TOPEKA, Kan. (WIBW) – Predatory payday loans and scams could end up costing double the amount of the loan, according to a new study from the Better Business Bureau.
As Americans have lost their jobs and struggled to make ends meet during the COVID-19 pandemic, the Better Business Bureau says many have turned to payday loans and short-term solutions that can increasingly being found online.
The BBB noted that this not only allowed predatory lenders to thrive, as many borrowers faced exorbitant interest rates and fees, but also created an environment conducive to scammers.
The BBB said its new investigative study found that payday loan laws are managed from state to state and among the 32 states in which they are available, a complex web of regulations makes the hard-to-follow industry. A common thread, however, in triple-digit interest and significant rollover fees.
From 2019 to July 2022, the BBB said it received nearly 3,000 complaints about payday loan companies with the disputed amount approaching $3 million. In addition, over 117,000 complaints were received against debt collection companies.
According to the BBB, complaints often noted that borrowers felt ill-informed about loan terms. He said many customers have fallen into a “debt trap” with piled up interest and fees that leave a bill nearly double the amount of the original claim.
A St. Louis woman recently told the BBB that over the course of her $300 loan, she paid over $1,200 and still owed $1,500.
The BBB noted that scammers haven’t missed an opportunity to take advantage either, with its Scam Tracker sending over 7,000 reports of loan and debt collection scams amounting to around 4.1 million dollars in losses.
Posing as payday loan companies and debt collectors, the BBB said the scammers are arming themselves with stolen information to convince residents to hand over their bank account information and money. In one case, he found hackers had stolen and released detailed personal information and financial data for more than 200,000 residents – and it was not an isolated incident.
A Wisconsin woman reported to the BBB that she received a phone call from a debt collector who allegedly said legal action was pending over an overdue payday loan debt. Fearing legal trouble, she eventually sent the scammer $500 and her credit card information. Over the next few months, her card was charged again and again until she canceled it.
The BBB reported that regulators at the federal level have called for tougher laws to curb predatory lending, however, those regulations were rolled back, leaving states to set their own rules on interest rate caps and credit limits. other aspects of the loan. More than a dozen states have introduced legislation to regulate payday loans, but the landscape of legally operating payday lenders remains inconsistent from state to state.
Currently, the Bureau said payday loans are banned in 18 states. He also said the Military Loans Act sets a rate of 36% on certain payday loans.
Regarding fraudulent behavior, the Bureau said law enforcement agencies are limited in what they can do to prosecute payday loan scams. He said some legal lenders have tried to prevent scams by educating customers about how they will contact borrowers and the ways that are not allowed.
The study advised residents to thoroughly research all borrowing options as well as the terms of a payday loan before signing any paperwork to take out a short-term loan. The study also made the following regulatory recommendations:
- Cap consumer loans at 36%
- Educate more people about no-cost extended repayment plans
- Require lenders to test whether customers can repay loans
- Require Zelle, Venmo, and other payment services to offer refunds for fraud
To report a personal loan scam or file a complaint, click HERE.
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