How do you recognize legitimate personal loan, debt forgiveness, and loan consolidation companies that are not scams? It is very easy to fall victim to fraud if you have significant debt or have very poor credit.
Dishonest actors target the most susceptible people but use common tricks that give them away.
Trustworthy companies follow the consumer protection laws that apply to the product they offer.
Follow this three-part outline to identify a reliable company or spot a thief before he runs off with your hard-earned money.
- Fraudsters charge upfront fees and request payment with gift cards
- Ethical lenders follow industry best practices and obey the law
- Reliable debt relief companies paint a realistic picture
How to Spot Personal Loan Scams & Fraud
High-risk consumers should learn how to spot personal loan scams to avoid becoming a fraud victim. Unfortunately, crooks seem to prey on the most vulnerable people – those who can least afford to lose what little money they have.
Beware of gift cards funding upfront fees!
A personal loan company requesting an upfront fee is the first sign of a rip-off. Run away from any lender that requires that you send them money before they release the proceeds to your bank.
The impostor may first forward paperwork indicating that they have approved your loan application. Everything looks official including a logo and physical address in the United States. You sign the contract and fax it back.
Then the fun begins. You just need to pay an upfront fee so the FRB Department (or other phony offices) can release the money to your account. This may keep happening until you stop sending them money.
These fictitious upfront charges should send off alarms.
Origination fees are real and should not cause alarm. For example, lenders will fund 95% of the principal amount on a loan with a 5% origination fee. This happens after approval and does not require an advance payment.
A personal loan company asking you to forward pictures of gift cards is another sure sign of fraud. The thief could be anywhere in the world. Once they have images of the sixteen-digit code on the back of the card, they vanish without a trace.
Gift cards such as iTunes are a very popular tool used in money laundering. It is very difficult to track down the stolen funds once redeemed or sold on the dark web – which they do almost immediately. Most victims will never get the money back.
As per the Federal Trade Commission, avoid con artists requesting funds via Amazon gift cards, Paypal, reloadable cards like MoneyPak, Reloadit, or Vanilla, or by wiring money through services like Western Union or MoneyGram. The Green Dot MoneyPack Card is another favorite of crooked dealers.
Checking that a Personal Loan Company is Legitimate
Checking that a personal loan company is legitimate can help high-risk consumers avoid shady deals. Vulnerable consumers can easily fall prey to offers that promise something unrealistic or hide important details in the fine print.
Connect with a network of credible lenders who adhere to federal and state laws and disclose terms and conditions clearly in advance.
Dependable personal loan lenders for bad credit do exist. Consumers with poor ratings can borrow money safely provided they manage their expectations, and work with a compliant lender.
Bad credit borrowers often have unrealistic expectations that make them susceptible to swindles. Be wary of any lender promoting overly lenient underwriting standards.
- Guaranteed approval
- No cosigner
- No bank accounts
Verify that the company follows all relevant laws and industry best practices as outlined in the next four subsections.
No Credit Check
Responsible no credit check installment loan companies need to capture information about your income, employment, and checking account. They must compensate in some way for putting aside an important underwriting tool – the ability to pull your consumer report and examine your risk score.
- Borrowers must demonstrate reliable earnings and employment. Expect the lender to verify these details as they are not using your past payment history to render a decision.
- Borrowers must have a checking account. The lender will require the bank routing and account number. They will ask permission to automatically debit the account for the monthly payment.
No credit check lenders often charge higher fees. The Truth in Lending Act requires lenders to disclose all loan fees and interest rates to borrowers up front. Read this notice carefully before accepting any offers.
Reliable online personal loan companies are members of the Online Lenders Alliance (OLA). “OLA members abide by a list of best practices and code of conduct to ensure their customers are fairly treated and fully informed.”
Consumers can recognize OLA members by looking for the seal on the company website. When you see the seal, you can trust that the organization is committed to the highest standards of conduct. The seal also indicates that the enterprise should be compliant with federal law and committed to protecting borrowers from fraud.
Read more about OLA policies on their website.
Lawful payday loan companies only operate in the states where it is legal to do so. Three states outlaw small dollar cash advances: New Jersey, New York, and Pennsylvania.
Fifteen other states have usury laws, which limit access to high-cost payday loans. The origination fees spread over a short repayment period translate into extremely high-interest rates. Compliant companies will adhere to the legal restrictions on charges, fees, and renewals.
