Payday Loan Scams Explained: Are You Safe?

Imagine being promised a quick and easy loan, only to find yourself deeper in financial trouble. Online and payday loan scams prey on individuals in desperate need of financial assistance, often targeting people with poor credit history or those who have struggled getting loans in the past. These scams charge upfront fees and create a false sense of security, making it important to stay aware of the risks. Keep reading to learn how payday loan scams work and how to protect yourself from future fraud attempts.

What is a Payday Loan?

A payday loan is a short-term, high-interest loan designed to provide quick cash to borrowers who need money before their next paycheck. These loans are typically due on the borrower’s next payday, hence the name.

While legitimate payday loans themselves are not regarded as “scams,” they are still considered predatory due to their outrageous interest rates, repayment terms, and fees. These loans can trap borrowers in a cycle of debt, which is why they are illegal in several states across the United States.

What is a Payday Loan Scam? 

Taking the predatory practice of payday loans one step further, payday loan scams use deceptive tactics to trick borrowers. Cybercriminals typically reach their victims online through advertisements or emails, promising quick access to payday loans without credit checks or employment status. Then, once the victim shows interest, the payday loan scam can unfold in a couple different ways:

In the first scenario, after initial contact, the scammer asks for an upfront “processing fee” for insurance, administrative costs, or application purposes. They pressure the victim and create a sense of urgency, insistent that the loan will only be approved if the fee is paid immediately. The victim pays the specified amount, the scammer breaks off all contact, and the loan never materializes.

The second version is similar but has a key difference. Instead of requesting the “processing fee” at the very beginning, the scammer asks for it later. This makes the cybercriminal appear more legitimate and less aggressive. In this particular scenario, the scammer collects the borrower’s personal and financial information in order to provide the “loan.” Then, they send stolen or fake money into the victim’s account through ACH credits or mobile deposit. When the victim sees the “payday loan” in their account, the scammer requests the processing fee and finally disappears.

Both versions exploit the financial vulnerability of individuals, leaving them with less money than they started with.

Warning Signs of Payday Loan Scams 

Don’t become the next victim! To protect yourself from payday loan scams, be aware of these warning signs:

• “Guaranteed Approval”: Be cautious when a lender promises loan approval without checking your credit history. Legitimate lenders will always review your creditworthiness before granting a loan. So, if a lender guarantees approval, it is probably a scam.
• Unsolicited Offers: Did you receive an email or online ad from out of the blue? Random loan offers are often a sign of a scam, especially since real lenders don’t contact borrowers using that method. Take your time, do your research, and be wary of clicking on links or responding to messages from unknown sources.
• Upfront Fees: As mentioned, scammers often ask for an advance payment for insurance, processing, or application purposes. Once the fee is paid, they will disappear without providing the loan.
• Pressure to Act Quickly: Cybercriminals want you to respond without thinking. They might tell you the offer is only good for a short time or that you need to decide immediately. Take a deep breath. A legitimate lender will give you plenty of time to understand the loan terms and make the best decision.
• Request for Personal Information: It's a red flag if a lender asks for sensitive personal information before they provide any loan documents. Real lenders only request this information after you have reviewed and agreed to the loan terms. Providing your personal information too early can lead to identity theft and financial fraud.

How to Respond After a Scam

Being targeted by a scam is scary but knowing how to respond can limit further damage. Here’s what you should do if you are scammed:

• Change the password and security questions to your bank account.
• Contact your bank, especially if you have shared financial information with potential scammers (Academy Bank’s contact information provided below).
• Save all communications related to the scam, including emails, texts, receipts, etc.
• File a report with the Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB).

Fraud Resources at Academy Bank 

At Academy Bank, we care about the safety and security of our clients. If you need assistance or suspect fraudulent activity, contact us ASAP. We are here to help you tackle these challenges and protect your financial well-being.

How to report a scam to Academy Bank:

• Method 1: Log into Online or Mobile Banking¹ and send a secure message through chat.
• Method 2: Use the chat feature at academybank.com in the bottom right corner. Ask to speak to a banker, available Monday - Friday, from 8:00 AM - 10:00 PM, Central Time; AND Saturday, 9:00 AM - 5:00 PM, Central Time.
• Method 3: Call the Academy Bank Client Care line at 877-712-2265, Monday - Friday, 8:00 AM - 7:00 PM, Central Time.

FINANCIAL EDUCATION: Scams & Fraud; Preventing ID Theft; Reporting ID Theft; Fraud Alerts & Freezes; Mobile Security Tips; Visa Card Security.

CYBERSECURITY ARTICLES: General Cybersecurity; Spotting Common Scams; Safe Checking Practices; SIM Swapping Scams; Phishing Emails; Phone Scams; Text Scams; Crypto Investment Scams; Pig-Butchering Scams; Elder Financial Abuse; Business Fraud; Tax Return Security, Phone Upgrade Security.