Better Business Bureau study: COVID-19 struggles created ‘fertile environment’ for scammers

As consumers lost jobs and struggled to make ends meet during the COVID-19 pandemic, many turned to payday loans and other short-term solutions. This not only allowed predatory lenders to thrive, but also created a fertile environment for scammers, according to a new in-depth investigative study by Better Business Bureau.

From 2019 to July 2022, BBB received nearly 3,000 customer complaints about payday loan companies, with a disputed dollar amount nearing $3 million. Additionally, more than 117,000 complaints were lodged against debt collection companies at BBB.

Complainants often said they felt ill-informed about the terms of their loans. Many fall into what consumer advocates call a “debt trap” of stacking interest and fees that can leave customers to pay double the amount they originally borrowed.

Scammers didn’t miss an opportunity to take advantage of consumers, either, with BBB Scam Tracker receiving more than 7,000 reports of loan and debt collection scams representing roughly $4.1 million in losses. Posing as payday loan companies and debt collectors, scammers arm themselves with stolen information to convince consumers to hand over bank account information and cash.

A victim from Patrick County was told if they sent hundreds of dollars of gift cards, their credit score would increase to be able to apply for a loan. Then, after the victim gave the scammers their bank account information to deposit the loan, they overdrafted their account and scammed them out of $10,000.

Regulators at the federal level have pursued stronger laws to curb predatory lending, but those regulations were rolled back in recent years, leaving states to make their own rules about interest rate caps and other aspects of payday loans.

As of 2021, Virginia passed new payday loan laws that offer lower-cost loans and introduced more competition for incumbent lenders who had to update their policies in lieu of the reforms, according to Pew Chartiable Trust. Lenders are also able to conduct business via online or in person, and offer several types of loan and financial services.

BBB’s study advises consumers to do careful research into all their borrowing options – as well as the terms and conditions of a payday loan – before signing anything to take out a short-term loan.

The study also includes recommendations for regulators:

• Cap consumer loans at 36 percent
• Make more people aware of no-fee extended repayment plans
• Require lenders to test whether consumers can repay loans
• Require Zelle, Venmo and other payment services to offer refunds in fraud cases

To report a payday loan scam or register a complaint, visit BBB.org/ScamTracker

Find more information about this study and other BBB scam studies at BBB.org/scamstudies