How to Spot Payday Loan Debt Collection Scams

Debt collection is perfectly legal in many circumstances. If you owe money to a lender, the lender may hire a debt collector to try to collect it. Unfortunately, you may not know whether debt collectors are legitimate or attempting to defraud you when they contact you.

Nobody wants to be a scam victim. Unfortunately, according to the Federal Trade Commission, one in every 10 American adults will fall victim to a scam or fraud each year.

And though most of us believe only older adults fall victim to scammers, that’s not true: In 2021, Gen Xers, Millennials, and Gen Z (ranging in age from 18-59) were 34% more likely than older adults ages 60 and up to report losing money to fraud.

Don’t become a victim. Know the warning signs and protect yourself.

IMPORTANT: Never, ever electronically send money to someone who calls you and says you owe them an unpaid debt. If you send money through Paypal, Venmo, Zelle, Cash App, Western Union or any other similar service, you will not be protected if it turns out you’re sending money to a scammer. Immediately request information about the collection agency and demand that they send you a debt validation letter.

READ MORE: What is a debt validation letter and why is it important?

Warning Signs of Payday Loan Debt Collection Scams

Many of today’s bogus debt collection scammers claim to be collecting money on behalf of a lender you may not recognize. It may come by phone call, text message or even a direct message through one of your social media accounts. Scammers will try whatever they can to persuade you to hand over money or financial information. This can include harassing phone calls, verbal abuse and threats to disclose information about your debts to employers and family members.

Pro tip: Fake debt collectors will use any means necessary to scare you into paying them. Scam collection agencies can purchase lists of debtor accounts on the black market, contact those individuals, and demand payment for the debts, all without the knowledge of the original creditor or account owner. If you are contacted by an unfamiliar company, don’t panic. Request that they validate the debt in writing and mail it to you, then hang up.

Though a payday lender may have a legitimate claim against a borrower, the scammer does not. This is theft, and many scammers have been charged and convicted.

Not every unfamiliar debt collection call is a scam. Some situations will occasionally arise due to identity confusion. For example, when a legitimate debt collection agency makes a mistake, they may incorrectly believe you owe the debt. This could occur for various reasons, including an accounting error on the part of the original creditor, you’ve been mistaken for a borrower with a similar name or you’ve been a victim of identity theft.

Again, in this instance, request a debt validation letter. If you legitimately owe the money, the debt collector must legally verify that in writing.

READ MORE: Stuck in the payday loan debt trap? Consolidate your payday loan debt today

Three Types of Payday Loan Collection Scams

There are three major types of payday loan collection scams to watch out for. These are counterfeit payments, good faith deposits, and debt collection scams.

Counterfeit Payments and Fake Check Scams

In this common scam, someone will mail you a fake check or deposit money into your bank account. Then they’ll ask you to wire them a small amount of money through Western Union or another transfer service. They’ll promise to send you a larger lump sum once this transfer occurs.

This money will never come through. Any remotely deposited funds will appear as “pending” and won’t ever clear. Any check you get will bounce. In 2019, the FTC received over 27,000 reports of fake check scams to the tune of $28 million.

Unfortunately, even if you catch on to the scam and back out, a scammer can sell your personal data to a third party. This includes your full name, contact info, date of birth, and Social Security number. Never provide this information by phone.

You’re Ordered to Pay Upfront Fees

Some scam companies will instruct you to pay a fee before offering you a loan. This is called an “advance-fee loan scam.” These scams target borrowers with bad credit who can’t get a loan elsewhere.

Unfortunately, these scams can be tough to spot. A legitimate lender may also charge an application fee or processing fee. The difference is that a legitimate lender will never promise you a loan before you apply.

Pro tip: If you’re considering a loan application, contact the lender directly either via phone or the website. Do not accept any unsolicited loan offer that comes by phone, text or email.

Fake Debt Collectors

In another common scam, you’ll get a call from a “debt collector” who tells you that you must pay up immediately. Debt collection agencies are regulated by federal law, so there are a few ways to confirm whether the caller is a legitimate debt collector. These are some of the primary warning signs:

You’ve Never Taken Out a Payday Loan

Payday loans, sometimes called cash advance loans, are short-term loans repaid from your next paycheck. Payday lenders target borrowers who need money quickly, and the qualification requirements are straightforward. You need an ID and proof of income. Payday lenders won’t check your credit score. If you don’t remember ever taking out a payday loan, ask the caller for his company name. Then hang up and call the loan company directly.

The Debt Collector Threatens You

Fake debt collectors will claim to work with a law firm or the authorities to intimidate you. They may try to threaten you with jail time or legal action if you won’t pay them. In some cases, they’ll threaten wage garnishment or say they’ll get you fired. You will not go to jail for defaulting on a payday loan. If there is legal danger, you’ll get a court summons.

Ask for a debt validation letter and don’t send any money until the debt has been validated.

They Demand Immediate Payment By Suspicious Methods

Many scammers will use strange or suspicious methods to try to get you to pay them. They might insult you or threaten you to get you to agree to what they want. Or they might engage in phishing to steal your information.

Some scammers will ask you to verify your identity or to provide routing numbers or log-in details for your bank so they can debit money from your account. Do not provide this information to anyone over the phone.

They Ask for Information They Should Already Have

A legitimate debt collector will already have your personal information – address, phone number, date of birth, etc. They also won’t ask you for confidential details over the phone.

