Loan scams reach new lows, as consumers struggle to pay bills

Never, ever underestimate how low scammers will go to get you to hand over cash.

A Utica man ended up being hounded by fake debt collectors who claimed he owed money from a small loan taken out almost 10 years ago, according to the Better Business Bureau Serving Eastern Michigan.

The man was told that he needed to pay something quickly or else someone would show up soon at his home to serve legal papers. He feared the worst, paid $500 and agreed to pay another $100 weekly.

But it was a scam. He was never served any paperwork and the debt wasn't on his credit report.

People are short on cash and vulnerable

Scammers know to go where the money is — or apparently isn't — as they've built up several strategies to steal cash from people who have been struggling financially. Consumers are warned to watch out for scams related to debt collection of old payday loans, finding a short-term loan online, phony texts about qualifying for a loan and debt relief scams.

Individuals caught by payday loan and advance fee loan scams suffered a median loss of $1,000 this year through July, according to reports to the Better Business Bureau nationwide.

The local BBB has had more than 100 reports of payday loan, debt relief and credit repair scams since early September 2021.

"That's a lot for eastern Michigan," said Laura Blankenship, chief of staff and director of marketing for the Better Business Bureau Serving Eastern Michigan.

Financial stress points can come from anywhere — a recent job loss, a budget that's been squeezed by inflation and the higher costs for gas, utilities and groceries, and old bills that never seemed to get resolved.

"Sometimes when people are trying to get these loans, this is it for them," Blankenship said. "They are more vulnerable because they want to believe that they are able to get approved."

Consumers want to act quickly to perhaps make the next car payment or rent payment or even qualify for a bigger loan to cover a major expense or emergency. But rushing only leaves the scammer in control.

Loan scams can vary

The fraudulent activity takes on a few different forms, according to a new BBB study on payday loan scams and other debt-related scams.

Some scams involve advance fees to get a loan; others involve phony debt collections. Typically, the crooks will catch consumers off guard by pretending to be a trusted business to convince potential victims to send money or hand over bank account information.

The BBB report listed one case in San Jose, California. The consumer received a call from a woman who said her name was “Lauren Green” and Lauren — who likely never watched the old TV show "Bonanza" starring Lorne Greene — told the consumer that she qualified for a $5,000 loan from West Point Lenders.

"To get her loan, all she needed to do was pay $535 as a fee," the BBB report stated. The consumer handed over the money — and then was told she needed to pay another $535 because her credit wasn't good enough.

She lost big money

She lost $1,070 and received no loan. West Point Lenders is a similar name to other financial institutions, the BBB said, but it was a fake operation.

Sometimes, a fake loan offer pops up out of the blue in the form of a text message. The con artists might imply via text that you've just qualified for a loan.

"Texting scams are still very real," Blankenship said. "If you have not reached out to a company about applying for a loan, then you have not been approved for one."

The red flags? The scammers might say you'll be approved for a loan no matter your credit history, but they're going to request that you put a great deal of money down up front.

"Legitimate lenders will not promise you a loan or other credit without knowing your credit history, but demand you pay them first," according to an alert from the Federal Trade Commission.

While legitimate lenders can require an application or appraisal fee before they consider your loan application, the FTC notes, a real lender isn't going to tell you that paying a fee guarantees that you’ll get a loan.

"It’s illegal for telemarketers to promise you a loan or other credit and ask you to pay for it before they deliver," the FTC states.

Take a close look at any email about a payday loan. Look at the information that's after the @ sign. "Legitimate companies usually don’t send messages from a Gmail or Yahoo account," according to the BBB report. "This is not a foolproof method, though, as scammers can spoof emails or even steal passwords to gain access to legitimate ones."

"If you've received an email out of nowhere," Blankenship said, "those are red flags. They cast a wide net to see how many fish they can grab in."

Scammers will want you to pay up via hard-to-trace avenues — payment apps like Venmo or Zelle; gift cards; cryptocurrency and money orders.

