Loan Phone Scams: Know Your Risk if You Have Debt
With consumer debt in the United States continuing its rapid increase, money is already a high-stress point for those in debt. According to Experian's 2019 Consumer Debt Study, the total amount of consumer debt in the U.S. is about $14.1 trillion. The average American carries an average personal debt of $90,460.
Overall, these debt figures include revolving debt, such as retail and credit cards, housing-related debt, such as mortgage loans, and consumer loans, such as personal loans and student loans. The most substantial single contributor to debt belongs to student loans, which totals approximately $1.6 trillion, a whopping increase of 73% since 2009.
According to the Federal Trade Commission, reports of loan scams decreased by 10% in 2017 from the previous year. Consumers reported losing $905 million in 2017, an increase of $63 million from 2016.
The FTC attributes the decrease in complaints to education, awareness, and enforcement. However, despite education and awareness of financial fraud, the amount of monies lost still rose to total nearly $1 trillion.
Do You Have Debt?
If so, protect yourself from further financial strain by knowing your risk for a fake loan and loan refinancing phone scams. Scammers target victims with a poor credit history or debt, particularly college students and recent grads with student loans.
These convincing, criminal callers can be hard to resist as they offer promises to alleviate your debt burden. But ultimately, they're looking to add to it for their gain.
How Loan Phone Scammers Trick You
Fraudsters often impersonate financial institutions, the Better Business Bureau, or federal agencies like the Department of Education using caller ID spoofing to appear legitimate. They try one or more of the following tactics:
If you have debt or poor credit history:
Loan scammers may call offering to help you recover by guaranteeing you a loan. They say you must pay a simple, up-front fee to submit your application and release the funds.
However, after you pay up, they'll disappear without following through on the loan offer.
If you have an existing loan or loans:
Loan scam callers may offer you options to consolidate, lower interest fees, or lend you money to eliminate your loan debt.
They'll work to get you to disclose personal information, like your Social Security number or bank account number, which they can then use to access your funds. Or, they might charge you bogus processing fees for services you could get for free if obtained directly through a legitimate institution.
Loans and Loan Scams to Avoid
When it comes to loans, it’s essential to know which offers will work the best for you. It’s equally important to avoid loans that will offer a short term solution with long term regrets. Educate yourself about ones to avoid. Research the perils of high interest rates, short repayment times, and the disastrous consequences for defaulting.
Additionally, certain loans, such as payday loans, are illegal in some states, including Arizona, Arkansas, Connecticut, Georgia, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Vermont, West Virginia, and the District of Columbia.
Avoid these financial traps:
Car Title Loans
Car title loans seem straight forward and simple. You use your car as collateral to receive a loan for up to 50% of the car’s value. The interest rates on these loans average 25% per month or 300% APR. The loan requires repayment within 30 days. If you don’t repay the loan on time, your car gets repossessed. In some instances, the loan might roll over, creating a more substantial debt with higher interest and fees.
Military members often took advantage of these loans, eventually leading to the Military Lending Act of 2006. The law protects military members and their families against predatory lending. The law caps loan interest rates at 36% with a term of 181 days or less. It also requires lenders to inform service members of their rights and bans lenders from requiring borrowers to submit to arbitration in case of a dispute.
Two reasons to avoid this loan: a) You could lose your car; b) The terms could be illegal.
Cash Advance Loans
Imagine attempting to pay a bill, and your credit card gets declined at the establishment. One option is to receive a cash advance on the card. Simply pay an extra 3%-5% on the amount you withdraw, plus interest. The interest charges begin to accrue the moment you get the money. While this method works in an emergency, the rates and fees make it something to avoid, if possible.
Overdraft Protection Loans
Most banks offer overdraft protection on their checking accounts. Some will let you withdraw money even if the account balance is zero, and most will pay out on a bounced check or auto-debit if under a certain amount. Like the cash advance loan, using overdraft protection can save the day if you don’t mind the $30-35 fee attached to the overdraft. Think about it – if the account balance is already zero, can you afford to pay the extra service fee?
Pawn Shop Loans
Pawn shops provide much-needed cash by buying or lending money against a consumer’s item of value. Consumers pawn a wide variety of things, including jewelry, computers, tools, guns, or musical instruments. The pawn shop may buy the item outright, or if you want to get your item back later it will offer a percentage of the item’s value. The borrower can retrieve the item in a short window of time by paying back the loan plus interest. However, if the borrower fails to pick up the item and pay back the loan, the pawn shop will sell the item to another customer.
These loans usually come with high interest rates. While state statutes often cap the rates, borrowers can pay as much as 120% APR. They also charge additional fees for service, storage, and lost pawn tickets.
Advance Fee Loan Scams
Advance fee loans can cause the greatest amount of damage to a person’s credit due to outrageous terms and rates or because the loan is fraudulent from the start. Many people fall victim to this scam because they can’t get a traditional loan or credit card. Ads on TV, the internet, or social media tempt possible targets with unrealistic promises despite negative credit history. Before signing up, remember that legitimate lenders never guarantee credit cards or loans before you apply.
