Predatory payday loan scam could cost twice as much

TOPEKA, Kan. (WIBW) – Predatory payday loans and scams could end up costing you double the loan amount, according to a new study by the Better Business Bureau.

As Americans lost jobs and struggled to make ends meet during the COVID-19 pandemic, many turned to payday loans and short-term solutions, which can increasingly be found online, according to the Better Business Bureau.

The BBB noted that this not only allowed predatory lenders to thrive as many borrowers struggled with sky-high interest rates and fees, but also created an environment for scammers.

The BBB said its new research found that payday loan laws are handled state by state and among the 32 states where they are available, an intricate web of regulations makes the industry difficult to follow. A common thread, however, is the triple-digit interest rates and the significant rollover fees.

From 2019 to July 2022, the BBB reported receiving nearly 3,000 complaints about payday loan companies for a disputed amount of nearly $3 million. In addition, more than 117,000 complaints were received against collection agencies.

According to the BBB, complaints often pointed out that borrowers felt misinformed about loan terms. It says many customers have fallen into a “debt trap” with stacked interest and fees leaving a bill nearly double the original claim.

A woman in St. Louis recently told the BBB that she paid more than $1,200 over the course of her $300 loan and still owes an additional $1,500.

The BBB found that scammers didn’t miss an opportunity to take advantage either, as their scam tracker captured more than 7,000 credit and collection fraud reports representing a loss of approximately $4.1 million.

Scammers posing as payday loan companies and debt collectors are arming themselves with stolen information to convince residents to give up their bank account information and cash, according to the BBB. In one case, hackers were found to have stolen and released detailed personal information and financial data from more than 200,000 residents — and this was not an isolated case.

A Wisconsin woman told the BBB that she received a call from an alleged debt collector stating that a court case was pending over an overdue payday loan debt. Fearing legal trouble, she ended up sending the scammer $500 and her credit card information. Over the next few months, her card was repeatedly charged until she blocked it.

The BBB noted that federal regulators have sought stricter legislation to curb predatory lending. However, those regulations were reversed, requiring states to create their own rules for interest rate caps and other aspects of the loan. More than a dozen states have enacted laws regulating payday loans, but the landscape for legally operating payday loans remains uneven from state to state.

Currently, the bureau said payday loans are blocked in 18 states. It also states that the Military Lending Act sets an interest rate of 36% on certain payday loans.

Regarding fraudulent behavior, the bureau noted that law enforcement has limited ability to prosecute payday loan fraud. It is said some legit lenders have tried to prevent fraud by educating customers on how to contact borrowers and what they are not allowed to do.

The study advised residents to carefully research all loan options and payday loan terms before signing any short-term loan documents. In addition, the study made the following regulatory recommendations:

  • Limit consumer credit to 36%
  • Make more people aware of no-fee extended repayment plans
  • Encourage lenders to test whether customers can repay loans
  • Encourage Zelle, Venmo, and other payment services to offer fraud refunds

To report a payday loan scam or make a complaint, click HERE.