Money Paths

New Payday Loan Scams Abound

Loan ‘shops’ as ubiquitous as Starbucks, McDonalds

BIRMINGHAM, Ala., Oct 1, 2014 /PRNewswire/ — Getting an immediate cash loan, with nothing but a pay stub as collateral, is becoming increasingly popular with Americans caught short on funds. So popular, there are more payday loan locations in the US than Starbucks and McDonald’s combined. About one in twenty of us have taken out such a loan, despite the outrageous interest rates charged – sometimes exceeding 700% APR. The combination of big money (estimated to be a $10 billion business) and the prevalence of these loans has attracted scammers trying to get their hands on the loot.

Bradford W. Botes, a bankruptcy attorney practicing out of Birmingham, Alabama, says he sees the sometimes tragic results. “When those who are already having financial hardships get further victimized by a payday loan scam, it’s sometimes enough to push them into bankruptcy,” he said.

The illegal practices range from threatening calls about getting arrested or possible legal action, to bogus offers to settle a debt over the phone. With so many loans being taken out, scammers can just call randomly and “hit” someone with an active loan. If the scammer can convince someone they represent the lender, they aren’t shy about stealing what little a consumer has left.

“The scammers are very convincing,” said Mr. Botes. “They may say they are from law enforcement or an officer of the court. All untrue. Debtor’s Prisons were done away with in the United States many years ago.”

The illegal practices range from threatening calls about getting arrested or possible legal action, to bogus offers to settle a debt over the phone

And now the scammers have moved to email as well. In one version, it says: You are going to be legally prosecuted in the Court House within couple of days. Your SSN is put on hold by US Government, so before something goes wrong we would like to notify you about this matter. And the scammers aren’t shy about impersonating lawyers either. They may mimic the letterhead or legal languages used by legitimate law firms, or threaten a lawsuit and wage garnishment.

Worst Practices

Sometimes, it’s the payday loan companies themselves who go past what is allowed. Earlier this year, Forbes reported that the Consumer Financial Protection Bureau levied a $10 million fine against Ace Cash Express, saying the company “used false threats, intimidation, and harassing calls to bully payday borrowers into a cycle of debt. This culture of coercion drained millions of dollars from cash-strapped consumers who had few options to fight back.”

As one of the options to fight back, the law firm of Bond & Botes, P.C. tells their clients to use four “magic” words: “Talk to my lawyer;” give the firm’s phone number, and hang up. “When you engage with these scammers, you only give them more chances to intimidate you,” said Botes. “Talking with them only encourages the scammer to try harder and to keep calling back.”

The remedy, according to Botes, is to spread the word about these deceptive practices. Those with elderly relatives should talk with their loved ones about trusting any official-sounding phone calls, especially if immediate action is required or legal action is threatened. It’s critical that they not give out banking information (checking or savings account numbers) over the phone or by email.

Consumers who find themselves in financial difficulties should contact an experienced local bankruptcy attorney (National Association of Consumer Bankruptcy Attorneys).