agreement’s language may be ambiguous or confusing
- Unable to immediately respond to inquiries on charges and terms
Examine the agreement thoroughly, inquire about any ambiguities, and, if necessary, consider contacting legal counsel to comprehend the terms and conditions of the loan.
Scam #7: Fake Check Scams
Scammers that use fake checks give their victims the checks with the request that they deposit them and then send a percentage of the money back to the fraudster. When the check eventually bounces, the victim is liable for lost money. Over $28 million was lost in fraudulent check scams in 2019, according to the FTC.
Red Flags of fake check scams include:
- Receiving unsolicited checks in the mail
- Requests for the sender to return some of the money
When receiving unexpected checks, exercise caution and double-check the check’s validity with the issuing bank before depositing it to recognize and avoid bogus check scams.
Scam #8: Debt Settlement Scams
Scammers that promise to negotiate with creditors and minimize the amount owed prey on people already in debt. But these scammers frequently demand expensive payments and fall through on their promises, leaving victims in much deeper financial straits. The FTC has targeted numerous debt settlement con artists for action.
Red flags of debt settlement scams include the following:
- Guaranteed debt reduction promises
- Upfront service charges
Investigate the company’s reputation before hiring it; stay away from companies that demand upfront payments or make exaggerated claims; and think about partnering with a non-profit credit counseling organization.
Scam #9: Donation or Charity Scams
Scammers will pose as real charities to ask for donations. These frauds can appear in various ways, including phony websites, social media campaigns, and telemarketing calls. According to the FTC, Americans lost more than $100 million to charity fraud in 2020.
Warning signs of donation or charity scams include:
- Pressure techniques or sentimental attractions
- Requests for cash gifts, gift cards, or wire transfers
Research the organization’s reputation, ensure it is registered with the state or federal charity authority, and use secure contribution channels to confirm and support legal organizations.
Key Points
- One must be vigilant and knowledgeable to prevent falling prey to financial scams, especially payday loan scams.
- Recognizing the warning signals will help you safeguard your finances from payday loan frauds like advance fee fraud, fraudulent lending websites, and debt collection fraud.
- In addition to identity theft, unlicensed lenders, and hidden fees and terms, payday loan scams can put borrowers in a difficult financial situation.
- Other financial scams to be cautious of include fake checks, debt settlements, and gift or charity scams, which can cause significant financial losses.
- Investigate the authenticity of lenders, debt settlement firms, and charities to protect yourself against these frauds. You should also report any suspected scams to the relevant authorities, such as the FTC, CFPB, or the attorney general’s office in your state.
