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The www.FedPrimeRate.com Personal Finance Blog and Magazine

Monday, June 04, 2012

Payday Loan Collection Fraud: The Biggest Scam You Have Never Heard Of

Hopefully you’ve never had to take out a payday loan; they are the bottom feeders of financial products. Unfortunately, however, they are hugely popular among the American working class. Don’t believe it? In a factsheet compiled by PaydayLoans.org you will discover that there are twice as many payday loan locations as there are Starbucks, and in 29 of the 35 U.S. states where payday lending is legal, there are more payday loan locations than McDonald’s!

Who knew that was possible?

Furthermore, these seemingly simple loans which are super easy to obtain but nearly impossible to repay cost Americans 3.5 BILLION dollars every year in fees! And it’s no wonder; 76% of total payday loan volume is repeat loans. Most borrowers find themselves needing a lump sum of money for an important, often unexpected expense. Payday loans, as the name suggests, offer a quick solution based on your employment and provides short-term financing to be collected from your next paycheck. On the surface, it sounds good and fair.  However, the reality is that low-income borrowers cannot usually afford to repay all at once because it represents too great a percentage of their regular paycheck. So, what does your friendly neighborhood payday lender do if you find yourself unable to repay in full as agreed? He or she simply offers an extension, which is really a repeat loan, until you can pay in full…for a fee. The vicious cycle is normal in the payday loan industry because the typical borrower does not make enough money to live and repay the loan in full within 14 days. Sometimes borrowers even try to borrow from Peter to pay Paul – taking out one payday loan to try and pay off another only incurs more payday loan debt and exponentially increases the size of the problem if things are not handles precisely because the cycle usually continues until the house of cards comes crashing down.

What’s worse is that many payday lenders sell your personal information to third parties! It’s right there in the privacy policy that most borrowers don’t read. So, the question is, “Who do payday lenders sell your information to?” One answer, among others, is scam telemarketers. Third parties get your information and call borrowers posing as law enforcement agencies who are ready to prosecute for delinquency in repayment. Although you may be surprised to learn that such fraud is taking place, both the Federal Bureau of Investigation and Lawyers.com websites have published warnings against this elaborate scam. Apparently, many payday loan borrowers have fallen victim to these fast talking imposters; ignorance of the law, fear of prosecution, and other factors, causes unsuspecting victims to get spooked. These payday loan collection scammers have attacked my own family and friends, and had we not known as much about the law and standard business operations as we do, we may have been exploited like other unfortunate payday borrowers.

When my husband first received the phone call he was spooked; the voice on the other end of the line sounded very official, and the “officer” from the “Bureau of Investigation” was angry. He told my husband that there were multiple felony charges against him for lack of payment on his supposedly delinquent payday loans. Thankfully, by this time he had paid all of his payday loan debts except for one, and he was in good standing with the lender. So, that fact alone caused him to be suspicious. As the “officer” continued, he threatened to transfer the call the call to a “chief officer” to execute arrest warrants for him if payment arrangements were not made immediately. Fearing for what would happen to me and my children if her were imprisoned, my husband asked what he could do. He was then instructed to purchase a prepaid credit card and load money onto it without activating the card. The scammer claimed that they would take care of the activation and all those particulars, and that the account would be settled if he complied.

After he hung up and thought about it for a while, my husband asked me what I thought. Between the two of us I know more about the law and government, so I recognized immediately that this was a scam. However, the prime targets for this fraud are not so lucky. Statistics show that civic literacy in the United States is staggering; across class and gender lines, high school graduates know less and less about the Constitution and how government works, much less what government agencies actually exist and what they can and cannot do. So, anyone calling with an authoritative tone claiming to be a government or law enforcement official can easily intimidate the average citizen. Furthermore, very few people who have not actually been processed within the penal system know the ins and outs of how people are charged for crimes, i.e. what actually constitutes a felony and how felony charges would be made against someone. Payday loan collection scammers count on this civic ignorance and successfully exploit thousands of unsuspecting people, convincing them that their very way of life is at stake if they do not comply.

In addition to ignorance of the law, previous run-ins with the law are something payday loan collection scammers depend on. Many people who take out payday loans have criminal convictions or outstanding legal issues such as suspended driver’s licenses, unpaid tickets, or back child support. While it may seem prejudicial to assume such, the truth of the matter is that the financial circumstances that force people to use payday loans also prevent people from meeting their legal as well as their personal financial obligations. So, if an individual is already fearful of prosecution or penalty and they are confronted with the possibility of facing criminal charges, they will be more likely to comply with unusual or unreasonable demands.

After I assured my husband that there was no possible way that the call could be legitimate, he called the one payday lender he was sure he still owed. They confirmed that his account was in good standing and that they would never make such a call or take such measures to collect. The representative he spoke with advised him to request whatever the caller proposed in writing because she also believed it was a scam. In the first phone call, the “officer” said he would call back within a couple days, and he did as promised. When he called back, my husband asked him to send whatever he was saying in writing. The scammer actually got loud and belligerent, spewing more threats of swift legal action and making personal attacks against my husband’s character! However, when he wouldn’t budge, the guy just hung up. We shook our heads and discussed the ordeal, thanking God we didn’t succumb and wondering how something like that could have ever happened.

A couple weeks later, it happened to a friend, and he had only applied for a payday loan online. He didn’t even receive the loan! When he told me his story, I knew a full-fledged scam was going on…and that someone somewhere had fallen for it. According to the FBI, Better Business Bureau, and other authorities, thousands of people across the U.S. have been defrauded this way. Don’t be one of them; know your rights and your responsibilities with your finances, under the law, and in every other way applicable. In this case, as in all others, ignorance is what makes you a target. Knowledgeable people don’t scare easily, and they certainly don’t follow the instructions of an angry stranger on the other end of the phone.

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Anonymous Debt Help said...

Scams always escalate when the economy is bad. Washington can fix it, but they're too busy behaving like children.

Tax breaks for rich people and corporations? Yes.

Putting millions to work fixing and maintaining roads, bridges, tunnels, etc? No.

Bailing out the banks that contributed much to the Great Recession -- the same banks that are now hoarding cash instead of lending -- Yes.

Deporting known, unauthorized and criminal aliens? No.


Thursday, June 07, 2012 9:33:00 AM  
Anonymous Connie Solidad said...

I've had many clients that have fallen prey to one scam or another. There is a special level of hell reserved for those who prey on the weak and destitute. Luckily, most scams don't hold up to inspection if you take a close look.

Wednesday, August 15, 2012 12:39:00 PM  

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