Financial Education

Buyer Beware:

Money Wire Scams

Beware of anyone you do not know who asks you to wire money. A very common scam involves someone sending you an official looking check with instructions to cash it and then wire a portion of it back to them.

Ask any member of the staff at Highmark FCU before you wire money to anyone you do not know. Once the money is wired, it cannot be retrieved. And remember, you are responsible if a check is returned. This scam happens every month to trusting members!  Don’t let it happen to you.

Debit and Credit Card Fraud

There are phone scams targeting financial institutions where members receive a call stating there are problems with their credit or debit card and to call a toll-free number. Sometimes cardholders are instructed to "press 1" to re-activate their card and are directed to an automated system. The system prompts the cardholder to enter his or her card number, expiration date, PIN, and verification code (three-digit code on the back of the card).  This is a scam, DO NOT give them any account or confidential information.

At Highmark Federal Credit Union, protecting our members is our top priority. Highmark will never call requesting members to enter confidential information to re-activate their accounts or cards. These phone scams are randomly generated by an automated system that dials combinations of phone numbers hoping the person who answers will give out his or her confidential card information. The scammers do not know whether you have a debit or credit card, and they also do not know whether you have one with Highmark FCU. They are simply attempting to trick you into giving away some type of confidential information.

If you receive a call like this, do not call them back on the number that they leave, and do not give them any account or confidential information over the phone. Please call Highmark directly during our next business day at 605-716-4444 or at 1-800-672-6365 to notify us that you received a call like this.

What are Pay Day Loans?

A payday loan (also called cash advance loans, paycheck advance loans, postdated check loans, or deferred deposit check loans) is a cash loan based on the borrower’s personal check that is intended to cover a borrower’s expenses until his or her next payday.

These are meant to be short-term loans: a typical first payday loan will be for a two week period. Payday loans are small loans, usually ranging from $100 to $500. All a consumer needs to get a payday loan is an open bank account in relatively good standing and proper identification. Lenders of payday loans do not conduct a full credit check or ask questions to determine the borrower’s ability to repay, as is the norm with conventional loans.

The Federal Trade Commission, the nation’s consumer protection agency, says these loans come at a very high price. The fee for these loans is usually between 15% and 30% of the original loan amount. If the loan is not paid off in two weeks, an extension will be granted- for an additional fee.

This extension/renewal process may be repeated over and over again, creating a cycle of debt that is difficult to break. Payday lending is a controversial practice for good reason. Consumer advocates condemn the practice as a whole because it takes advantage of consumers who are already hard-pressed to pay their debts. Before you consider this option, be informed. Compare the loan fees, interest rate and other costs of payday loans to other credit offers, and consider alternative solutions like joining Highmark Federal Credit Union.

How Pay Day Loans Work?

The basic process is simple. A lender provides a short-term unsecured loan to be repaid at the borrower’s next pay day. Typically, some verification of employment or income is involved (pay stubs and bank statements), but some lenders may omit this. Individual lending companies and franchises have their own lending criteria.

In the traditional payday loan model, borrowers visit a payday “lending store” and secure a small cash loan, with payment due in full at the borrower’s next paycheck. The borrower writes a post-dated check to the lender in the full amount of the loan, plus fees. On the maturity date (the day the loan is due) the borrower is expected to return to the store to repay the loan in person.

If the borrower does not repay the loan in person, the lender may redeem (cash) the check. If the account is short on funds to cover the check, the borrower may now face a bounced check fee from their bank in addition to the costs of the loan, and the loan may incur additional fees and/ or an increased interest rate as a result of the failure to pay.

In a more recent innovation of payday loans, consumers complete the loan application online, or in some instances by fax. The loan is then transferred by direct deposit (ACH Deposit) to the borrower’s account. The loan repayment and/or the finance charge will be electronically withdrawn (ACH Debit) on the borrower’s next payday. Again, many payday lenders operating on the internet do not run credit checks or verify income.

Another variation on payday lending is offered by companies lending short-term credit over mobile phone text messaging. The terms are similar to those of a payday loan; a customer receives a predetermined cash credit available for immediate withdrawal. The amount is deducted, along with a fee, usually about 10 percent of the amount borrowed, when the next direct deposit is posted to the customer’s account.

Income tax refund anticipation loans are not technically payday loans, but they have similar credit and cost characteristics.

Pay Day Loans Create Financial Crisis

Payday loans are predatory by design becausefees from repeat borrowers are the lifeblood ofthe business.

Payday loans may seem like an easy solution toa temporary cash shortage, but for many people,payday loans are the beginning of a vicious cyclethat is difficult to get out of.

If you cannot pay back the loan at the end of the initial twoweek loan period, that’s when expensive problems begin. Extending the loan, also known as “rolling over” the loan, will initiate another fee. A fee is charged each time the loan is extended, or “rolled over”.

Borrowers often find themselves taking out new payday loans to cover old payday loans, and ultimately end up owing thousands of dollars on what started out as a few hundred dollars of debt.

Payday loans are deceptive. The high fee rates make it difficult for borrowers to repay the loan, because they are already in a desperate financial state, and extending the loan puts them in even worse financial shape.

Why Do Consumers Use Payday Loans?

Desperation and/or lack of information about the dangers are the most common reasons people turn to payday loans. Typically, all you need is a job, some identification, and a checking account; so it’s quick and easy to get a payday loan. The idea of quick cash is tempting for someone who doesn’t realize how much it will cost them or for someone who thinks they have no other choice.

While many average-income people resort to payday lending, most people who use it are low-income people with few assets, being least able to secure normal, lower-interest rate forms of credit. Statistics show that payday loan companies aim to take advantage of poor consumers, and young consumers with limited understanding of finances.

Payday borrowers may not understand that the high interest rates are likely to trap them in a “debt-cycle,” in which they have to repeatedly renew the loan and pay associated fees every two weeks until they can finally save enough money to pay off the principal and get out of debt.

What is the real cost of a Pay Day Loan?

How much are you willing to pay for $100 loan?
A. 5 dollars?
B. 15 dollars?
C. 30 dollars?
D. 400 dollars or more?

If you’re willing to get a payday loan, then you may as well choose answer D.

Let’s say you wanted to borrow $100. You would give the company a check for that amount plus their fee – let’s say $115. You walk out with $100 but $115 is due in two weeks. The true cost (of $15 dollars on a $100 loan for two weeks) is equal to an annual percentage rate of 390% APR! (Compare that to the average credit card interest rate of about 15% APR).

If you had to extend the loan for a little more than two months in order to pay it back, you would give them more in fees than you borrowed!

This graph illustrates how a payday loan quickly becomes an unmanageable debt.

$100 Loan 2 Week Payoff 1 Month Payoff 3 Month Payoff 6 Month Payoff 9 Month Payoff 1 Year Payoff
Loan Fee $20 $40 $120 $240 $360 $520
Total Payoff $120 $140 $220 $340 $460 $620
$200 Loan 2 Week Payoff 1 Month Payoff 3 Month Payoff 6 Month Payoff 9 Month Payoff 1 Year Payoff
Loan Fee $40 $80 $240 $480 $720 $1040
Total Payoff $240 $280 $440 $680 $920 $1240
$300 Loan 2 Week Payoff 1 Month Payoff 3 Month Payoff 6 Month Payoff 9 Month Payoff 1 Year Payoff
Loan Fee $60 $120 $360 $720 $1080 $1560
Total Payoff $360 $420 $660 $1020 $1380 $1860