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Better Business Bureau ®
Start With Trust®
Lafayette, LA
Beware Payday Loan Scam Alert
June 24, 2011

Beware payday loan scams, especially online

The Better Business Bureau of Acadiana advises local residents to beware of online and brick-and-mortar payday loan scams, as our office is constantly receiving calls about these types of companies.

 Online and local payday loan companies are marketed as a quick solution for short-term cash flow problems, but the BBB of Acadiana warns that on-line companies can trap consumers into the same cycle of debt and despair as brick-and-mortar lenders with less protection from regulators.

These companies attract customers with websites or advertisements promising easy money, then trap them into short-term, high-interest loans. When customers cannot pay the original loans, debt balances are rolled over into another high-interest loan.

And the problems to consumers can be much worse for online payday loan companies.

Many online lenders fail to obtain licenses, making it hard for regulators to have any control over them. Some are based abroad, which makes it impossible for authorities to enforce state lending laws or punish lenders that violate the law. With hundreds of illegal lenders online, the only protection is to avoid borrowing from them, regardless of need.

Recently, applicants for online payday lenders complained they were enrolled in discount clubs, which then debited consumers’ bank accounts without their knowledge. One club had more than 500 complaints filed against it, none of which were resolved. Consumers complained that the unexpected debits caused them to incur overdraft fees in addition to the loss of their money.

There are also many instances of consumers also having been asked for payment on loans they never received. In some cases, they applied for loans but were turned down or declined the loan. The consumers then received multiple abusive or threatening phone calls seeking to collect the money. The calls came from overseas and the callers had consumers’ private information, such as Social Security numbers, addresses and sources of income. Authorities could not determine how the callers obtained the information, except that consumers had applied for loans online.

The BBB of Acadiana recommends that consumers look for other means of meeting short-term cash crises before turning to payday loans for relief. An employer may be willing to give an advance on an employer’s pay or a credit card may be used to tide a family over until payday, though this should also be done with caution.

Other tips for online payday loan companies:

  • Never pay an advance fee in exchange for a promise of a loan. These are almost always scams and, once you have paid, you likely will never hear from the thieves again. +The fees may be disguised as mandatory insurance or some other product the lender says is needed to obtain the loan.
  • Be extremely cautious when giving out any personal information online such as Social Security and bank account numbers. Be alert for websites that force you to give that information before even telling you whether you qualify for a loan.
  • Read all information on the site very carefully, searching for hidden fees or disclaimers. Often, a company’s “terms and conditions” can be several pages long and contain critical information for consumers. Some consumers have had difficulty printing the conditions because of how the site is set up. This is always a warning to avoid the company.
  • Understand that many disreputable companies exaggerate or entirely fabricate testimonials.  Be suspicious of testimonials and ask for local references you can speak with.
  • Always check with the BBB before you do business. Please visit the Better Business Bureau of Acadiana at acadiana.bbb.org.