Payday loans and predatory loan scams thrive | Company
BIG RAPIDS – Payday loan and predatory lending scams are on the rise, according to a recent study by the Better Business Bureau.
The BBB study blamed “uneven laws and a lack of knowledge” as the reasons these two types of scams can work well, the statement said. These types of scams have also flourished because consumers have turned to these small loans as a way to manage an emergency bill or pay off other debt, often brought on by the COVID-19 pandemic.
Payday loans, also known as cash advances or check advances, often have interest rates calculated weekly or bi-weekly. These calculations often make a small loan “impossible to repay” and scammers often use “lack of knowledge of these types of loans” to prey on consumers who are already in financial difficulty, according to the release.
For example, in Michigan, a payday lender may charge up to 15% per day for the first $100 borrowed. Over a two-week period, that’s an annual percentage rate (APR) of 391%, according to the state attorney general’s office.
Michigan law “does not give payday loan customers the right to have their loan repayment periods extended,” the BBB statement said. “But if a lender grants an extension, they cannot charge a fee for the extension or increase the balance owing beyond the original amount.”
More information on Michigan laws regarding payday loans can be found at https://www.michigan.gov/ag/consumer-protection/consumer-alerts/consumer-alerts/credit/payday-loans.
“If you are having financial difficulty this month, consider speaking to your bank or credit union first,” said Lisa Fronhapfel, president and CEO of the Better Business Bureau Serving Western Michigan, in a communicated. “They may be able to find a temporary solution to get you back on track without taking out a high-interest loan that could put you in an even worse financial scenario.”
Those who use a lender can find accredited financial institutions and lenders at bbb.org.
Scammers often complicate the process by posing as a well-known company or debt collection agency. Scammers are also known to ask for payment methods such as gift cards or bank transfers. Advance America and Lending Club were two of the most spoofed companies found by BBB’s Scam Tracker.
Here are some tips from the BBB to avoid payday loan scams:
- Beware of unexpected calls asking for a loan or collecting a debt. No legitimate business will charge an upfront fee for a loan.
- Ask for written confirmation for any claim of an unpaid debt.
- Research all companies in advance.
- Never give out personal information until you are sure the offer is not a scam.
Credit counseling from reputable firms is available at bbb.org.