As consumers lost jobs and struggled to make ends meet during the COVID-19 pandemic, many turned to payday loans and other short-term solutions, with an increase in online solutions. This not only allowed predatory lenders to thrive – many borrowers still contend with sky-high interest rates and opaque fees – but also created a fertile environment for scammers, according to a new in-depth investigative study by Better Business Bureau.
From 2019 to July 2022, BBB received nearly 3,000 customer complaints about payday loan companies, with a disputed dollar amount nearing $3 million. Additionally, more than 117,000 complaints were lodged against debt collection companies at BBB.
Complainants often said they felt ill-informed about the terms of their loans. Many fall into what consumer advocates call a “debt trap” of stacking interest and fees that can leave customers to pay double the amount they originally borrowed. One woman in St. Louis, Missouri, told BBB recently that over the course of her $300 loan, she paid more than $1,200 and still owes an additional $1,500.
Scammers didn’t miss an opportunity to take advantage of consumers, either. Posing as payday loan companies and debt collectors, scammers arm themselves with stolen information to convince consumers to hand over bank account information and cash. In one case, BBB found that hackers had stolen and posted detailed personal and financial data for more than 200,000 consumers.
BBB’s study advises consumers to do careful research into all their borrowing options – as well as the terms and conditions of a payday loan – before signing anything to take out a short-term loan.
