Online Cash Advance Loans Rife with Fraud, FTC Warns
Cash advance loans advertising quick money is a temptation for those who are experiencing a cash shortage. However, online cash advance loans are rife with fraud, FTC warns. According to the Federal Trade Commission, lenders don’t always follow regulations. They violate the law by lying about fees and by requiring cash advance borrowers to give them access to their bank accounts. Some lenders have even threated to take borrowers to court or have the police arrest them for failing to pay the money back.
The FTC Warns the Public about Fraudulent Online Cash Advance Loans
The FTC issued its warning about fraudulent online cash advance lenders because the agency just sued a few of them for breaking federal laws. The agency reported that the cash advance lenders were refusing to issue funds to borrowers unless those who needed money shared their personal bank account information.
These lenders also told borrowers that the repayment amount would include a one-time fee that would be withdrawn on a certain day. Instead, the lenders took several withdrawals from their customers’ bank accounts. They also charged borrowers a fee for every withdrawal, resulting in these customers paying more for the loans than the amount stated.
Exercising Caution When Sharing Personal Information
The FTC advises consumers to share their personal information prudently. In fact, people should exercise caution when entering personal data on any website because this action could have lasting consequences. Today, selling financial and personal information is lucrative. Businesses that purchase personal information may use it to sell goods and services to the consumer. They could even charge the person for unauthorized purchases. Identity theft is another problem that arises when financial and personal information is sold.
Scammers are Targeting Payday Loan Borrowers
The National Consumers League reports that cash advance loans have attracted scammers. These con artists are attempting to trick desperate borrowers by claiming that they represent the lender, a collection agency or law enforcement. Often, scammers use personal information that they obtained from authentic online loan applications to fool people who have applied for a loan.
Those who are trying to rip-off borrowers frequently use the threat of arrest as an intimidation tactic to get money out of their victims. Failing to repay money is not a deed punishable by arrest. However, threating to have a person arrested for failing to repay a cash advance or other type of loan is against the law.
Why the Lenders of Cash Advance Loans Tempt Thieves
According to Bloomberg, thieves are attracted to online lenders because they store their customer’s personal data. These companies often have driver’s license numbers, addresses, employer information and social security numbers.
Major banks and financial service providers like PayPal also have this type of information stored in their databases, but large companies invest in cyber defense programs, making them tougher to breach. Online lenders are unlikely to secure their systems as thoroughly. Crooks know this and target them. In addition to their lower level of security, online moneylenders have connections to credit bureaus and debt collectors, which makes them an even more tempting target. Scammers may even gain access to the data of consumers who have yet to take out a loan.
The Industry is Trying to Wipe Out Lenders who Engage in Fraud
Last year, the FTC put a stop to a scam involving two men who allegedly purchased payday loan data to commit fraud. According to the federal agency, the men pretended to be the lender by depositing $28 million into the bank accounts of their victims. This money was deposited without the victims knowing about it. These men went back to the accounts and withdrew $46 million in fraudulent fees and finance charges.
Tom Feltner, the financial services director for the Consumer Federation of America, said, “Those two numbers alone show the profitability in misusing this information. This is an industry built on using unfair practices.” The industry is working to wipe out those who engage in fraudulent activities, but even when watchdogs discover that payday data has been stolen, it’s tough to track where it came from. To find organizations and individuals who are trying to steal from borrowers, agencies like the Online Lenders Alliance hire mystery shoppers who search online for stolen payday loan data.
However, the organization wasn’t aware of this recent data breach. Lisa McGreevy, the alliance’s chief executive officer said, “The challenge is that people go on lots of different sites. Some of those sites are fraudulent sites that are put up there exactly for the purpose of capturing this data.”
Staying Safe When Applying for an Online Cash Advance
Legitimate online cash advance sites and businesses are never going to ask a borrower for money upfront. If this request is made, the borrower would be wise to leave the site immediately. Consumers should check for encryption software and confirm that a site’s status bar features the lock icon.
Borrowers are advised to use strong passwords for added protection when creating them. This is especially important when conducting financial business online. Strong passwords can protect a borrower’s data from thieves. Before applying for a loan, consumers should use the internet and other sources, such as word of mouth, to discern the reputation of companies that offer credit.
How to Shop for the Best Cash Advance Loan
When the need for money is too great to wait and save up, a loan is necessary. However, cash advance loan borrowers can take additional steps to ensure that they’re getting the best loan. If time permits, then the first step is to shop around. Borrowers should consider interest rates and payoff terms before taking out a loan. Ask every lender what the annual percentage rate, or APR, is prior to signing the loan agreement to locate the most affordable option. If lenders fail to list this information online, borrowers may need to visit them in person.
Check into small dollar loans from local credit unions. In some cases, these traditional financial institutions lend out small amounts to borrowers at competitive rates. Cash advances through a credit card are also possible. This type of borrowing usually comes with higher interest rates than other kinds do. However, cash advance loans though credit cards likely feature lower interest rates than payday loans.
Heeding the FTC’s Warning
To act in their best interests, consumers are advised to search for loans that feature the lowest costs for taking out a cash advance. Borrowers who turn to online lenders for funds should be cautious with their personal information during the application process. While the convenience of the internet is unsurpassed, fraud is a major problem, one that borrowers need to work to avoid. To learn more about the FTC’s warning about fraudulent online loans, visit the Personal Money Store.