Yesterday we covered fake debt collection. People who took out past payday loans were targeted for identity theft by scammers.  The Wall Street Journal reported on payday lenders backing Election Day ballot initiatives challenging state restrictions on payday loans.

Payday loans are short term loans secured by a person’s income. The lender verifies the borrower’s income to determine a loan amount. Direct deposit paychecks are verified by a bank statement. A postdated check from the borrower acts as security for the loan.  The loan is repaid on the borrower’s next payday.

Typically interest charged on payday loans is $15 to $20 per $100 borrowed. Loans are paid back within one to four weeks. If the borrower needs an extension, similar interest rates are charged. Due to the high interest rates, payday loans are now illegal in 15 states.

Payday lenders spent about $30 million on Ohio and Arizona ballot initiatives. Payday lenders promise financial freedom, which states find misleading. Payday loans are costly and even more expensive when borrowers can’t repay them.  Excessive interest accrues and borrowers face possible collection abuse.

If you took out a payday loan in the past, verify your debts. Order reports from the three major credit reporting agencies to review your credit history. Don’t talk to misleading debt collectors who will not provide identification.  Instead, discuss your situation with a professional to find out your options.

A payday loan is only useful in a short term crisis. If you have an emergency car repair and need to get to work, a payday loan may help. Payday loans are not a longterm solution. Often a vicious cycle begins causing you to get deeper in debt.

Another alternative is to workout a deal with creditors. Ask for an extension until your next payday rather than taking a payday loan. Remember only the lenders achieve financial freedom with payday loans.

Scammers are getting more savvy, finding new ways to steal your identity and compromise your credit. In a difficult economy, more people face mounting debts. Scammers, aware of this fact, now call posing as debt collectors.

If you owe several creditors, you might not unsure if the caller is one of them. These unscrupulous people try to get information about your identity before you can think - and the result is identity theft.

From jail threats to invoking the wrath of God, fake debt collectors will stop at nothing.  Legitimate debt collection does not involve these tactics.  ABC News reported about posers who call consumers to collect debts that don’t exist.

Norman Googel, West Virginia Assistant Attorney General, stated, “The way they’ve hidden themselves is pretty slick.”  So how can you tell if a debt collector is a poser or the real deal? Here are a few tips:

• According to Googel, scammers are operating under various names including U.S. National Bank, United Legal Processing and Federal Investigation Bureau. An official name doesn’t mean the call is legitimate.

• Many of these scammers appear to be from foreign countries. They are unfamiliar with American names and use celebrity names such as Denzel Washington and Steve Martin.

• Debt collectors cannot threaten or harass you in any way. Mentioning God or threatening jail is inappropriate. God is never be part of a general business conversation. No debtor’s prison exists in the United States.

• Googel found groups target people who took out payday loans online in the past. If you took a payday loan, be aware scammers may have access to your Social Security number and other personal information.

There are also ways to protect yourself. Review your credit report frequently to find inaccuracies. Be aware of your current creditors and how much you owe. Ask creditors for identification before you provide any information over the telephone.

When collectors use misleading statements and fail to provide identification, they are breaking the law. Never pay money to a possible thief. Keep cool when you hear from collectors to avoid this collection abuse.

If you have an attorney, the debt collector must contact the attorney unless the attorney cannot be contacted readily. If you do not have an attorney, a collector may contact other people but only to find out where you live, what your phone number is and where you work. Collectors usually are prohibited from contacting such third parties more than once. In most cases, the collector may not tell anyone other than you and your attorney that you owe money. That’s why your family members may get a message that tells them to ask you to call Mr. X regarding an “important personal matter.”

Under the Fair Debt Collection Practices Act a collector may contact you in person, by mail, telephone, telegram or fax. A debt collector may not contact you at inconvenient times or places (usually before 8 a.m. or after 9 p.m.) unless you agree. A debt collector also may not contact you at work if the collector knows that you are not allowed to receive such calls at work.

The Fair Debt Collection Practices Act (or FDCPA) is a federal statute that seeks to eliminate abusive practices in the collection of consumer debts, to promote fair debt collection and to provide consumers with a way to dispute and obtain validation of debt information in order to ensure the information’s accuracy. The FDCPA creates guidelines under which debt collectors may conduct business, defines rights of consumers involved with debt collectors, and prescribes penalties and remedies for violations of the Act.