How to Spot Payday Loan Debt Collection Scams

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Debt collection is legal in some circumstances. If you owe money to a lender, the lender may hire a debt collector to attempt collection.  You may not know whether debt collectors are legitimate or attempting to defraud you when they contact you. If you are contacted by a payday loan debt collector, the information below will assist you in determining whether the collection agency is legitimate and what you should do if the collection agency is a scam.

Payday Loan Debt Collection Scams: What Are They?

Many of today’s bogus debt collection schemes claim to be collecting money on behalf of a consumer who never obtained a short-term, “payday” loan. They employ a variety of deceptive and abusive tactics to coerce debtors into paying, including repeated phone calls, verbal harangues, and threats to disclose debts to employers and family members.

False debt collectors will use any means necessary to scare you into paying your debt. Certain bogus 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. While the creditors do have a legitimate claim against the debtor, the scam caller does not have the authority to contact them; they are simply calling from a list. This is theft, and many scammers have been charged and convicted.

Some situations do occur on occasion as a result of identity confusion: When a legitimate debt collection agency makes a mistake, they believe you owe the debt incorrectly. This can occur for a variety of reasons, including an accounting error on the part of the original creditor, you becoming a victim of identity theft, or the creditor incorrectly identifying someone with a similar name.

Keep an eye 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, debt collectors are prohibited from harassing, oppressing, or abusing you or anyone else with whom they come into contact (FDCPA). They are not permitted to curse you or your property, to threaten you with illegal actions, or to falsely threaten you with actions they do not intend to take. 

Additionally, they can not call you repeatedly in a short period of time to annoy or harass you. You have the right to request that the debt collector refrain 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. is the only federally authorized source for free credit reports.
  2. 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 in addition to information about the owed debt. 
  3. 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.
  4. 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 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.

What are your options if you suspect you’ve been duped?

If you believe you have fallen victim to a debt collection scam, you should immediately file a complaint with the Federal Trade Commission (online or at 877-382-4357). As part of a settlement with the Federal Trade Commission, the operators of a fraudulent debt collection scheme will be barred from the debt collection business.

To protect consumers from phantom debt collection and abusive and threatening debt collection practices, the Federal Trade Commission established a nationwide law enforcement and outreach initiative with the assistance of more than 50 federal and state law enforcement partners. Using illegal scare tactics, ‘Operation Corrupt Collector’ targets debt collectors attempting to collect on fictitious debts.

Along with law enforcement actions, the FTC is collaborating with state and local consumer protection agencies to disseminate new information to help consumers understand their debt collection rights and what to do if they receive a call attempting to collect on an account they do not recognize. Additionally, the FTC has launched a new online dashboard (link is external) containing information on consumer complaints about unpaid debts and abusive and threatening collection practices.

Additionally, you can contact the Consumer Financial Protection Bureau to report debt collection scams and abuse (online or at 855-411-2372).