Easy Pickings for Identity Thieves: Payday Loans in Your Name
There are so many ways to defraud honest Americans. Unfortunately, quite a few of them are hard to detect before damage occurs. Payday loan fraud—when a scammer taps your identity to borrow cash they won't repay—is a prime example of how scammers work the system to load their pockets. Unfortunately, the average victim finds it extremely difficult to uncover these loan scams.
The loans say it all in their name. Payday loan firms will loan you money until payday if you're short of cash. Often the interest rates are higher than other loans—a lot higher. A post-dated check serves as your pledge to pay up when payday rolls around. Online borrowers will need to provide data for automatic bank debits.
Unsecured loans like these do command higher rates, but the total financial impact still might shock you.
The U.S. Consumer Financial Protection Bureau (CFPB) offers this example: "Many state laws set a maximum amount for payday loan fees ranging from $10 to $30 for every $100 borrowed. A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400 percent. By comparison, APRs on credit cards can range from about 12 percent to about 30 percent."
Why Payday Loans Exist
There are many good reasons to take out a short-term loan, but sometimes borrowers have no choice. For example, unexpected car repair bills are one primary reason these loan firms thrive.
One wrong reason to opt into payday borrowing is to boost your credit score. These firms don't report good payment history to the major credit bureaus. Payday transactions won't influence your score unless you default and get taken to court or turned over to collections. Then your dealings could be folded into your credit file, but the result will damage your score.
The lack of credit reporting further compounds whether you can discover a payday loan existing in your name without your authorization.
Payday Loan Fraud Looks Like This
It's a simple scam and, with many short-term loan operators moving online, identity theft-based payday loans have become even easier to obtain.
Lenders don't check applicant credit. Instead, an ID in your name paired with your Social Security number could be enough to complete the transaction, which is usually under $1,000. The lender may also request your banking information—bank routing number and checking account details.
"If you do not have enough money in your account when the lender tries to withdraw the payment, your bank or credit union will likely charge you fees for the check bouncing or for overdrawing your account," the CFPB warns.
If your identity's stolen, your first clue of payday loans in your name could be a call from a collection agency. That caller might threaten you with arrest, threaten to call neighbors or your employer or even to ruin your credit report if you don't settle fast. Often the threats violate the Fair Debt Collection Act, too.
The lender will sell your data whether you applied for this loan or someone else did it under your name. In either scenario, watch for a bump in spam landing in your Inbox.
A brick-and-mortar location doesn't pop up overnight. It's the online ones that could be here today and gone tomorrow. Remember to check WHOIS to discover when these firms created their web addresses.
If you choose a payday finance deal, try to deal in person, so you don't provide a lot of critical data online.
"Providing bank account information to an online payday lender can leave you at the mercy of the lender as they withdraw more money than expected from your account," the Florida Office of Attorney General warns consumers.
The lender will still gather your banking details, but those sensitive numbers may not be stored online. There's a somewhat reduced risk of data theft with in-person transactions.
If your identity's been compromised and used for one of these loans, check out IDShield's individual and family monitoring plans. While it's quite tricky for most individuals to uncover a payday loan taken out fraudulent, we search unique lists for that information 24/7. In addition, our service will alert you to any fraud that occurs under your name rapidly so you can reverse the damage more easily.
IDShield is a product of Pre-Paid Legal Services, Inc. d/b/a LegalShield (“LegalShield”). LegalShield provides access to identity theft protection and restoration services. IDShield plans are available at individual or family rates. For complete terms, coverage, and conditions, please see an identity theft plan. This is meant to provide general information and is not intended to provide legal or tax advice, render an opinion, or provide any specific recommendations.