How to Recognize (and Avoid) Payday Loan Scams

It’s difficult to ignore the TV reports and headlines about the many financial scams and fraudsters out there targeting vulnerable Americans, and payday loan scams are particularly notorious.


A payday loan is already a financial service that preys on people who are desperate for cash. Money is available quickly, with no need to wait for a credit check. They’re easy to get, but the immediacy also creates a market that’s ripe for scammers.

Recognizing these signs of common payday loan scams might prevent you from becoming a victim.

What is a Payday Loan?

payday loan is a small loan ranging from $100 to $1,500 (or sometimes as much as $2,000) against your next paycheck. The payday loan company advances money to the borrowers, who promise to repay the loan in full as soon as you get your next paycheck. All they require is an ID, a pay stub, and an active bank account.

On the surface, it sounds like a convenient service.

Payday loans are expensive, though. On average, you pay $18 per $100 you borrow just to process the loan, and that doesn’t count the interest. Most of the time, these loans come with extremely high interest rates — often over 300% APR (annual percentage rate) — when a “high” rate for a credit card is 25%. 

Why do Payday Loans Carry a High Risk of Being Scammed?

Even with a legitimate payday loan, the turnaround is fast. You can apply in a brick-and-mortar store or online, provide your information, and get the cash deposited in your bank account almost immediately.

Scammers also know that people seeking out a payday loan are usually in a major financial crunch, and because of this, are less likely to review their loan terms or investigate the company offering the loan.

This makes borrowers easy targets in two ways:

1. Desperate people are more willing to hand over their confidential financial information, date of birth and social security numbers to strangers.

Some scammers will collect this information with no intention of ever issuing a loan, but will instead use it to drain their victims’ bank accounts or to use a social security number for other types of identity theft.

2. A scammer might actually give you the money but will tack on illegal fees and loan terms to the agreement.

When this happens, lenders will push you to sign before reading the terms, or they’ll start harassing you for payments you aren’t expecting after the loan goes through, sometimes even threatening you or your family to get you to pay. 

Common Payday Loan Scam Tactics

How do you know if the company offering you a payday loan is a scam

There are a number of red flags, including:

  • Requiring a payment or deposit before you get the money
  • Asking you to pay “insurance” upfront to secure a lower interest rate
  • Not telling you their name, employee ID number, or company information
  • Sending emails from Gmail or Yahoo email addresses
  • The name of their “company” is close to — but doesn’t exactly match the name of — a real financial institution 
  • They ask for your online bank sign-in information
  • They want to deposit a check and have you return the money to them as a way to “verify your identity” 

Watch out for These Signs of a Possible Payday Loan Scam

One big red flag is feeling pressured to sign an agreement before you have a chance to read it, especially for an online loan. It may take you a little bit of extra time to review the terms, but it’s worth it if it helps you avoid a scam.

If a lender is pushing you to sign before you’ve read the loan agreement or doesn’t want you to ask questions before you sign, it could be because they know the terms of their loans are unfair or illegal.

Other signs to watch for are added fees, threats, and asking for your personal banking information over the phone. 

If the lending company tries to add new fees after you sign your loan agreement, or after your loan is paid off, you’re likely dealing with a scammer. Adjusting loan terms after a loan agreement has been signed is illegal, and if the lender needs or wants to change the terms, they have to provide you with a new set of terms.

Also, legitimate lenders won’t be asking you for your private banking details — such as account numbers, your date of birth or specific bank account information — over a phone call. If you’re on the phone and someone starts to ask you for this information, don’t give it to them. Instead, ask them for their name, their employee number, and their company’s website and phone number. If you can’t verify that the person talking to you is a legitimate employee of the company, don’t work with them. 

Watch out for Emails and Phone Calls from Payday Lenders

If a payday lender threatens any of the following, know that they’re overstepping their bounds and are definitely running a scam

  • Revoking your social security
  • Going to jail
  • Garnishing your wages
  • Blacklisting you (for jobs, banks, etc.)

These can all sound frightening, but no payday lender has the legal authority to do any of these things. They’re scare tactics to try to get you to pay money you may or may not legally owe. 

Also look out for phone calls from restricted numbers, or emails that come from Gmail or Yahoo email accounts. Anyone can change the sender name in their email to anything they want, but if the email doesn’t come from a .com or a .org of a legitimate financial company, it’s a scam.

Stories from Payday Loan Scam Victims

Unfortunately, payday loan scammers are out there trying to get their claws into whoever will believe them. 