Do not take out a payday loan over the phone without a written contract. The company should provide documentation that includes the physical address, phone number, and website. Verify that all three components match up before communicating bank routing and account numbers.
Read more about payday loan laws here: www.paydayloaninfo.org/state-information.
Tax Refund Anticipation
Dependable accounting firms issue tax Refund Anticipation Loans (RAL) and Refund Anticipation Checks (RAC) following guidelines issued by the Internal Revenue Service (IRS).
- RAL is a loan secured by the expected income tax refund
- RAC directs the refund to a bank, which disburses fees and the balance
The IRS requires the accounting firm to inform taxpayers of the following.
- Will not receive a refund from the IRS
- Interest charges and fees
- Will not receive their refund any sooner
- Liable for additional interest and fees in the event of a delay
- Secure consent to disclose tax and income information to the lender
- Adhere to fee restrictions and advertising standards
Trustworthy personal loan companies marketing to the unemployed will keep the amounts small, repayment periods short, and verify any alternative sources of income. Run away from any lender doing otherwise. Something is fishy.
- The principal amounts must be small because the unemployed do not have the capacity to repay large sums. People collecting unemployment benefits have partial income support, but regular expenses continue as is.
- The repayment period must be short because unemployment benefits are time bound. The entitlement eventually runs out. The maximum length in any state is 26 weeks.
- People cannot repay a loan without a money coming in from somewhere. Expect the lender to verify eligibility for unemployment benefits or other sources of income such as alimony, child support, Social Security, or disability insurance.
Finding Legitimate Loan Forgiveness Programs
Finding legitimate loan forgiveness programs is difficult. Consumers struggling to make monthly payments are extra vulnerable. They attract shady operators who find it easy to take advantage of desperate people.
No real private company can help you to wipe away your obligations. Only the federal government has the power to forgive debts, which they reserve for a select group of teachers and public servants.
The rest of us can request access to a debt settlement or loan consolidation program. Each option has pros and cons.
Credit Card Debt Relief
Do you qualify for debt relief? Truthful credit card debt relief companies will follow the Telemarketing Sales Rule (TSR) guidance published by the Federal Trade Commission (FTC). The FTC updated the TSR in 2010 to curb deceptive and abusive practices associated with debt relief services.
Debt settlement, debt negotiation, and credit counseling outfits must follow three basic tenets. Non-profit organizations are exempt.
- Charging upfront fees is illegal. Fees are collectible only after they renegotiate or settle the debt.
- Disclosing specific information is required
- Cost of services and other important terms
- Length of time it will take to yield results
- Amount of money you must save before settlement offers begin
- The consequences for missed payments to existing creditors
- Customer rights regarding funds held in dedicated (escrow) accounts
- They cannot misrepresent services
Student Loan Debt Relief
Honest student loan debt relief companies have limited ways that they can help college graduates. Be wary of any organization making wild promises of immediate assistance. It is much more difficult to reach a settlement without the threat of bankruptcy.
Graduates cannot discharge federal student loans in bankruptcy. However, the federal government does offer a variety of options designed to make the debt more manageable. You do not need to hire an outside agency to help you exercise any of these alternatives.
- Income-driven repayment
- Public service forgiveness
- Teacher forgiveness
Attorney legal fees for bankruptcy can add to your problem with low odds of success.
College graduates find it very difficult to discharge private student loans in bankruptcy. You must show that repayment will create an “undue hardship.” This is a very challenging legal standard.
- Inability to maintain a minimal standard of living
- The situation is likely to persist through the end of the repayment period
- You have made a good faith effort to repay what you ow
Upright loan consolidation companies will not promise to forgive your debt. Combining multiple obligations into a single account does not make your liability go away. It merely elongates the payment schedule and/or alters the interest rate.
Loan consolidation companies offer one of two possible benefits to consumers. Only one saves people money. Watch out for lenders promising an easy way to get out of debt. Many people find themselves in even more trouble than before.
- Lower interest rates go only to consolidating borrowers with high credit scores and income combined with a solid job history. They keep the repayment period the same and save money on interest charges through the transaction.
- Lower monthly payments go to consolidating borrowers who extend the repayment period. The interest rate may go up or down or stay the same. However, they pay much more in total interest over time. They pay a big price to hold onto the lender’s money for a longer time.