If you thought taking out a payday loan was a bad idea, you’re right – and now you’ve got yet another reason to think so. In addition to their predatory marketing, their astronomical interest rates and the havoc they’ll wreak on your credit score, payday loans have now been connected to cramming. No, we’re not talking about what college students do during finals week. We’re talking about credit card fraud.

A couple weeks ago, the FTC issued a warning about a big cramming scam they’d uncovered. Cramming is a type of fraud in which small, vague charges – usually between $10 and $30 – are added to your bill without your knowledge or consent. Because the amounts are relatively insignificant, many people don’t even realize they’ve been hit. Still, these small charges can add up bigtime for the scammers, especially when you consider just how widespread the problem is. According to the FTC, 20 million consumers get crammed every year.

So what does this new scam have to do with payday loans?

People who take out payday loans often don’t make a lot of money, and many of them are not highly educated. These loans can seem appealing to someone who’s in the middle of a crisis, like a divorce or a medical emergency. Can you blame them? If you need cash fast, here’s a way to get it. The problem is in the fine print. To get a payday loan, you’ll be agreeing to unpardonable interest rates, sometimes over 500%. No, that’s not a typo, and it’s totally common.

So now here’s the new wrinkle. When a person applies for a payday loan online, the application site is sometimes a middleman, not a real lender. Sites like MoneyMutual.com generate what the industry calls “leads.” Basically, the company sells your application to the actual lenders in an auction. This stuff is in the fine print.

The problem is that these companies don’t always check out the buyer. As Consumer Federal Protection Bureau director Richard Cordray has said, “The highest bidder may be a legitimate lender, but it could also be a fraudster that has enough of the consumer’s sensitive financial information to make unauthorized withdrawals from their bank account.” And that’s where the cramming comes in.

In this most recent case, consumers were noticing strange $30 charges on their statements from merchants like Debt2Wealth, Funding Assurance and Avanix – merchants they’d never even had contact with. When consumers called the toll-free number listed on the bill, they were told that they’d purchased things like financial counseling or loan matching. None of the people had actually purchased any of these services, but many had recently applied for a payday loan online.

After receiving tons of complaints, the FTC launched an investigation and was able to trace these fraudulent charges back to a company called Ideal Financial Services. The company allegedly created dozens of shell companies and registered more than 230 Internet domain names to try to conceal what it was up to. Before being caught, Ideal Financial Services allegedly ran 50 different cramming scams and stole over $24 million.

So, in addition to being total rip-offs in and of themselves, payday loans now come along with even more baggage. Vulnerable people are being set up for even more misfortune so that a dinky little shell company can make a buck. Disgusting? You bet. It’s always been clear that payday loans are a kind of poison, but as it turns out, they’re more toxic than we ever knew.

So share this article, and inform the people you care about. If you’ve ever applied for a payday loan, let us know how it worked out in the comments below.

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