Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Apr 3, 2012

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The largest payday loan scams out there involve hidden fees and aggressive collection methods used to intimidate borrowers into paying back their short-term financing debt—even when that debt has expired. Some payday loan scams are committed by criminals posing as representatives from the FBI, Federal Legislative Department, law firms, or debt collection agencies. In most of these instances borrowers are threatened with arrest and jail time—which is a clear indication that the caller is a scammer.

Hidden Fee Scam

Hidden and undisclosed fees are amongst the leading payday loan scams out there. The financing originator often is guilty of misleading borrowers into signing an expensive agreement, or the originator downright lies to borrowers about the costs.

One recent example of this was with a borrower named Eric Barboza.

Barboza claims to have agreed to a $500 short-term cash advance that he was told would cost him $150 in fees. While such a cost is steep even when compared to other payday loan offer on the market ($30 per $100 borrowed), Barboza agreed. One can then imagine his surprise when the lender he was working with attempted to charge him $1,925 to satisfy his debt—nearly three times the amount of his agreed-upon fee and principal combined.

The lender Barboza worked with has recently had action filed against it by the Federal Trade Commission (FTC).

Threats of Arrest and Jail Time

Those who are threatened with jail time can simply hang up the phone.

In most cases, borrowers who fail to repay their payday loans cannot be sent to jail. Any collection agent who claims otherwise is likely a scammer, or somebody who has resorted to intimidation methods in order to coax a borrower into repaying their debt.

If a borrower is threatened with jail time, that borrower should request of the caller not to contact them via phone any longer.

Then immediately go to the Consumer Financial Protection Bureau’s website to submit a complaint about the caller.

Impersonating a Person in Power

One of the most frightening payday loan scams is when a borrower receives a call from someone claiming to be with the FBI. When debt collection agents impersonate a government official, they can land themselves in a lot of trouble.

The FBI will not threaten borrowers with jail time for not paying back a cash advance loan, and if a borrower receives such a call, they refrain from giving out any sensitive information.

Since a borrower’s personal information may be compromised, it’s important to contact all of the appropriate parties—local law enforcement agencies, their personal banks, and the three major credit bureaus (Experian, Equifax, and TransUnion)—and explain to them what happened on the phone call.

Finally, file a complaint with the Internet Crime Complaint Center.