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ITRC Fact Sheet 148

This guide includes:

The Non-prime Population:

Traditionally, the non-prime (or sub-prime) population has been described as a group of people who are unable to obtain credit through traditional channels because they are considered the greatest credit risk.

Now, with the economic downturn, it is harder for even more consumers to obtain traditional lines of credit, loan approvals, or even low APRs due to changes in lending practices. Adding to this hardship, consumers coping with salary reductions or the loss of employment are often unable to make their monthly payments, eventually causing their consumer credit scores to drop. As a result, many Americans find themselves struggling with the credit granting criteria of prime lenders (lenders who offer traditional credit). Once considered “prime consumers,” this new and growing population now falls under the category of “non-prime consumers.”

As it becomes harder for consumers to obtain traditional lines of credit, more consumers are using alternatives. According to the study Changing Patterns and Behaviors of Non-Prime Payday Loan Consumers by Clarity Services, Inc., “ … between February 2010 and August 2011, there was a substantial shift in the types of consumers who request payday loans, with the more stable, higher earner segment increasing by over 500 percent.” Payday loan lenders and other companies issuing non-traditional credit are major players in granting short-term loans to this growing population of consumers.

These lenders are often the only institutions offering non-prime consumers access to a reliable cash-flow source. According to Clarity Services, Inc., “the total annual impact to US delinquencies would be $2 billion if payday lending was not available to consumers who take out short-term alternative loans for the purpose of paying back other past due commitments.”

Applying for and Taking Out a Payday Loan:

Consumers are able to apply for payday loans in person at a brick and mortar (storefront) institution or online. When you apply for a payday loan online, you may be applying with one lender or a whole network of lenders. Many of the web sites that advertise loans are third parties that take applications for loans and offer them to lenders in their network. Because of this process, one application can be seen and approved by multiple lenders. It is up to you to decide which loans to take, if any, and to be aware of the fees and due dates of payments.

If you have taken out a payday loan, it is important to note that credit reports from the three major credit bureaus (i.e. Experian, TransUnion, and Equifax) typically do not include information on the payday loan dollar amount borrowed by the consumer or the amount owed unless the lender has referred the account to collections.

Identity Theft and Payday Loans:

Since payday loans typically do not appear on credit reports from the three major credit bureaus unless an account has been sent to collections, a victim will often not know about a fraudulent payday loan until he or she has been contacted by a lender or collections agency. An identity theft victim with payday loans in his or her name may have to utilize several resources in order to understand the extent to which their identity has been compromised. First, if you have been contacted by a collections agency, please refer to ITRC Factsheet FS 116: Collections Agency and Identity Theft and follow the steps provided.

If you have been contacted by a lender or you are contacting a lender about an overdue payday loan that you did not authorize, ask to speak to a representative who can handle fraudulent claims. When speaking to the representative, state that the payday loan in question is fraudulent and you are a victim of identity theft. Then inquire after any other loans in your name. Once you have obtained the information you requested, ask about the clearance process, which may vary according to lender. Follow all the steps the lender gives you to ensure proper removal of all fraudulent activities. Also inquire about any alternative credit bureaus (i.e. not one of the three major bureaus – Experian, Equifax, TransUnion) that offer credit reports that may contain any loan inquiries and/or funded loans from the lender. Request a credit report from any of the bureaus that the lender names. If the credit report(s) show fraudulent activity, refer to ITRC Factsheet FS 100: Financial Identity Theft: The Beginning Steps and ITRC Factsheet FS 100A: More Complex Cases for mitigation steps.

Payday Loan Scams:

According to the Internet Crime Complaint Center (, payday loan scammers made a reported amount of more than $8 million in 2011. However, since not all victims report their losses, it is likely that the amount is even higher. Payday loan scams usually follow the same basic formula. The scammers will contact consumers at all times of day and night. In addition, the fraudsters often claim to be attorneys, part of a government agency, or employees of legitimate-sounding banks or companies. The scammers then state the consumer owes money towards a loan and needs to repay it immediately.

While these victims may have applied for payday loans or may have received loans in the past, they owe no money to the callers. Somehow, the fraudsters have gotten ahold of the consumers’ account and personal information. The fraudsters typically know information such as SSN, address, names of relatives or references, or perhaps the name of a lender that the consumer would recognize. The fact that the scammers have this information makes the scam victim believe that the caller is part of a legitimate company which received a loan application. Also, these fraudsters will intimidate people in a number of ways: using abusive language; threatening lawsuits or jail time; and calling or threatening to call relatives, coworkers, or employers.

The Fair Debt Collections Practices Act details consumers’ rights and states what debt collectors are not allowed to do. Refer to ITRC Fact Sheet FS 116A: Your Debt Collection Rights for information regarding the act. If the person calling refuses to provide you with written notice of a collection (also known as validation notice), or violates the FDCPA in any other way, hang up and do not give any information about yourself because this is likely a scam.

For more information about protecting yourself, please refer to:

ITRC Factsheet FS 123: Scam Assistance

ITRC Factsheet FS 124: Fraud Alerts and Credit Freezes.

You can also report a scam call by contacting the Federal Trade Commission (FTC) and your state Attorney General.


This fact sheet should not be used in lieu of legal advice. Any requests to reproduce this material, other than by individual victims for their own use, should be directed to