June 10, 2014 -- Dear ABC News Fixer: I was trying to obtain a payday loan. The online lender instructed me to send them a Green Dot MoneyPak card with $195 on it for insurance to secure the loan, They would put the funds directly on the card.
I asked them why they couldn’t just deposit the loan money into my bank account, but the lending representative said it was against federal regulations. So, I got the card and scratched off the number on the back and read it to him over the phone. He said the funds would be available in a half-hour.
Twenty minutes later, he called back and said my Social Security number was “red-flagged” and the money couldn’t be sent. He said he could remove the “red flag” for $500 – a figure that their lawyer later lowered to $203.
At that point, I said I wanted my $195 back, but then they threatened to sue me for the balance of the loan -- a loan I never received.
I realize now this was a scam, and I have closed my bank account. They probably have done this to many other unsuspecting victims who are just trying to make ends meet.
- Kevin Whitney, Philadelphia, Penn.
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Dear Kevin: We’re so sorry to hear you got scammed out of $195. That’s a lot of money, especially when funds are tight already. We want to thank you, though, for sharing your story with the ABC News Fixer. You told us you wanted to make sure no one else gets ripped off.
Payday loans are not a great deal to begin with – they are short-term, extremely high-interest loans – but what you got entangled with was an advance-fee loan scam. It’s where a supposed lender says they’ll get you the funds, but only if you provide some money first – for loan fees, insurance or something else.
Such a scheme is illegal on its face. Any time a supposed lender asks for money upfront, you should head for the hills.
The problem is these bogus lenders can be quite sophisticated. We’ve heard of consumers who were sucked in by fancy ads and websites, with legitimate-looking applications and people who pose as loan officers.
But if there’s money required upfront, it’s a scam.
Legitimate lenders do frequently add application, appraisal or credit report fees; however, they take them from the amount you’re borrowing after everything is approved. When someone asks for a chunk of money for fees before you’ve gotten your loan, it’s a huge red flag, according to the Federal Trade Commission.
As for the Green Dot MoneyPak, the reloadable debit card is a convenient way to make payments without a bank account or credit card. But some scammers have begun capitalizing on this type of payment.
The National Consumers League’s Fraud.org website reports an uptick in fraud cases involving reloadable debit cards such as Green Dot MoneyPak or Vanilla Reload cards. Some consumers have reported phony debt collectors calling them and demanding payment on this type of card.
The cards are sold at thousands of major retailers nationwide. If the control number or PIN is shared, however, the money can be quickly siphoned away. And unlike with a regular credit or debit card, the victim has virtually no protection.
Meanwhile, the FTC has some cautions for consumers seeking an online payday loan:
Don’t give out personal information on a payday loan website. Even if you don’t click “submit,” nefarious websites can collect your bank account information from your keystrokes.
Read all the fine print. Beware of “lenders” who are enrolling you in a membership program for which you will be continually billed.
Keep track of your bank account and bills. Regularly reviewing your account statements will help you see where your money is going and help identify fraudulent charges. If you see something strange, tell your bank and the billing merchant right away.
Look for alternatives to payday loans, such as a credit union loan, and work to budget your money to avoid high-cost borrowing.
- The ABC News Fixer