Often, the scam begins when a consumer inquires about a payday loan or other short-term credit online or over the phone. The Web site or phone number that the consumer contacts may or may not be associated with a legitimate lender.  Since consumers interested in payday loans are often financially strapped, they may be susceptible to such demands whether or not they actually took out a loan.

Even for consumers who do not have outstanding debts, the con artists are threatening and convincing and have led some consumers to wonder whether someone has taken out loans in their name. In cases where a consumer actually does have outstanding loans, the scam artist may claim that the victim owes far more in fees and interest than he or she actually does. In other cases, the victim of the scam may be behind on a loan, but the caller has no authority to actually collect on the debt. No matter the consumer’s actual situation, skilled con artists are convincing them to hand over precious cash to settle the “debt.” Scammers often demand payment on these phantom debts via wire transfer, credit or debit card.

Consumers who have been approached or have had co-workers or family members approached by debt collection scammers should keep the following tips in mind:

• If a caller asks you to wire money or provide personal financial information such as a bank routing number, credit or debit card number over the phone, hang up. It’s probably a scam.
• Be wary when applying for payday loans via the Internet. Not only do you risk exposing your personal information to criminals, online loans typically have higher fees and interest rates than loans applied for offline.
• If you are unsure of whether or not you owe a debt, ask the caller to only contact you by mail and to provide written proof of the debt. The Fair Debt Collection Practices Act requires debt collectors to stop calling their targets if they are asked to do so.
• If you receive a call from someone claiming to be from a government agency or official-sounding institution who says you owe money on a debt, hang up and call the organization in question directly.
• If you are unsure whether you are delinquent on a payday loan, contact the lender directly to inquire about the status of your account.
• Look up numbers or email addresses for lenders on your own or rely on your loan paperwork to find a legitimate contact number.
• Consumers who receive calls from phantom debt collection scammers may have had their personal information exposed, raising the risk of identity theft.The Federal Trade Commission offers a step-by-step process for recovering from identity theft here.
• If a scammer using this scam approaches you, or if you’ve already fallen victim, contact local law enforcement and file a complaint with Global Anti-fraud Hub.

Find Fraud Alerts related to this scam here.

• No one can erase negative information if it’s accurate. Only incorrect information can be removed. Accurate information stays on your record for 7 years from the time it’s reported (10 years for bankruptcy). Even information about bills you fell behind on but now are paid will remain on your report for these time periods.

• Credit repair services can’t ask for payment until they’ve kept their promises. Federal law also requires credit repair services to give you an explanation of your legal rights, a detailed written contract, and three days to cancel (this applies to for-profit services, not to nonprofit organizations, banks and credit unions, or the creditors themselves).

• You can correct mistakes on your credit report yourself. If you were recently denied credit because of information in your credit report, you have the right to request a free copy from the major credit bureaus, regardless if your state law provides one for free as well, otherwise there is a small fee. It doesn’t cost anything to question or dispute items in your report. Follow the instructions provided by the credit bureau. The major credit bureaus are:Equifax, 800-685-1111; Experian, 800-682-7654; and TransUnion, 800-916-8800. Contact all three, as the information each has may vary.

• You can add an explanation to your report. If there is a good reason why you weren’t able to pay bills on time (job loss, sudden illness, etc.) or you refused to pay for something because of a legitimate dispute, give the credit bureau a short statement to include in your file.

• Know that you can’t create a second credit file. Fraudulent companies sometimes offer to provide consumers with different tax identification or social security numbers in order to create a new credit file. This practice, called “file segregation,” is illegal, and it doesn’t work.

• If you have credit problems, get counseling. Your local Consumer Credit Counseling Service (CCCS) can provide advice about how to build a good credit record. The CCCS may also be able to make payment plans with your creditors if you’ve fallen behind. These services are offered for free or at a very low cost. To find the nearest CCCS office, call toll-free, 800-388-2227, or go to www.nfcc.org.

Find Fraud Alerts related to this scam here.