10 Ways To Protect Yourself From Phony Payday Lenders

From pawn shops and check cashing outlets to the print classifieds and online promotions, advertisements touting the benefits of cash advance loans are more present than ever. This ubiquity can be attributed to the efficient and valuable service that the average payday loan store provides to consumers sinking in financial quicksand. While the vast majority of payday advance companies are trustworthy, the public should be aware of and on guard against scam artists masquerading as legitimate payday loan providers. Payday lending scams, both online and offline, are reportedly on the rise, and they tend to target particularly monetarily-vulnerable consumers who are already in desperate financial straits. Granted, no financial industry is immune from predatory lending practices and loan fraud. Nevertheless, a recent survey conducted by the Federal Trade Commission ranks the fast cash payday loan company first in a list of businesses reported for fraudulent activity.

Consumers should especially exercise caution when borrowing money online, since identity theft and fraud are potential risks. After all, when applying for an internet payday loan, borrowers submit their social security number, bank account number, and personal identification information to an unknown creditor and sometimes via an unsecured server. Here are a few tips on identifying and avoiding fast cash payday loan scam artists:

1. Unsolicited internet payday loan enticements

A legitimate payday loan store will not spam-mail payday cash offers to generate business. For instance, an email sent to a borrower's mailbox offering a free payday loan is a tip-off that the business is fake and a 'phishing' scheme.

2. Credit-related questions over the phone

Scam artists often resort to the telephone to ask prospective borrowers to answer credit-related questions. Consumers should refrain from providing answers until they have adequately researched the company and run a thorough background check, to ensure that it actually exists and is reputable. One way to do so is to consult the Better Business Bureau, to find out whether any complaints have been filed against the payday lender. Another way to protect themselves is by running web searches for the provider's name to see if any bad press turns up. They should also verify that the internet payday loan company's webpage is well-organized and professionally-designed.

3. Upfront fees

Legitimate payday lenders never charge an advance fee. In fact, upfront fees are prohibited in most states. Normally, application, credit report and other types of fees are deducted from the loan's proceeds after the funds have been issued to the client. Any promise made by a lender to a borrower that he or she is guaranteed a payday advance loan if a processing fee is paid in advance should be considered suspect. Another indication that the creditor is a crook is a request for payment of an upfront fee by way of a Western Union money transfer and/or for utilization by the consumer of a password code, which would help the lender hide his identity. Borrowers should also not be fooled by insurance company letterheads that appear professional, for most are forgeries and contain fictitious telephone numbers.

Sometimes, payday loan scam artists recruit solicitors to lure consumers with a bad credit payday loan offer, on the condition that they pay a fee ranging from $100 to $2,000 or more. Such a fee is illegal, and the end result is lost fee money and no loan.

4. Hiding or making unclear the costs for payday cash

5. Promises of instant approval

Consumers should be wary of payday advance lenders who promise to approve a loan on the basis of a few questions. A trustworthy creditor will never guarantee loan funds prior to the initiation of the application process.

6. Extraordinarily high fees

Another red light should flash when borrowers notice unreasonably high and exorbitant interest rates and fees (i.e. 900% APR). Such charges trap consumers into borrowing more funds they are unable to afford, plunging them, slowly but surely, into a swamp of debt.

7. Lack of a secure server and a privacy policy

An internet payday loan provider must clearly post a comprehensive Security and Privacy Policy and protect its customers' bank and personal information data from being intercepted. Payday cash advance loan scam artists do not provide a secure online network and consequently facilitate hackers' access to consumer information. Prospective borrowers should only choose a payday loan company that features an SSL certificate on the application page, which means that financial data is securely transferred and encrypted.

8. Anonymous or hard-to-locate lenders

Phony payday advance lenders are often impossible to contact and are located overseas. Many emergency payday loan scam artists operate out of Canada, where they advertise using toll-free 800, 877 or 866 numbers or Canadian area codes. Many employ anonymous domain registrations, making it extremely difficult for consumers to have their questions addressed. A legitimate internet payday lender will have a Contact Us page furnishing an email address and a form for communicating any concerns or issues relating to the payday advance.

9. Non-disclosure of important information

Borrowers must be informed of their right to cancel authorization to debit their bank account. Consumers have a right to revoke electronic access to their account, and industry rules require the payday cash loan creditor to set this forth in the loan agreement.

10. Non-compliance with licensing laws