According to, numerous people have reported being targeted by fake collections agencies with serious threats, including one person who was told that if he didn’t pay $1,000, the police would come to his home to arrest him and take him to jail.

Remember, you cannot go to jail if you don’t repay a payday loan.

One poster on explained how she managed to prevent a friend from being scammed because the poster had been targeted for the same scam.

I stopped someone from loading a card and sending their money to a scammer. They said they had an old debt from a payday loan place. Turns out we got called by a similar scammer and I compared what we were told. They said oh yeah the “law firm” called and said pay them by a Visa or Mastercard prepaid card or get sued ...”

And another Reddit user was getting threatening calls from a “lender.”

“I have been getting things together over the last few years and made sure once debt is paid off to get proof etc. I have been receiving calls and due to scare tactics wound up giving a company my debit card. I have since cancelled the card and have contacted my bank. They are threatening to bring me to court, garnish wages….”

Legitimate creditors should never use physical threats or verbal intimidation to get you to pay. If they do need to take you to court, you’ll get an official court summons. If that happens, do not ignore it.

Here are real some examples of common scam telephone offers:

You’ve Been Scammed. What’s Next?

What happens once you realize you’ve been scammed?

Fortunately, even if you don’t have the money to hire an attorney, there are a few steps you can take to try to recover your money.

  • The Federal Trade Commission
  • The Consumer Financial Protection Bureau
  • Your state attorney general
  • Pro bono attorneys and credit counselors 

The Federal Trade Commission, or FTC, is a government agency that exists to protect consumers and other businesses from anyone engaging in unfair business practices. They’re there to protect healthy business competition, and to protect consumers like you. Use the FTC’s fraud reporting page to tell them what happened, and they’ll educate you on the next steps. 

The Consumer Finance Protection Bureau, or CFPB, is there to ensure financial institutions like banks and lenders treat consumers fairly. They’re very aware that payday loan scams happen on a regular basis, and are working to end payday debt traps altogether. They have a dedicated page you can use to submit a complaint about a problem you’re having with a payday loan company.

All states have different payday loan laws. In fact, some states outlaw payday loans altogether. To learn what’s legal in your state, work with your state’s attorney general office. The attorney general is the state’s top lawyer and law enforcement officer. Each state’s submission processes will be slightly different, but if you Google “[your state] + attorney general office,” you should find the website where you can search for the complaint submission form.

Finally, there are a number of attorneys who may work pro bono (without a fee) if they feel they can successfully sue a payday lender and get a settlement. Try calling a local law firm to see if they think you have a successful case.

If none of these work, credit counselors will work with you on your finances to get a solid plan in place to get you out of the financial hole created by the scam.

Close Credit Cards and Bank Accounts

Finally, if you’re worried that scammers might have access to your accounts, close all credit cards and bank accounts that might be vulnerable.

You don’t want scammers to take your cash, potentially triggering expensive overdraft fees, without your knowledge.

Call your credit card company to report your card lost or stolen. This way, they’ll stop transactions and send you a new card with new numbers that the payday lender won’t have on their records. Freeze your credit with the three major credit bureaus ⁠— Experian, Equifax and TransUnion ⁠— so that no new accounts can be opened in your name. Monitor your credit reports for accounts you don’t recognize, or any information that might be an error.

Call your bank or credit union to ask about the account closure process. You may be able to do it online after transferring your existing balance to another account, or you may have to fill out a form and wait a few business days. Make sure you get written confirmation that your account has been closed. This will protect you in case there’s an issue down the road.

How to Avoid Payday Loan Scams

First of all, if at all possible, don’t take out a payday loan. There are cheaper alternatives like payday alternative loans (PALs) that are offered by credit unions that do the same thing, but the interest rates are capped at 28%

There are also a few other options you can explore, such as asking your boss for a paycheck advance, taking out a personal loan, getting a cash advance from your credit card, peer-to-peer lending, a 401(k) loan, or even calling your creditor to request a payment extension.

If you must take out a payday loan, review any loan terms carefully, and don’t sign anything without the chance to review it first. 

Then, pay off your loan ASAP. Once the loan is paid off, address the financial issues that led you to the payday lender in the first place so you don’t need another loan down the road. Start an emergency fund, even if you’re only saving a few dollars a week, so you have some cash available for an unexpected crisis.

And finally, focus on getting out of debt for good. Having a bit of a financial cushion will protect you from scammers because you’ll have the time and inclination to pay closer attention to their offers.

Read Next: How to Get Out of Payday Loan Debt