The Better Business Bureau (BBB) has released a brand [new report](https://www.bbb.org/all/scamstudies/payday_loan_scams_study.html) highlighting the various scam tactics commonly practiced within the payday loan industry.
The report, published this week, emphasizes new scam strategies that exploit information extracted from legitimate lenders to deceive consumers. The recent surge in online payday lending platforms has enabled fraudsters to effortlessly impersonate these lenders using stolen data.
BBB’s vice president of communications and public relations, Josh Planos, explains that this ease of imitation allows scammers to issue fake loans, convince individuals they still owe money, impersonate debt collectors, or demand upfront payment for loans. The report additionally underlines how disparate state laws facilitate predatory payday lending practices.
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Frequent Payday Loan Deceptions
The report from BBB identifies various common scam scenarios, drawing from the over 3,000 payday-lender-related complaints received since 2019. This has resulted in the loss of millions of dollars, with the median loss per person amounting to $1,000 in 2022.
One practice is using stolen information: fraudsters may access your information if you’ve previously borrowed from a certified lender and then contact you pretending to be a representative of that company. They will try to convince you that you owe money that has, in reality, already been paid off.
The report identifies several red flags, such as emails being sent from @gmail.com or @yahoo.com addresses rather than from the company’s domain and small misspellings in the company’s name.
Fraudsters posing as debt collectors is another common scam. They may use names sounding like legitimate law firms to deceive consumers into thinking they are collecting a debt.
The report advises consumers to be wary of requests for payment through specific apps or gift cards. These forms of payment are difficult to recover. Legitimate organizations still predominantly deal in cash, checks, and credit card transactions.
Related Frequently Asked Questions
Are there state laws that regulate payday loan practices?
Many states have laws regulating payday loan practices, but these laws are often uneven in terms of strictness and enforcement. This lack of consistent regulation has allowed predatory payday loan companies to thrive. Consumers should research the payday loan laws specific to their state for more information and protection.
What to do if I think I’ve fallen victim to a payday loan scam?
If you suspect that you’ve been targeted by a payday loan scam, you should contact your bank or credit card company immediately, file a local police report, report it to your state attorney general’s office, and submit a complaint to the Federal Trade Commission or the BBB.
What are the warning signs of a payday loan scam?
Some signs of a potential payday loan scam include: a lender asking for payment upfront, emails regarding a loan coming from a private email account (like a @gmail or @yahoo.com address), calls from someone claiming to be a debt collector for a debt you don’t recognize, requests for you to wire money, and companies too eager to approve your loan application without first reviewing your financial situation.
## Unscrupulous payday loan practices you should be aware of
Even legitimate payday loan companies are not free from potentially exploitative or unprincipled behaviors, despite theConsumer Financial Protection Bureau’s effort to clamp down on such actions during President Obama’s tenure.
In general, it’s up to each state to regulate payday lending. More than a dozen states put forth [some form of payday loan regulations](https://www.ncsl.org/research/financial-services-and-commerce/payday-lending-2021-legislation.aspx#:~:text=Specifies%20various%20consumer%20protection%20requirements%20for%20short%2Dterm%20loans%2C%20including,loan%20companies%20to%20be%20licensed) last year.
However, in 32 states, payday loans are still available, and some of these states have no limit on interest rates. Annual percentage rates can even exceed 400% in eight states, as [Pew Charitable Trusts](https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2022/04/payday-loans-cost-4-times-more-in-states-with-few-consumer-protections) reports.
The BBB cautions that some payday lenders may present their interest rates on a weekly or biweekly basis, rather than providing the customary annual percentage rate used for credit card interest announcements. For example, a $375 loan may be advertised with a 15% finance fee. However, this would translate to an APR of 391.07%.
## Steps to report a fraudulent scheme
If you’ve been defrauded, there are multiple options for reporting your experience, including [BBB.org/ScamTracker](http://BBB.org/ScamTracker).
For the Federal Trade Commission (FTC): Visit [ReportFraud.ftc.gov](http://ReportFraud.ftc.gov)
Contact your state attorneys general: Check your state attorney general’s [website](https://www.usa.gov/state-attorney-general) for online filing options.
You can follow Katie Wedell on Twitter at [@KatieWedell](https://twitter.com/KatieWedell).
### Frequently Asked Questions
#### What are some predatory payday loan practices to look out for?
Some payday lenders might practice unethical behaviors like advertising their interest rates on a weekly or biweekly basis instead of the conventional annual percentage rate. This could result in higher interest rates than the borrower realizes initially. For example, a loan might be advertised with a 15% finance charge, but in reality, this could equate to an APR of 391.07%.
#### How can I report a payday loan scam?
There are several avenues for reporting payday loan fraud. Besides the Better Business Bureau’s Scam Tracker, you could also file a complaint with the Federal Trade Commission through ReportFraud.ftc.gov or check your state attorney general’s website to see if an online filing option is available.
#### Are all payday loans predatory?
Not all payday loan companies participate in exploitative or unprincipled practices. Despite this, borrowers should exercise extreme caution, as even legitimate payday loan firms can be involved in unethical behaviors. In states where there’s no cap on payday loan interest rates, for instance, an APR may exceed 400%.