Another key warning: Scammers might supposedly send you money for that loan on an app like Venmo, Zelle or may use your real bank account. But the BBB warns that scammers might say they sent you too much money and request some back from you. All of this is fake, much like a fake check scheme.

"The scammer is actually taking advantage of the payment approval system and there may not have been any money sent," the BBB said.

"Eventually, the bank or service will reclaim that money, and the victim will have sent their own money to the fraudsters."

Someone who is short on cash might go online looking for a payday loan but end up clicking on a fake website that connects them to a bad outfit or scammers.

Someone who has too much debt might jump at a chance for debt relief but the consumer ends up paying far more than the debt to get it relieved and the consumer has no idea what was actually done.

More: Zelle scams target consumersScammers find ways to get your money via Zelle apps

Why do scammers think you took out a payday loan?

It's hard to say. But Blankenship warned that some key information that the scammer might claim to have — such as your mailing address or phone number — can be looked up online fairly easily before a scammer reaches out to you.

Savvy hackers in one scheme, the BBB noted, stole information about previous customers from payday loan companies and posted it online for sale, making it readily available for those running scam operations to buy and target some victims.

Blankenship noted that fraud rings have been known to contact scam victims, using a list of people who were scammed, saying that they can help them get their money back from an earlier scam.

"That was a scam in itself. The scammer had purchased the name and contact information from other scammers," Blankenship said.

The tactics and planning involved, with advance research into the background of the targeted victims, are unbelievable, she said.

What's a good clue of a debt collection scam?

A huge red flag in debt collection scams is the failure or inability to provide written confirmation of the debt. The written confirmation should include the creditor’s name, amount owed and how to dispute the debt within 30 days of receiving the confirmation documents. If you get a call out of the blue, request written confirmation of the debt.

If someone threatens debt collection, it's good idea to contact the company or financial institution directly to find out when you supposedly borrowed the money. See if there is a record of you taking out the payday loan or other loan. Don't just call the phone number listed on the caller ID, the collection letter or text. Make sure to go to a statement or find a legitimate number for the lender.

Chris Nettleman, of Dearborn Heights, received a call last year regarding $901.74 connected to an extremely old credit card debt. The debt collector, who supposedly had been contracted to collect the money, wanted Nettleman to pay quickly. One option, the collector said, was to settle the debt by paying $300 in one lump-sum, one-time payment. At another point, the collector offered to settle the debt for 50% of what was owed. The payment was to be made via a web site.

"I didn't really have any proof that the website was legit — and I was pretty sure I didn't owe anything," they said.

Nettleman, who has a job on the assembly line at the General Motors Romulus Powertrain plant but is on disability now, didn't believe the caller — who ultimately started texting and calling repeatedly.

"They called me many times — and no matter what I told them, they wouldn't agree that I didn't owe this debt."

Nettleman had proof after calling the financial institution directly, where no record for the old debt or collection activity existed.

At one point, the con artists said that Nettleman could give them a $5 payment within 24 hours to show good faith.

While that might have sounded OK to some, Nettleman feared that giving $5 would give the crooks access to bank account information and enable crooks to access to that account.

Nettleman's advice: Always be skeptical when it comes to an odd text or call, especially one demanding money.

In general, consumers shouldn't click on links in text messages. And never give Social Security or other personal information to someone who contacts you out of the blue. Remember, con artists try to look legitimate by impersonating well-known companies or agencies.

Be wary of ads on social media or online for quick-fix loans. Check out the history of the business. See what information is available about complaints or any scams.

Anyone who threatens immediate action — or extra fast cash for a fee — is likely a scammer. You'd have lots of correspondence about an old debt and it isn't going to be a surprise. And no real lender is asking you to put cash on gift cards to snag a loan.

Contact Susan Tompor: stompor@freepress.com. Follow her on Twitter @tompor. To subscribe, please go to freep.com/specialoffer.

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This article originally appeared on Detroit Free Press: Payday loan scams, fake debt collection trigger troubles for consumers