Signs of an advance fee loan scam:
- A loan ad says credit history doesn’t matter. All legitimate lenders evaluate creditworthiness to determine loan eligibility. Scammers often use phrases like “Bad credit? No problem” or “We don’t care about your past, you deserve a loan,” or “Get money fast.” Steer clear of big promises.
- The lender doesn’t discuss or disclose the terms and fees of the loan. Legit lenders disclose the information, and if they require an upfront payment, the borrower often receives a refund if the loan application gets approved.
- The borrower must pay an upfront fee for paperwork, processing, credit report, background check, etc. Never pay upfront unless you know the lender is legitimate, such as a personal bank.
- The lender asks for personal information like a Social Security number or bank account number. Never disclose personal information before submitting an application.
- Loans offered by phone. Reputable lenders don’t take applications over the phone. They know there is a law against charging an upfront fee for a credit card or loan before the paperwork is approved.
- A lender you’ve never heard of approaches you with an offer. Always check out each company by getting its legal name, phone number, and physical address (never accept a P.O. box as an address). Research the company to ensure it’s the real deal.
- Lack of registration in your state. Banks, lenders, and loan brokers must be registered in the states where they conduct business. Check out the lender with your state Attorney General’s office or your state’s Department of Banking or Financial Regulation.
- The lender requests fees are paid to an individual. These requests often require sending money through untraceable methods such as wire transfers, gift cards, or prepaid credit cards.
Payday Loan Scams
Payday loans operate in the same way as car title loans. However, payday loans present more problems and the possibility of fraud. On average, the interest rates run between 391% and 521% APR with big fees and short repayment terms. Also, several states prohibit these loans, so pay attention to potential scams.
Student Loan Forgiveness Scams
The most popular loans come in two categories – government-based loans and private loans. Government loans include any loan subsidized by the government. They typically offer low interest rates and fixed terms. Private loans come from banks and traditional lenders. However, many sites provide student loans and options for loan forgiveness or discharge. Scammers provide none of what they advertise and often walk away with your blank check or access to your personal and financial information.
Signs of a predatory or fake student loan program:
Aggressive sales methods
Valid student loan companies and government agencies don’t use aggressive sales methods, threats, spam emails, spoofed phone numbers, junk mail, sales calls, or demands. They don’t try to get your personal information. The U.S Department of Education and other federal agencies regulate the unfair practices of lenders. They don’t offer quick-fix programs for student debt.
Contact the Federal Student Aid office to receive guidance, education, and information on programs and lenders.
Promising freedom from debt
The only way to be discharged from student loan debt is through the federal government. Other entities may offer to reduce or eliminate debt, but require at least a partial payment to do so.
Affiliation with the U.S. Department of Education
Although third-party service companies work with the U.S. Department of Education, none has the authority to eliminate debt.
False legal help
Debt relief companies often attach themselves to law firms or pretend to be a law firm. Suspect any claim from these sources, even if they seem legit.
Charging up-front fees
Avoid companies that charge up-front fees. Even the most tempting offers are usually scams.
Be sure to read all loan documents before signing. The government has modified loan repayment during the COVID-19 crisis, so be aware of your rights.
How to Spot a Loan Phone Scam
Regardless of scammers' tactics, be wary of any unsolicited financial offers made over the phone - particularly those that seem too good to be true. Tell-tale signs of a fraudulent offer include:
- The caller requests personal information - but doesn't care about your credit history.
- The caller guarantees you'll get a loan or loan assistance, no matter what.
- The caller claims you've already been approved for a loan or loan assistance, but requires an upfront payment to cover insurance or processing "fees" often by wire transfer.
- The caller uses high-pressure techniques, claiming immediate action is required to take advantage of their offer.
How to Protect Against Scammers
If you receive any unsolicited calls with a loan or loan assistance offer, hang up immediately.
Check the legitimacy of a caller by verifying if the stated company exists with your state Attorney General's office. Then, look up the company's phone number using CallerSmart's reverse lookup phonebook and call back to check if the company was the source of the phone offer you received.
What to Do If You've Been Scammed
Document all communications and report all scams and attempted scams to the FTC's Complaint Assistant. Warn others about loan scams by reporting the number using CallerSmart's caller ID app for iPhone. If you don't have an iPhone, you can still search unknown phone numbers with our online phone book available on our website.
How to Find Legitimate Loan Companies
A staggering number of banks and lenders make it hard to find one you can trust. The best way to find a legitimate loan company is to use one where you have an existing relationship. Exercise caution over online loan companies. Do your homework. Determine the type of loan you want and search for reputable lenders in that area. You can also use trusted sites like NerdWallet to list the best places to get loans. Lastly, check all banks and lenders with the Better Business Bureau and the FTC's Consumer Protection website.