Payday loan scams and how to check a lender

Common scams

Advance-fee loans. You are “approved” and then asked to pay an insurance, processing or tax fee first, often by gift card or wire transfer. The loan never arrives. Real lenders take fees out of the loan.

Phantom debt collectors. Callers claim you owe an old payday loan and threaten arrest unless you pay today. They often have part of your personal data from an old loan application. Real collectors must tell you who the creditor is and send written validation on request.

Account takeover. A “lender” asks for your online banking login to “verify income”, deposits a bad check and has you send part of it back. When the check bounces, you owe the bank.

Unlicensed lenders. Offshore or anonymous websites lend without a state license at rates above your state’s limits and may debit your account repeatedly.

Lead sites posing as lenders. A site collects a full application and sells it to many buyers. You then receive calls and offers from companies you never contacted.

Five checks before you apply

1. License. Search the lender on your state regulator’s website or NMLS Consumer Access.
2. Disclosures. The offer shows the finance charge, APR and payment schedule before you sign.
3. Contact details. A physical address and a phone number that a person answers.
4. No upfront payment. Any fee requested before funding ends the conversation.
5. Realistic promises. Offers of certain approval for everyone, with no review of any kind, are not how lending works.

If a collector calls about a debt you do not recognize

Ask for the name of the original creditor and a written validation notice. Do not confirm bank details or pay by gift card. A real debt will still be there after you have checked it; a fake one disappears when you ask for proof.

If you have already paid or shared information

• Contact your bank at once to stop payments and close or monitor the account.
• Place a free fraud alert or security freeze with the credit bureaus.
• Report the scam to the Federal Trade Commission and your state attorney general.
• Review your credit reports for accounts you did not open.

Where legitimate options are

Start with your state’s rules, then compare licensed short-term loans with the alternatives. Our page on online loans explains how lead generators differ from lenders.