National Consumers League

Personal Finance

NCL Personal Finance Issues

Need extra cash for the holidays? Beware of online payday loan offers

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piggy bank wearing santa hatWith increased expenses around the holidays, consumers may find themselves running short of cash for other bills, and some may be considering payday loans to cover the short-term need. Thinking about a short-term loan? Better think twice.

 

These days, a payday loan is only a mouse click away thanks to the proliferation of online payday loans. While even legitimate payday loans should only be considered as a last resort due to their extremely high interest rates, we are seeing a large number of reports about payday loan companies that are nothing but scams.

The scam works like this: A consumer in search of an online payday loan sees an ad online, on a newspaper classified page, in an email, or somewhere else. The ad guarantees a payday loan without a credit check. The consumer is directed to a Web site that looks very official and legitimate. They are instructed to enter in personal information, presumably to begin the loan application process. In some cases, the scammers have even posted fake video "testimonials" online to make the scam seem more legitimate.

Once the personal information is entered, the consumer is contacted by the alleged payday lender (in reality, a scammer) and asked to send money to cover fees "before the loan can be processed." The scammers claim that this money is necessary to pay for things like "application fees," "insurance," "taxes," or other important-sounding costs. If the victim sends the money, they are typically contacted again with another ask for additional money for other fees before the loan can be processed. This sequence may continue until the consumer catches on to the con or runs out of money.

Here are a few tips to help you spot and avoid these scams:

  1. If you are asked to pay money to get money, it’s probably a scam. While most legitimate payday lenders charge a (typically hefty) fee, this is generally assessed when the consumer repays the loan. Requests for up-front fees before a loan can be granted is a sure sign that something is fishy.
  2. If you’re asked to wire money or use put money on a prepaid card before your can get a loan, it’s a scam. Consumers report that online payday loan scammers usually ask to have the fictitious “fees” wired via Western Union or Moneygram. Increasingly, scammers are also telling victims to load funds on a prepaid card (such as a Green Dot MoneyPak) and then either send the card to the scammer or give out the access code on the back of the card. In either case, the scammer gets cash from the money order or deducts the cash from the prepaid card and the victim gets nothing.
  3. If the online payday lender says they don’t need a credit check and then asks for sensitive personal information, it’s probably a scam. Many online payday lenders advertise that they do not require a credit check or other documentation of the borrower’s credit-worthiness. However, they then require the victim to enter sensitive information such as a Social Security Number online to apply for the loan. In reality, this information is used to target the consumer with even more bogus offers, or worse.
  4. Just because an online payday lender looks legitimate doesn’t mean that it is. Online payday loans scam artists are experts at setting up legitimate-looking Web wesites, providing official-looking documentation and even creating dummy business addresses. Consumers who are unfamiliar with the company should not simply rely on these materials. Do your own due diligence by checking with state banking regulators, the Better Business Bureau, and the state corporation commission to make sure the business is legit.
  5. If you’ve been approached by or lost money to an online payday loan scam, report it! These scams defraud consumers from every walk of life every day. Scammers count on their victims being too embarrassed to report the crime. By speaking up, you can help others avoid being victims. Complaints can be reported to NCL’s Fraud Center and we will forward them to the appropriate law enforcement agency.