Credit and Debt

Shopping for Credit Cards

The Consumer Financial Protection Bureau (CFPB) is the federal agency charged with protecting consumers in the U.S. market for financial products and services. The CFPB's Know Before You Owe: Credit Cards page offers important information about credit cards.

Credit Card Terms and Fees

The CFPB regularly surveys the credit card plans offered by some of the largest credit card issuers in the country. Its database of credit card agreements, from more than 300 card issuers, features general credit card terms and conditions, pricing, and fee information. In addition, the CFPB's database of credit card complaints and complaint responses informs the public about complaints.

Although the credit terms and agreements provided by the CFPB are subject to change and you should contact issuers for current rates, fee, and other types of plans, the CFPB complaint database, credit card plan survey and agreement database are good places to start if you are shopping for a credit card.

If you have questions about the information on this website contact the Department of Financial Services.

If you have questions or concerns about the information on the CFPB website, contact the CFPB directly.

Using Cards Wisely

There are many different types of cards out there - credit cards, debit cards, gift cards, etc. It's important to know the positives and the negatives of using different types of cards.

Credit Card

Credit cards give you access to a revolving line of credit, the amount of which is capped by the card issuer. When you use a card to make a purchase, you are borrowing money from the company that issues the card. You sign the card on the back and when you make a purchase, you sign a receipt. The two signatures are then compared to make sure they match. When you buy something by mail, phone or Internet, you provide the card's expiration date and a security code found on the card. Every card comes with a customer agreement. It's important for you to know the terms of that agreement. Simply put: You agree to repay a minimum amount once every billing period and you receive a monthly statement detailing your charges, any interest that may have accrued on an unpaid balance and the minimum payment you must make.

The Positives:

  • A credit card can help you establish a positive credit history if it is used responsibly.
  • With a credit card you have access to more money than can be safely carried around in cash.
  • Credit cards can provide an extra source of money for unexpected expenses.
  • Some airline tickets, rental cars and hotel rooms, can only be secured using a credit card.
  • If your card is lost or stolen and used without your permission you are not held responsible for unauthorized charges above $50 as long as you report the card missing.
  • When you use the card to make purchases, you will have a record of that spending.
  • Most credit cards offer warranties against product defects, bankrupt airlines, etc. You may also receive extended warranties and protection from theft and damage for purchases you make with that card.
  • Some credit cards let you earn points or offer discounts or rebates on certain types of purchases.
  • Stop payments on purchases are possible with credit cards.

The Negatives:

  • You may buy more with a credit card than you normally would spend in cash. Credit cards can be used too often and for unnecessary items and debt can add up quickly.
  • You pay a finance charge or interest if you do not pay the full amount every month by the due date and sometimes you pay a yearly fee.
  • Credit card debt can be compounded by finance charges, a raised interest rate and other fees if payments are missed or late.
  • Problems with a credit card can show up on your credit report and hurt your credit history.
  • If you get a cash advance on a credit card there are cash advance fees, interest accrues from day one and there is no grace period. The interest rates are also higher for cash advances than for credit purchases.
  • Credit cards that offer incentives, like airline miles or other goods and services, often place restrictions on the goods or services or offer services that you don't really need or are unable to use.

Guaranteed Credit Cards: A Scam for Sure!

There is no such thing as a guaranteed credit card. Never pay anyone in advance for a so-called guaranteed credit card. If the entity making the offer doesn't steal your "advance payment" outright, what you may end up with is a card that can only be used to purchase certain goods from a particular company.

No one can guarantee in advance that you will be approved for a credit card by a legitimate credit card company - you have to apply and be evaluated.

Debit Cards

A debit card (also known as a check card or ATM card) is a card that is used to access money in a checking or savings account. Debit cards look like credit cards but operate like cash or personal checks. When you use a debit card, you are subtracting your money directly from your bank account and you can spend only up to the amount in that account. Debit cards can be used at Automated Teller Machines (ATMs) and some types are also accepted at many grocery stores, retail stores, gas stations, and restaurants.

There are different types of debit cards:

  • Online cards use transactions called Electronic Funds Transfers or EFTs. There is an immediate transfer of money from your bank account to the merchant's account. To access your account, you enter your personal identification number (PIN) in a keypad, as you would at an ATM. The system checks your account and transfers enough money to cover the transaction. The merchant may charge a fee for this transaction.
  • Off-line - These cards are known as check cards, and are linked to your checking account. They are available through your bank and carry a credit card logo (such as Visa or MasterCard). The transaction, while it debits your account directly, resembles a credit card transaction, in that you sign receipt, as you would with a credit card. For a consumer, there is no noticeable difference between using these cards and ATM cards - they were created for merchants who don't or can't process EFTs.
  • A debit-check card works both as a check card and as a debit card, allowing you to shop at places that take only credit cards, and also to get cash from an ATM.

