Avoiding Debt

The majority of financial con artists target America’s most vulnerable citizens. Learn how to stay away from these pitfalls

When the United States was placed under quarantine in March 2020 — and remained there for the following ten months — one industry remained unaffected: scammers and fraudsters.

Predators had us precisely where they wanted us while we were hunkered down, with only our smartphones, laptops, and streaming gadgets connecting us to the outside world on the verge of Armageddon (OK, some of us watched too much TV news).

And being wrong was a lot of fun.

The Federal Trade Commission predicts a dramatic increase in rip-offs in 2020, compared to the previous year:

  • Nearly 2.2 million fraud reports were filed, up 27% from 1.72 million in the previous year, with identity theft scams continuing to be the most popular.
  • Losses increased by 83%, from $1.8 billion to $3.3 billion.
  • Consumers who reported a problem to the FTC admitted losing money 34% of the time, up from 23% the year before.
  • Identity theft more than doubled, from just over 650,000 a year ago to 1.39 million.
  • The allure of CARES Act billions is driving identity thieves. More than 406,000 people said their personal information was used to apply for a government document or benefit, such as unemployment insurance, up from 23,213 in 2019.

Financial con artists have never been more common or successful as they are now. These ne’er-do-wells frequently prey on the weak, including many who have been denied a loan in the past.

These are loans to avoid, so customers must be aware of the warning signs and know how to spot them – while also being aware of how to spot a legitimate loan provider like BankruptcyHQ.

Financial Scams: How Common are They?

Financial fraudsters target almost one-third of adults, and they do not discriminate based on age, contrary to popular belief. Millennials, like Baby Boomers and Gen Xers, are easy prey. The only difference is in the tactics.

Internet shopping fraud, company imposter scams, government imposter scams, bogus checks, investment schemes, work-at-home scams, and untrustworthy debt management companies are all more likely to catch Millennials off guard, according to the Federal Trade Commission.

On the other hand, Millennials are less likely to be fooled by tech-support and romantic frauds than people in their forties and fifties.

It’s also vital to consider how scams begin. Millennials are less likely than people in their forties and fifties to lose money to telephone scammers. They are, however, 77 percent more prone than their elders to fall for email-based schemes.

According to research done by the University of Pennsylvania’s Wharton School of Business, college seniors are easy targets. Wharton researchers used the Health and Retirement Study, a nationally representative survey of Americans aged 50 and up, to find that nearly a third of 1,260 respondents said they had been victims of financial scams in the previous five years, and a third said outsiders had used (or attempted to use) their accounts without permission.

Don’t put too much pressure on yourself. The world is moving too fast for buggy-whip economics to keep up.

Online banking and brokerage accounts, for example, are two examples of technological improvements. You can deposit a check without ever having to leave the couch… or even getting out of bed. With a click of a mouse, you can transfer thousands of dollars between institutions or invest in bitcoin.

Payday lenders, 401(k) borrowing, Exchange-Traded Funds (ETFs), variable rate and adjustable mortgages, reverse mortgages… Every turn, it seems, brings a new financial deception to defraud unsuspecting customers.

The threat of internet loan fraud has further exacerbated the situation.

“Scams change all the time,” said Katherine Hutt of the Council of Better Business Bureaus. “We want to help individuals recognize them so they can be ready the next time they get a questionable call, email, text, or solicitation,” says the group.

Knowing which loans to avoid is just as crucial as determining the best solution for your financial circumstances when it comes to loans. You should be aware of the dangers of excessive interest rates, short payback periods, and the devastating consequences of default. Payday loan fraud is a challenging problem to solve. Consumers are well-aware that payday loans (with interest rates ranging from 304 percent to 664 percent APR) can lead to debt spirals, but there are a variety of different options to explore.

Avoiding the Worst Loans

Here are a few loans that will put you in financial trouble:

Car Title Loan – You can get a loan for up to 50% of the value of your car if you use your car title as collateral. On the other hand, a car title loan typically has a monthly interest rate of 25% (or at least 300 percent APR) and is due in 30 days. If you take out a $500 loan, you’ll have to pay back $625 (plus any fees) within 30 days, or your automobile may be repossessed.

The loan may be extended over into the next month on rare circumstances, resulting in a bigger financial outlay – around $800 – to cover interest and fees.

The Military Lending Act of 2006 protects service members and their families from predatory lending because these loans are prevalent among military people.

On loans having a term of 181 days or fewer to repay, the law restricts interest rates at 36 percent. It also mandates that lenders inform service members of their rights and prevents lenders from forcing borrowers to submit to arbitration in the event of a disagreement.

You should avoid this loan for two reasons: a) you could lose your car, and b) Washington has established a regulation restricting this type of lending. “That’s your clue,” as police officers would remark.

Imagine a company won’t accept your credit card, but you urgently need their product or service. You can receive a cash advance by paying an additional 3% to 5% on the amount withdrawn, plus interest to your bank. When you start money from a bank, interest charges begin to accrue (in a process similar to using an ATM). Cash advances can be helpful in a need — for example, if your mechanic only accepts cash — but they should be avoided in most cases.

Overdraft Protection Loan — On checking accounts, most banks provide overdraft protection. Even if your account balance is zero, you can withdraw money from the bank. Each time an overdraft occurs, the typical bank cost is $30-$35. Consider this: If you’re already cash-strapped, how is adding a $30 service fee going to benefit your future self?

Private Student Loans – While the federal government provides most student loans, banks, credit unions, and other lending institutions offer personal student loans. Many private student loans have variable interest rates higher than federal student loans’ fixed rates. Private student loans do not require a credit check, but they do not have the same repayment flexibility as federal student loans. In every regard, personal student loans are inferior to government loans. Only use one if everything else fails.