They Refuse to Send a Debt Validation Letter

If you request a debt validation letter, the Fair Debt Collection Practices Act requires debt collectors to send one. You have 30 days from the date they first contact you to request this letter. Once you do, they must respond promptly to verify that your debt is real. If they refuse to send the letter, they’re breaking the law, and it’s almost certainly a scam.

They Refuse to Provide Company Information

A fake debt collector will refuse to provide certain information, including:

  • The debt collector’s full name and employee number
  • The physical address of the collection agency
  • The company phone number and email

Watch Out for the Following Red Flags

Fake payday loan collectors target previous payday loan customers, threatening them with jail time and other penalties for failing to pay debts they do not owe – which is illegal even when collecting a legitimate debt. Legitimate or not, debt collection agencies lack the authority to carry out either of these threats.

Under the Fair Debt Collection Practices Act (FDCPA), debt collectors are prohibited from harassing, oppressing, or abusing you or anyone else with whom they come into contact. They are not permitted to curse you or your property, threaten you with illegal actions, or falsely threaten you with actions they do not intend to take.

Additionally, they cannot call you repeatedly in a short period of time to annoy or harass you. You have the right to request that the debt collector refrains from contacting you.

How to Identify a Legitimate Debt Collector

You should never give out personal information, such as your social security number, credit card number, or bank account number, to anyone without first verifying their identity and license status. However, scam artists can sometimes obtain detailed personal information about a person by tricking them or by simply searching the internet. including banking information and even the last four digits of a Social Security number.

On the other hand, debt collectors are unlikely to possess all of your information and will request it. Numerous details about you, including the amount owed, your address, Social Security number, and birthday, are already known to legitimate debt collectors. Take the following steps to determine the credibility of the payday loan debt collector’s claim.

  1. Knowing who you owe money to is the most effective strategy for avoiding a debt collection scam. Keep good records of when you’ve borrowed money and from whom.
  2. Review your credit reports. is the only federally authorized source for free credit reports from the three major credit bureaus: Experian, Equifax and TransUnion.
  3. Ask for the collector’s name, business, mailing address, and telephone number and cross-reference this information with the FTC’s Banned Debt Collectors database. Legitimate debt collectors are required to provide their contact information and information about the owed debt. 
  4. Ask for written proof that you owe the debt. Federal law requires debt collectors to send you a written validation notice that includes the amount you owe, the name of the original creditor, and instructions on how to dispute the claim.
  5. Know the laws of your state and local jurisdiction. Certain payday loan collectors fabricate fake documents in order to compel payment from their victims. However, numerous states require consumer debt collection agencies to register prior to conducting debt collection activities within their jurisdictions.

Even if you believe you might legitimately owe the debt, you should still take the following steps to avoid being scammed.

  • Hang up and contact your original creditor.
  • Determine whether the debt has been purchased or authorized for collection by a debt collector. 
  • Maintain a record of any debts that you have previously paid off.
  • Maintain copies of all correspondence and documents received from a debt collector.
  • Take meticulous notes and keep track of the dates and times of your interactions.

For more tips on spotting debt collection scams, check out this video:

What Are Your Options If You Think You’ve Been Scammed?

Protect yourself first

Here are a few ways to protect yourself after a scam.

  • Close or freeze your bank accounts: Contact your bank or credit union immediately and have them change your bank account number.
  • Call your credit card company: Contact them and report your card as either lost or stolen. They will immediately cancel the card and issue a new one with a different account number. They will also review recent purchases with you to confirm that your recent transactions are legitimate.
  • Freeze your credit: Ask one of the three major credit bureaus (Experian, TransUnion, and Equifax) to put a freeze on your credit. The credit bureau you choose will alert the other two about the freeze, and no new credit will be issued in your name until you’ve lifted the freeze.

Contact the Authorities

After your accounts have been closed and your credit frozen, there are a few different agencies that may be able to help you get some of your money back. Here are your best starting points:

  • Federal Trade Commission (FTC): This is a government agency that protects consumers from unfair or fraudulent business practices. If you suspect that you’ve been scammed, report it through the FTC’s fraud reporting page or You’ll be asked to provide your name and basic contact information, plus details about the scam.
  • The Consumer Financial Protection Bureau (CFPB): This consumer agency knows that payday loan scams are a major problem. Its website contains resources for those who are either involved in a scam or who know someone who is. You can file a complaint to the CFPB by clicking here.
  • Your state’s attorney general: If you’ve been scammed, contact your state attorney general to learn the state laws and what you can do to protect yourself. You can either use the toll-free hotline or file a consumer complaint online.
  • Local law enforcement: By the time you’ve been victimized, it might be too late for local law enforcement to get involved. But by informing them of the scam and providing a detailed account of what happened, they may be able to help the next potential victim.

The Bottom Line

Unfortunately, scamming is a lucrative industry and far too many Americans have been victimized. It’s important to recognize the warning signs and protect yourself.


Can I Go to Jail for Failing to Repay a Payday Loan?

No. Regardless of what a debt collector might tell you, failing to pay back a loan is a civil matter, not a criminal one. It is possible, however, that you could be jailed for other reasons, so if you get a court summons, it is important that you appear in court as scheduled. Do not ignore a court summons.

Can Payday Lenders Sue You?

Yes, a payday lender can take you to court over failure to repay. You could end up facing wage garnishment.

What is a Payday Loan Extended Payment Plan?

If you’re unable to repay your payday loan as scheduled, you can contact your payday lender to request an extended payment plan (EPP loan.) This will buy you some time to make the payments without defaulting and damaging your credit score.

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