What is a Payday Loan Scam, and How Can You Avoid Them?

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When it comes to identity fraud events, people usually think of things like people getting ahold of their email address and password, or in the worst case scenario, their social security number, and wreaking havoc on their personal life.

But some people might be surprised to learn that the most common types of identity fraud include direct interaction with you, praying on your fears and forcing you to give up money of your own free will.

In general, these are called “collections scams”, or sometimes “blackmail scams” and payday loan fraud is one of the leading types of this to the point that most identity theft monitoring services offer specific payday loan scam protection as one of their features.

Read Also: Identity Theft: A Fast-Growing Crime.

Bill torn revealing words You got Scammed. Idea for What to do if you've been Victim of Scam and fraud. Signs of getting Scammed online.

What is a Collections Scam? 

In a collections scam, a fraudster calls claiming to be from a bill collection agency or some other debt collector who tries to extort money out of you.

Some focus on trying to sound as legitimate as possible, usually because they have some of your information already but usually only surface stuff like your name, phone number (obviously), and the fact that you have an account with a specific business or bank.

These are usually information collecting frauds. They’ll attempt to collect the bill by phone if they can, casually leading you into giving them your account information to “look up in their system” and credit card information when you “pay” the bill. In this case whether you pay the bill or not, you could potentially have let slip important information that they can use to hurt you later, like your security questions, last four digits of your social security number, or the aforementioned account numbers.

The other type of collections scam involves more aggressive tactics, cajoling you and acting hostile to prey on your fear and force you to pay quickly. They will often threaten things they have no ability to back up, like putting a lien on your assets or garnishing your wages if you won’t pay up, reporting you to the Federal Trade Commission, or cruder methods like calling your place of employment and “informing” them that you are delinquent on payments when you actually aren’t.

They are also more likely to fall back on the simplest possible tactic: just bothering you daily, sometimes multiple times daily, until they wear you down. This kind of targeted phone harassment is especially effective if you do actually owe debts to a specific agency they’re claiming to be from, and the harassment from legitimate debt collectors and fake ones can pile up to a critical mass that makes you give in.

The key here is to stay calm and think things through whenever you’re confronted. Don’t be afraid to hang up or even block numbers.


What is a Payday Loan?

Payday loans are typically going to be low-cost, short-term loans designed on the face of it to help people in temporary financial straits. You take out a small loan of $100, $500, or a similarly small sum that is meant to be paid back when you get your next paycheck.

It sounds like a tempting option, particularly for someone who is going through tough times and living hand to mouth, but expect things to turn around soon.

In practice…getting a payday loan is usually almost as bad as getting scammed. The loans often have insane interest rates, higher than anything you would expect to see from a more reputable loan. For this reason, payday loans are actually banned in 12 states, and heavily regulated in others, with caps on how high the interest can go.

 These rates can still be exorbitant compared to other options, with 39% interest rates (for reference, the worst credit card you could possibly have in terms of interest is about 30% interest) being common, but they’re still better than how high the interest rates can go in unregulated states. These states could see you getting trapped by a payday loan with interest rates upwards of 600%.

This means if the person taking out the loan does not pay it off within the usual stipulated two week period they end up even worse off than they started.

For that reason, payday loan businesses are notoriously cutthroat  and can be almost indistinguishable from a scam when you get a call from one of their debt collectors to begin with.

This problem is exacerbated by the fact that many people these days look at payday loans online, and start the application process there, but often think better of it when they view the terms.

This is where the payday loan scams come into play.


What is a Payday Loan Scam?

As mentioned, a payday loan scam is a subset of collections scam that preys on those who have considered taking out a payday loan.

These are typically individuals or small organizations that have taken out a domain posing as a legitimate payday loan business. What they’re counting on is people going through the loan approval process and putting in their information. Whether they back out of the loan before signing or not is irrelevant: that information is now on file.

Some might make use of data breaches on actual payday loan businesses as well. This is rarer though than someone filling out their information to a technically legitimate, if slimy business called a “lead generator”. They’ll get your information on file as someone who was looking for a payday loan and sell it to bidders who want to get you on their call lists to solicit you for loans.