When you need money urgently, you can use something valuable as collateral for a pawnshop loan, such as jewelry or a computer.

The pawn business will lend a portion of the item’s worth. Payback periods are brief — usually between 30 and 90 days — and interest is compounded at (sometimes excessive) rates.

Most states have laws that limit pawnbroker interest rates, which can reach 120 percent APR in some cases. Add-on expenses for service, storage, and a lost ticket create further issues. The cost of add-on fees may exceed the cost of interest charges.

Before taking out any loan, consumers should read the entire contract, including the fine print. You must be aware of the expenses, the timeframe for repayment, and the consequences of defaulting. Never sign off on a pawn shop loan unless you’ve read and understood all of the terms.

Be on the Lookout for Loan Scams

It’s easy to accept practically any personal loan offer when you need money and have a bad credit score. On the other hand, scam artists are waiting to take advantage of your plight. Personal loans may be provided to them via adverts on online websites. They could send you a flier promising you a loan no matter your financial situation.

The following are some of the warning indicators that victims of loan frauds typically experience:

Upfront Fees – These are also known as “advance-fee loan scams,” these lenders promise a low-interest loan in exchange for a cash deposit upfront. Fees for legitimate-sounding functions, including applications, processing, and documenting, are used to hide their true intentions. “Send me some money before I perform any service,” they all mean. Consider the following scenario. You will be requested to send money in exchange for a loan. Frequently, you’ll be prompted to pay using a prepaid card, such as an Apple, Google, Visa, or other retailer’s digital gift card. It’s all a ruse. Run.

All of the fees charged by a legitimate lender are disclosed. These costs are frequently folded into the loan’s total cost rather than paid upfront. Advance-fee con artists may offer the same deal, even creating a bogus ACH — automated clearing house — deposit to your bank for the total amount. It will show up as “pending” on your account. But stop talking as soon as they ask you to give the gift card; they’ll deplete the card, and the outstanding payment will never be paid.

Making a loan offer over the phone is against the law. Any proposal must be written down. All related fees must be prominently displayed.

Transmit Transfers – It’s a major red flag if the lender requests that you wire money to cover fees. Never send cash to a single person. Always get the physical address of the lender. Then, to make if it’s a legitimate company, call the state’s Attorney General or Financial Regulations agency.

Credit History Isn’t a Concern – Legitimate lenders assess a person’s creditworthiness before making a loan. Never believe statements such as “Bad credit? What if I don’t have any? ‘That’s fine!’ There’s an issue, and it’s all your fault.

Clever scam artists will develop a business name or website that looks or sounds real to appear legitimate. To verify the address and phone number, it’s always a good idea to call the Better Business Bureau. Be highly suspicious if the mailing address is a post office box.

Examine the URL as well. Scammers will pose as reputable financial organizations on their websites. Still, small indicators, such as percentage signs, @ symbols, misspellings, or strings of digits, will be visible when you investigate their web address.

Personal Information – Only give out your Social Security number, date of birth, bank account number, or other sensitive personal information if you’re sure you’re working with a reputable lender. According to the FTC, personal data can be used for identity theft or bank account theft, which increased during the pandemic.

Lenders and loan brokers must register with the states in which they conduct business. You can check registrations with your state’s attorney general or banking or financial regulatory departments. This won’t ensure a good relationship with the lender, but it might help you spot a fraudster.

Online ratings have become very powerful when it comes to restaurants, museums, and movies. They may also be able to assist you in finding a trustworthy lender. Simply Google the organization or individual’s name, as well as Facebook, the Better Business Bureau, and other leading review sites. Take note of any negative feedback or complaints. It’s a red flag if an unpleasant impression is formed consistently across multiple sites.

Customer service – Reputable lenders will provide you with a phone number to call to get your questions answered. You should not give a company your business if you are not satisfied with their customer service. Also, don’t be happy with phone robots. You must be able to communicate with a human being.

Warning Signs –  Several factors should cause you to be concerned right away. If there are errors in spelling, capitalization, punctuation, or grammar in an email message, be suspicious. At the very least, that demonstrates a lack of professionalism. It could also mean you’ve met someone in a foreign country who isn’t under the jurisdiction of US authorities.

If a free period (such as a year with no payments) is offered before the loan must be repaid, be wary. Be cautious if the lender claims that they do not conduct credit checks and will lend money regardless of past financial difficulties.

If You’ve Been Scammed, What Should You Do?

Contact your local law enforcement as soon as possible if you’ve been a victim of a loan scam or personal loan fraud. Notify your state’s attorney general as well as the Federal Bureau of Investigation (if the company was from another state or country). The Federal Trade Commission and the Better Business Bureau will also be beneficial partners.

The FBI, the National White Collar Crime Center (NW3C), and the Bureau of Justice Assistance have teamed up to form the Internet Crime Complaint Center (IC3) (BJA).

Report it to Google, Yahoo!, Bing, DuckDuckGo, or whatever search engine(s) you prefer if you suspect a website is designed to appear legitimate to steal users’ personal information.

Provide the following information to file reports:

  • Your name, address, and phone number are required fields.
  • The identity of the person or organization who committed the fraud, including their name, address, phone number, and website.
  • Describe how, why, and when you believe you were defrauded.

What Makes a Business Legitimate?

We’ve mostly talked about red flags and warning signs, but not all of them are bad. How can you tell if a company is legitimate?

Following are some suggestions:

  • Look up the company’s name, its state license number, public phone number, physical address, and the name of the company’s representative. Keep an eye out for anything that doesn’t fit.
  • Return the call to confirm that the phone number is valid and that you can reach the business.
  • If possible, cross-reference the physical address with the driver’s license number and phone number.
  • Look for any scam warnings or feedback from other business owners by searching the company’s name online.

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