North Carolina Department of Justice

North Carolina Department of Justice

North Carolina Department of Justice
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Beware of Shady Loans


By Attorney General Roy Cooper

When money is scarce, a loan can be necessary to help cover critical expenses. But don’t let your need for quick cash lead you to agree to a bad loan that will leave you even worse off.
In particular, steer clear of online payday loans and advance fee loan scams. While these kinds of loans may sound like the answer to your problems, they’ll likely wind up creating a whole new set of financial headaches for you.
Online payday loans
Payday loans are small, short-term, cash loans given against your next paycheck. The catch is that the loan is due in full on your next payday, typically in two weeks.  If you aren’t able to repay the loan that fast, and many borrowers aren’t, you can get stuck having to take out a new loan or rollover the old one. Once you take out one payday loan, it’s easy to get trapped into a cycle where you take out more and more loans, without ever being able to pay off your first one.
For years, we fought abusive payday lenders who were operating stores across North Carolina. We shut down the storefront payday lenders for good in 2006, but payday lenders located around the world continue to reach North Carolina consumers through the Internet.
Get the facts about online payday loans:
  • Payday loans are illegal in North Carolina, and for a good reason. These loans are a bad credit option and can sink you deeper into debt. 
  • It’s often difficult to find out the true name and location of Internet payday lenders.  Some of these lenders are overseas and unregulated, while others say they’re affiliated with Indian tribes and claim to operate outside of federal and state law.  You won’t have much recourse when problems – like harassing calls to collect on your debt – start.
  • Applying for a payday loan requires you to share lots of personal information, including your bank account number.  The payday lender can sell your information and you could end up a victim of identity theft. Never give your bank account number to a company you don’t know and trust.  
  • Online payday loans are costly, with interest rates that are more than ten times the maximum allowed for small loans under state law.  If you don’t pay back the loan on time, you may pay more in interest and fees than the amount you borrowed. 
  • Borrowers who can’t pay back their payday loans on time can get abusive collection calls and sometimes threats. In extreme circumstances, borrowers can even lose their jobs due to constant, harassing collection phone calls made to their place of work.
Advance fee loans
Advance fee loans promise you easy access to cash, even if you have poor credit. These lenders say they can help you get a loan, if you pay them a fee first. But the loan never happens, even after you’ve paid the fee.
Here’s how to steer clear of advance fee loan scams:
  • Avoid any loan that requires a large upfront payment. Legitimate lenders will not charge you fees before the loan is closed.  Under North Carolina law, it’s illegal for a loan broker to charge an advance fee to get you a loan or a credit card.
  • Beware of anyone who says they can decide to give you a loan over the phone without a credit check, or who says you qualify for a loan regardless of your credit history.
  • Never agree to send or wire money immediately or provide your bank account number to cover an upfront fee on a loan. Once you pay, the scammer is likely to disappear with your money and you won’t get a loan.
  • Also, avoid offers to get credit cards for an upfront fee. You’ll be asked to give your bank account information and authorize an electronic draft to pay the fee. In most cases, the scammers take your money and you never get a credit card.
Better options for loans
Consider these options instead of online payday loans and advance fee loans:
  • Short-term loans from family or friends.
  • Salary advances from your place of work.
  • Small loans from credit unions or licensed lenders such as consumer finance companies.
  • Non-profit credit counselors who can help you establish a budget and set up a payment plan for your debts.
For more tips or to report an online payday loan, advance fee loan or other loan scam, contact my Consumer Protection Division at 1-877-5-NO-SCAM toll-free within North Carolina or online at