Scammers pay these “legitimate businesses” to get your information, and use it the exact same way a payday loan provider would: to harass you. The only difference is that they have no ability or intention to actually give you a loan in the first place.

Instead, they’ll call you having claimed that you have already taken out the loan (whether you’ve done so from some payday loan business or not).

From there, things play out as any other collections scam. They might try to sound professional and finesse you into giving them your information or even a direct deposit to pay for the loan. This is especially effective if you took out an actual loan recently and were expecting a call about it.

They might go hard on you with threats at first as well, or even switch to this tactic if the “nice guy” play doesn’t work out for them.

In any case, giving them your information is a mistake and will lead to nothing good.

Man using calculator

How do you Avoid Such a Scam?

Thankfully, you have a ton of options. The ball is essentially in your court at all times.

One of the easiest ways to avoid a payday loan scam is to never apply for a payday loan, or even LOOK for one. Without getting an initial hook on your information via these bogus web pages or lead generators, there will be no reason for these scammers to ever call you.

This is just a good practice in general, as we discussed briefly above. Payday loans are great for the lender, but absolutely terrible for you. The costs of the loan quickly balloon out of control (somewhere in the ballpark of 80% of payday loans are not paid back in the insanely tight timeframes they involve) and leave you in a worse spot than when you started.

The relative lack of oversight in many states likewise lets these scammers run roughshod over unsuspecting people who are already in a vulnerable financial position.

If you do need to take out a payday loan for whatever reason, remember all the details and keep them written down. This is a good practice in general, as paying these loans off on time is crucial anyway.

Likewise, keep in mind general phone safety. It doesn’t matter how legitimate a call sounds, it could just be a clever scammer.

If someone calls looking to collect a bill, it is perfectly fine to tell them that you’ll handle it online or call them back later. This gives you time to interact with the debt collector on your own terms and suss out whether it’s legitimate or not, which it sometimes is.

As a quick example, I received a call just this morning from someone claiming to be one of my credit card holders, and that there had been a problem with the payment. They knew my name, I knew the card they were talking about, and I very politely gave them nothing else but a basic confirmation of my identity and said I’d handle it later. Looking it up, they were correct. The payment had processed incorrectly, the problem was solved by myself in my own time, and life goes on.

You should never try to handle something like that via an unsolicited call, however, no matter how legitimate it sounds. If you’re not comfortable dealing with online payment portals, the best thing you can do is tell them you’ll handle it, hang up, look up the actual customer service number of the company you’re in debt with, then call them yourself to handle it. This covers all your bases.

Don’t let anyone who’s calling you try to pressure you into handling something right then, right there over the phone. The harder they pressure, the more sure you can be that they aren’t legitimate (or at the least if they turn out to be legitimate, aren’t trained very well).

The power is all yours in these situations. Even if the caller claims to be from the IRS or something, and it turns out to be true, there’s very little they can do to you so long as you actually handle the matter they’re calling about in a short timeframe. 

Just keep in mind the basics of all phone interactions and you’ll be fine:

  • 1. You are in control.
  • 2. There is no rush.
  • 3. Make sure all information is correct.
  • 4. Give away nothing.
  • 5. Don’t take anything on trust.

These simple rules will help keep you safe in almost any situation you could possibly think of.

Read More: How To Recognize And Avoid Multilevel Marketing Scams.


Payday loan scams are distressingly common, and as insidious as any other scam you’ll come across for the simple fact that they often sound more legitimate than other scams, as they’re often based on a kernel of truth.

They prey on vulnerable people, like all scams, but tend to have more directly valuable information to work with, rather than simply knowing someone’s name and relying on incautiousness and cold reading to help wring money out of them.

If you do have to take out a payday loan (which it is advised you do not), then be on the lookout and extra vigilant for such scams, as chances are many such scammers will come out of the woodwork with a surprising amount of your legitimate information on tap to help trick and frighten you into paying them.

Do not be fooled, and don’t be scared. There is nothing these people can actually do to you, and particularly nothing as bad as what will happen if you actually pay them off and give them further access to your information and money in the process.

Read More: Costco Complete ID Vs ProtectMyID: Choose The ID Security For You.

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