Predatory payday loan companies and fraudsters thrive among uneven laws and stolen data

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, with an increase in online offerings. This has not only allowed predatory lenders to thrive as many borrowers continue to contend with sky-high interest rates and hidden fees, but it has also created a fertile environment for scammers, according to a new investigative study by Better Business Bureau (BBB).

Payday loan laws are handled on a state-to-state basis among the 32 states in which they are available, and a complicated web of regulations makes the impact of the industry in the US and Canada tough to track. The BBB study finds one common thread, however, with the triple-digit interest rates many of these loans carry – camouflaged by interest that is compounded weekly or monthly, rather than annually, along with significant rollover fees.

From 2019 to July 2022, BBBs 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 fell 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. One woman in St. Louis, Missouri, told BBB recently that over the course of her $300 loan, she paid more than $1,200 and still owes an additional $1,500.

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. In one case, BBB found that hackers had stolen and posted detailed personal and financial data for more than 200,000 consumers. News reports indicate that it is not an isolated incident.

In Fond Du Lac, Wisconsin, woman reported receiving a phone call recently from a supposed debt collector stating there was pending legal action against her because of an overdue payday loan debt. Fearing legal trouble, she ultimately sent the scammer $500 and her credit card information. Over the course of several months, her card was charged again until she canceled it.

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. More than a dozen states introduced legislation last year to regulate payday loans, but the landscape for legally operating payday lenders remains inconsistent from state to state.

Currently, payday loans are not allowed in 18 states, including Georgia, according to Pew Charitable Trust. In addition, the Military Lending Act sets a 36% rate on certain payday loans for service members.

Payday loans are allowed in Tennessee and lenders are required to be licensed. The state has a $500 payday loan limit and a maximum loan term of 31 days. Consumers typically present a post-dated check, and if the check does not clear when it is deposited, the lender can charge 15% of the check amount. This doesn’t represent the annual percentage rate (APR), which could reach as high as 460%.

One of the most important rules for Tennessee payday lenders is that they must provide each customer with a clear, written explanation of the fees charged as well as the date the post-dated check will be deposited. In addition, borrowers can have no more than two outstanding checks with any lender at one time and the value of those checks cannot exceed the $500 maximum.

With respect to fraudulent behavior, law enforcement is limited in what it can do to prosecute payday loan scams and it’s easy for scammers to appear quickly and disappear just as quickly after gaining personal information and/or funds from consumers who have been tricked by their ploys . Some legal payday lenders have attempted to prevent scams by educating consumers on ways they will and will not contact borrowers.

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. Verify that a payday lender is properly licensed in Tennessee before entering into any agreement, and check companies with BBB at

You can report a payday loan scam or register a complaint with your BBB and state and federal regulators at:


* Federal Trade Commission (FTC):

* The Tennessee Attorney General’s Office:

* The Georgia Attorney General’s Office:

If you have an overdue payment on a payday loan, the Consumer Financial Protection Bureau may have resources to help you set up a payment plan.

Michele Mason is president of the Better Business Bureau in Chattanooga.

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