Debt Collection


High Price for Payday Loans

Payday loans are small, short-term, high-interest loans that typically come due on your next payday. The way they work is you write a check to the lender for the amount of the loan plus the lending fee. The lender gives you cash for the loan amount and holds your check for deposit for two weeks, or until your next payday.

Although convenient, payday loans come at a very high price. The lending fee (generally 15 to 30 percent of the loan amount) applies each time the loan is extended. The real cost of these loans (the annual percentage rate of interest) ranges from an astounding 300 to 1000 percent!

The Federal Trade Commission urges consumers to avoid payday loans and look for cheaper finance alternatives.

Schemers Threaten Legal Action

Nevertheless, people unable to get credit elsewhere turn to payday loans to help them through desperate times. Scammers are taking advantage of these borrowers' vulnerability to con them out of even more money.

In 2009, the Better Business Bureau warned about a telephone scheme targeting people nationwide. Phony bill collectors call accusing people of not repaying payday loans. Victims are told they'll be arrested if they don't immediately wire a $1,000 payment or provide bank account or credit card numbers.

It's Still a Problem

The scammers haven't given up, though. For example, in May 2011, Arizona's attorney general warned people about a similar scam. Consumers are receiving collection calls from fake law firms or fake government agencies telling them they owe money to a payday loan company and threatening them with legal action.

They're Convincing, Too

In both cases, consumers are duped because the scammers use official sounding company names and they know a lot of personal information about the victims, like their social security numbers, driver's license numbers and old bank account numbers. They sometimes refer to the victim's employer and even mention the names of personal friends and professional colleagues.

Can You be Arrested?

No law allows you to be arrested for failing to pay a payday loan or other type of loan. In fact, there's a law making it unlawful for bill collectors to threaten you with arrest.

The Fair Debt Collection Practices Act doesn't allow bill collectors to:

  • Threaten to have you arrested if you don't pay
  • Repeatedly telephone to harass or annoy you
  • Threaten you with violence or harm
  • Falsely claim to be attorneys
  • Falsely claim that you committed a crime

Don't Give In to Scare Tactics

Don't be fooled into paying out money or giving personal information to these scammers. If you receive a suspicious phone call about a debt:

  • Ask the caller to send the loan information to you in writing
  • Refuse to verify any bank account, credit card or other personal information over the phone
  • Report any telephone harassment or threats to the Federal Trade Commission. This is the agency that enforces the Fair Debt Collection Practices Act
  • File an online Better Business Bureau complaint to help let others know about the scam
  • Contact your state Attorney General's office to find out about state debt collection and consumer protection laws that might apply

Questions for Your Attorney

  • What can I do to stop receiving upsetting telephone calls about debts I don't owe?
  • The telephone caller knew my social security number and bank account numbers. What should I do now to protect my identity and money?
  • What should I do if I really am late paying off my payday loan?