Have you received a debt collection notice or call for a payday loan you didn’t know about? If so, you’ve probably been a victim of payday loan identity theft.
In 2021, the Federal Trade Commission (FTC) received 5,942 reports regarding this scam. It’s prevalent, but it’s not easy to detect until the damage has been done.
We looked at official sources of payday loan providers to understand how they deal with identity theft. We also sought tips from industry experts and reputable online safety publications. Moreover, we read stories from people who experienced payday loan identity theft and how they dealt with it.
Read until the end to learn the most critical step to do when you experience payday loan ID theft. Don’t miss out on critical steps to help you prevent or stop it. One loophole can keep your identity vulnerable to theft.
How does loan fraud occur?
A payday loan is a short-term loan that you need to pay back, usually after two to four weeks.
If you need emergency funding, you can request a payday loan and receive $100 to $1,000, depending on your state’s prescribed limit.
It’s called “payday loan” because you must authorize the lender to automatically deduct funds from your account on your payday. But you can also apply for this loan even if your income comes from Social Security benefits or pension checks.
But how long does a payday loan stay in the system? It stays on your credit record for six years, so if you don’t pay a loan company back, it will be difficult to get a personal loan from banks and credit unions.
That’s why falling victim to payday loan fraud can be devastating.
How does loan fraud work?
Loan application fraud happens when identity thieves use your information, such as your SSN, to apply for a quick loan. Since payday loan providers don’t require much verification, unlike banks, it’s easy for scammers to obtain cash under your name.
Here’s how scammers may get your personal information:
- They may log in to the dark web, where they bulk buy valid IDs for their fraudulent acts.
- Phishers may send emails containing malicious links and attachments that can hack other people’s devices.
- They may hack companies and websites to create ID profiles using stolen personal and financial information.
Scammers may also call you, claiming that they represent a collection agency on behalf of a loan company. They’ll ask you to confirm your identity, including your SSN. However, they just want to steal your personal and financial details.
How to spot payday loan scams?
The first step in avoiding loan scams is to recognize them. Here’s how to spot payday loan fraud.
1. You received a debt collection notice
If a collection agency sends you a debt collection letter, but you haven’t received a payday loan, it’s a clear sign that someone applied for a loan using your identity.
This is usually how you find out that someone took out a loan in your name.
2. You didn’t receive a validation notice
The Fair Debt Collection Practices Act (FDCPA) instructs debt collectors to send a validation letter to debtors. You’re probably communicating with a scammer if you haven’t received this notice and someone calls you to collect the debt.
3. They pressure you to act immediately
Debt collectors who work for legitimate loan companies offer a payment plan to settle your outstanding balance. So when callers only accept immediate payment, insisting that you pay in full, they’re probably scammers.
4. They demand you to pay under threats of arrest
Can you go to jail for not paying an online loan?
No legitimate loan company will threaten you with immediate arrest because of an unpaid debt. It’s only one of the scammers’ tactics to instill fear in their victims.
5. Search for the loan provider
If the caller provides you with the collection agency’s name, search it to see what other people have to say about the company.
Look for its website, phone number, and address. If you can’t find any results or the results seem fake, hang up to prevent being scammed.
You can avoid loan fraud by exercising due diligence and following our tips above.
Why do scammers target payday loan companies?
Lending companies release loans within 24 hours, and it’s one of the reasons why scammers target them.
They require fewer verifications, making it easier for fraudsters to apply for loans using stolen identities.
Fraudsters may also use different valid IDs to apply for several loans. Unfortunately, some loan providers might overlook suspicious applications because they advertise the quick release of loans.
What are the effects of loan fraud?
You might be asking, “What are the consequences if someone took out a loan in my name?”
It could damage your credit history, so only a few banks and credit unions will approve your loan application. If they even grant your request, you’ll suffer from high-interest rates.
You can also become a victim even if you really have outstanding credit. If someone pretends to be from a collection agency and you transfer funds to him for fear of imprisonment, you’ll lose the money you should’ve paid to the legitimate loan company.
What to do if you’re a victim of payday loan identity theft?
Although the effects of loan fraud are overwhelming, you can still protect your credit. If you think you’ve been scammed, here’s what you should do:
- Collect all documents that show your communication with the scammers.
- Visit https://www.identitytheft.gov/ to report the incident to the FTC. This will help you avoid being liable for fraudulent loans.
- File a police report regarding your stolen identity.
- Freeze your credit report to stop scammers from opening new loans under your name.
According to Matthew Aubin, the founder of Counter Surveillance & Cyber Team, the most critical step to do when you experience payday loan identity theft is to immediately report it to your bank.
Make sure to act quickly once you discover you’ve become a victim of loan fraud.
How to protect yourself from loan scams?
Loan fraud can result in poor credit scores and stolen funds. You can follow our tips below to prevent becoming a victim of this scam.
- Research the collection agency before giving personal and financial information.
- Never provide your SSN over the phone unless you start the call.
- Check your credit report regularly to recognize suspicious transactions.
- Don’t click malicious links or attachments to prevent phishers from accessing your data.
- Don’t send money to a caller who claims to be an employee of a collection agency. Check first if the caller or the agency is a legitimate employee.
Is it possible to avoid payday loan identity theft?
Scammers may have developed different methods to apply for loans using your identity, but you can still avoid payday loan fraud.
Know how to spot loan scams, perform due diligence, monitor your credit report, click only the links you trust, send money only to legitimate collection agencies, and give your SSN only to authorized individuals to protect yourself.