The Positives

  • Getting a debit card is easier than getting a credit card and will often be issued with a checking account.
  • You do not have to carry large amounts of cash or a checkbook and can visit an ATM when you run out of money. This may help you avoid the need for traveler's checks or carrying a lot of cash when traveling.
  • You will not build up debt using your debit card.
  • Debit cards may be more readily accepted by merchants than checks.
  • Government regulations require debit card issuers to hold you responsible for a maximum loss of $50 if the debit card is reported lost or stolen within two days of discovery. Liability increases to $500 if the lost or stolen debit card is reported within 60 days. (After 60 days you will not be able to get any of your money back!)
  • There are debit cards that can be pre-paid by a parent for a child. These cards can be used as a financial education tool. The parent "loads" the card with money and carefully monitors the use of the card.

The Negatives:

  • The money is immediately withdrawn from your account.
  • You may be charged a fee for a transaction when you use your PIN.
  • Using a debit card may mean you have less protection than with a credit card purchase for items which are never delivered, are defective, or were misrepresented. Returning goods or canceling services purchased with a debit card is usually treated as if the purchase were made with cash or a check; you may be limited to a store credit or have to wait for a refund in the mail.
  • If you don't report your card as lost or stolen within 60 days your account can be emptied.

Stored-Value Card

A stored-value card (also known as a pre-paid card) has an embedded computer chip or magnetic strip that contains the value of the card. The money can be accessed by "swiping" the card, using a password, or entering a code number printed on the card into a telephone or other keypad. The issuer keeps track of your balance until all of the money is used up, then the card can be discarded or refilled. These cards are sometimes used as alternatives to checking accounts. There are two types of Stored Value Cards:

  • Single-purpose, or "closed-loop," cards - such as a gift card - can only be used to purchase goods at a particular retailer, or for a particular purpose, such as a prepaid telephone card that can only be used to make phone calls.
  • Multipurpose, or "open-loop" cards, can be used to make debit transactions at retail locations, as well as receive direct deposits and withdraw cash from ATMs. Some multipurpose cards are branded by credit card companies such as Visa or MasterCard and can be used wherever those cards are accepted.

Stored Value Cards can be obtained in a number of ways. You may get a payroll card from an employer, an electronic benefit card from a government agency, or a phone card or gift card from a retail store. Multipurpose prepaid debit cards are usually obtained by telephone, online, or at check-cashing outlets and money transfer company locations.

The Positives:

  • Reloadable multipurpose Stored Value Cards may provide a banking alternative to people who do not have access to a bank account.
  • You will not create new credit debt by using a Stored Value Card. You are spending your own money.
  • You can book hotel rooms, purchase airline tickets, rent cars, buy concert tickets, shop online and pay bills by phone or the Internet without a credit card.
  • Transit system fare cards are Stored Value Cards. They are useful for charging different fares for different services and can automatically discount fares for seniors and persons with disabilities. In some cases they can even be replaced if they are lost, stolen, or damaged.

The Negatives:

  • A Stored Value Card does not have your name on it and generally no refund is available if it is lost or stolen.
  • Stored Value Cards do not report spending and payment habits to a credit reporting agency, so having one and using it responsibly won't help build credit or repair damaged credit.
  • There can be fees associated with pre-paid cards that can lower its value. Some of those fees include:
    • Entrance/Activation fees
    • Maintenance fees
    • Monthly fees
    • Annual fees
    • Point of Sale fees (using the card in a retail store)
    • ATM transaction fees
    • Out-of-network and/or International ATM transaction fees
    • Transaction limit fees
    • Bill payment fees
    • Phone or online transaction fees
    • Money transfer fees
    • Inactivity fees
    • Dispute fees
    • Reload fees charged by third parties to put more money on the card.

Secured Credit Card

A secured credit card is a card that has been secured by money, provided by you. The money is placed in a bank account by the issuer of the card, and acts as collateral, or a "guarantee" that you will use the card responsibly. The card looks and acts like an unsecured credit card, but if you default on paying the amount due on the secured credit card, the issuer can apply your security deposit to the outstanding balance.

