Often, when you think of predatory lending, you might think of things like payday loans because of the ridiculous interest rates and quick repayment. But now, there’s a new technique that’s catching consumers off guard: unsolicited checks to borrowers that show up in their mailboxes.
How These Predatory Lending Schemes Work
Getting a loan typically requires paperwork. Often, potential borrowers have to bring in information about their income at a minimum, allowing the lender to confirm they have the ability to repay the loan.
Plus, when a person takes out a loan, they have to complete a lending agreement. Usually, this is a set of forms that the borrower signs, showing they agree to various terms, like the repayment schedule, interest rate, and loan amount.
Once a lending agreement is complete, the lender sends the borrower the funds. Then, the person enters the repayment period, working to pay off the debt on time.
With the unsolicited checks to borrowers scheme, the process is a bit different. You don’t have to provide documentation regarding your income, for example, as the company acquires this data elsewhere. At times, they may not care about income data at all, taking on the risk of lending to anyone who may cash the check.
Instead of signing a lending agreement, signing the check and depositing or cashing it accomplishes the same task. The details in a lending agreement are sent with the check, and sometimes, may even be printed on the check itself. However, if you don’t review the fine print, you might not fully understand the implications of depositing the check.
Once a bank processes the check, the person officially becomes a borrower. All of the obligations that come with a loan are now on their shoulders, even if they didn’t realize what they were getting into at the beginning.
Why Unsolicited Checks to Borrowers Hit Mailboxes
In many cases, the institutions using this predatory lending technique are merely hoping someone in dire financial straits will deposit the check out of desperation. After all, if a person is short on cash, it’s easier to use a check that’s already there than head to a lender.
Plus, they may also be counting on the fact that some people won’t realize it’s actually a loan. If a person sees a check with their name on it, they may assume that it is money owed to them. The idea that it is a loan might not even enter their minds.
In a variety of ways, the unsolicited checks to borrowers scheme is trickery. It’s an attempt to lock a borrower into an agreement, potentially without their knowledge, and hold them accountable for the debt and high-interest charges.
If a borrower fails to pay, then they are usually hounded by aggressive collection practices, and may even be sued.
The Consequences of Not Repaying the Loan
Failing to meet the repayment requirements of any loan comes with consequences. However, the approach predatory lenders use tends to be highly aggressive.
For example, they may contact the borrower as well as their friends and family on at least a daily basis. Fees and penalties will mount up quickly, causing the original debt to balloon. Borrowers may also have to contribute to attorney fees, essentially financing the lawsuit against them.
Often, if a predatory lender decides to sue, the action is incredibly swift. One such lender filed within five months of some checks being cashed, showing how little time they gave borrowers before taking action.
Since many consumers can’t gather funds for an attorney of their own, they might not have strong representation in court. However, the lender will have skilled lawyers on their side, increasing the odds that they’ll win.
Additionally, the lender will take on a variety of costs to the lawsuit. For instance, they may go after the borrower for processing fees or insurance costs, along with interest, late fees, and the entire original principal, even if the loan is partially repaid.
Along with all of that trouble, borrowers also face the traditional trappings of not repaying a loan. Their credit scores will usually fall, and they’ll have a black mark on their credit report for years to come.
How to Avoid This Predatory Lending Scheme
If you don’t want to become a victim of this predatory lending scheme, make sure you never cash or deposit an unsolicited check without reading any accompanying material. Look over the check for any additional notes, like an interest rate or a statement that shows that it is a loan and not money the company owes you. Then, review any other paperwork that came with the check to discover the sender’s true intentions.
If you determine that it is an unsolicited check to turn you into a borrower, don’t sign, cash, or deposit it. Cashing or depositing the check indicates you accept the terms, so your best bet is to shred the check immediately, ensuring that you and no one else can attempt to use it.
What If You Actually Need to Money?
At times, an unsolicited check to borrowers will arrive at a moment when you happen to be in need. While it may seem kismet, don’t assume that this loan is your ideal solution. Even if you have poor credit scores, there are alternative to predatory lenders.
For example, you may qualify for assistance from a local nonprofit. You might be able to secure a more favorable loan from a local bank or credit union. In reality, borrowing money from a friend or family member might be a better approach.
Instead of assuming that the check is your only choice, it’s always wise to do some research. In many cases, other avenues are available, so don’t consider the check a sign of good fortune. You should always be suspicious and cautious whenever you get an unsolicited check. After all, if something looks too good to be true, it usually is.
Has anyone ever sent unsolicited checks to borrowers in your household? Tell us about your experience in the comments below.
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