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Payday loan scams becoming more commonplace

The Office of Fair Trading (OFT) is receiving a growing number of complaints about problems caused by identity fraud in relation to payday loans.

For information and advice on payday loans, click here.

Action Fraud - the UK’s national fraud reporting centre - issued a warning to consumers at the beginning of this year to be vigilant in checking their bank transactions regularly so that they can find out as soon as possible if money has been taken from their account to repay a fraudulent payday loan.

Payday loan scams take two forms: where a consumer is chased by a lender or their debt collectors for a loan fraudulently taken out in his or her name (and usually did not know anything about), or where a continuous payment authority (CPA) has fraudulently been set up against their debit card. The latter means that if there are not sufficient funds in a loan customer's account to repay the loan on the agreed date, the lender may keep asking their bank for all or part of the money. The debiting of large sums can naturally cause distress, made worse by the fact that it can take considerable time for refunds to take place, and that victims have to go to great lengths to persuade lenders that they are not liable.

The OFT's investigations call into doubt the quality of identity checking in the payday loans businesses, particularly by online lenders ... evidenced by cases where the loan is paid into a bank account which is in a different name from that of the loan applicant.

Applying for a payday loan usually means sharing personal details including your name, address and banking information. Much of this is easily accessible, and many details are even shared on Facebook and other social media platforms. In some cases, scammers have allegedly managed to take a loan out in someone else’s name with just their name and address.

The OFT has also raised concerns about strong evidence of irresponsible lending - with too many people given loans they cannot afford, and when they cannot repay are encouraged to extend them. This makes their financial difficulties worse and can cause real misery and hardship for a significant number of payday loan customers.