The Positives:

  • Secured credit card accounts are reported to the three major credit reporting agencies (CRAs).
  • The accounts can be used by consumers who don't qualify for regular credit cards due to having no credit history. They can also be used to repair a poor credit history.
  • Some companies will provide an unsecured credit line after a certain period of timely payments.
  • Most banks or card issuers will pay interest on your security deposit.

The Negatives:

  • Every secured credit card charges an annual fee and those fees can vary dramatically.
  • Secured credit cards charge higher interest rates than regular credit cards.
  • Some cards will charge an application fee or require that you purchase an insurance policy for a fee.
  • Some issuers will report the account to the CRAs as a secured card which may affect your credit report.
  • Using a secured card will not necessarily guarantee future approval for an unsecured credit card.
  • Once you close the account the issuer may keep your deposit for a few billing cycles.
  • Some issuers will charge other fees including fees for cash advances, late payments, charging over the limit, insufficient funds, and for accessing account information.
  • Some issuers may limit the number of transactions in a given time period to protect against overdrafts.

Store Charge Card

Store charge cards are credit cards that can only be used at the store that issued them. They often charge a high interest rate: familiarize yourself with the terms of the agreement.

Travel & Entertainment Card

Travel & Entertainment cards are charge cards that function like credit cards but require that you pay off all of your charges in full each month. These cards include cards such as American Express or Diner's Club.

Credit Reports and Credit Score

When you apply for a credit card, car loan, personal loan or mortgage, the lender will want to know your past history of borrowing in order to understand the risk they might be taking by lending you money. The status of your credit score will depend on how good you’ve been in the past at repaying your debts. A bad credit history can affect the credit that’s made available to you or even cause you to be denied credit completely. On the other hand, a healthy credit report and a high credit score can mean better financial options for you. To find out where you stand, a lender will go to a credit reporting agency to get your credit report.

Credit Reporting Agencies

Credit reporting agencies collect an individual’s financial information, compile it into a credit report and, for a fee, make it available to the individual and to other authorized parties, including financial institutions. Generally when you apply for a loan you give the lender permission to get a copy of your credit report. Companies that lend money rely on credit reporting agencies and the credit reports they generate to help them assess a customer’s ability to repay what they borrow.

Although there are many local and regional credit bureaus throughout the United States, most credit bureaus are either owned or under contract to the nation's three major credit reporting agencies: Equifax, Experian (formerly TRW) and TransUnion.

Credit Report

A credit report is a detailed history of a person’s borrowing habits and consists of the following information:

  • Identifying information such as your name, past and present addresses, date of birth and employment history;
  • Credit accounts submitted by lenders who have extended credit to you. This includes the type of account (credit card, auto loan, mortgage, etc.), the date the account was opened, the credit limit or loan amount, the account balance and the payment history;
  • Inquiries on the account for the last two years including voluntary inquiries, when you apply for credit or a loan, and involuntary inquiries, when a lender you are not aware of orders your report to see if they want to make you a pre-approved credit offer;
  • Public record and collection items including information from state and county courts and collection agencies, and public record information like bankruptcies, foreclosures, lawsuits, wage attachments, liens and judgments.

Credit Score

When a lender gets your credit report, they can also generally get your credit score. A credit score is a mathematically calculated number based on the information in a credit report. By comparing this information to hundreds of thousands of other credit reports, credit reporting agencies come up with a number that can be used to identify your level of future credit risk.

Credit scores are often called “FICO scores” because most scores are produced from software developed by Fair Isaac Corporation also known as FICO. FICO scores range from 300 to 850 – the higher the score, the lower the risk. 

In order for a score to be calculated on your credit report, the report must contain at least one account which has been open for at least six months. The report must also contain at least one account that has been updated in the past six months. This ensures that there is enough recent information in your report on which to base a score.

Scores should be within a few points of each other. If they do differ by more than a few points it should be a red flag that something is wrong and should be further investigated.

Can different agencies have different scores?

There are three different FICO scores developed at each of the three different credit reporting agencies. FICO uses the same method to come up with each score, but the score at each of the three agencies may not be exactly the same because of the different ways lenders report information to the agencies. The FICO score from Equifax is called BEACON, the score from Experian is called the Experian Fair Isaac Risk Model and the score at TransUnion is known as EMPIRICA.

Is FICO the only credit score that lenders use?

No.  Many lenders use scoring systems that include the FICO score but may also consider other information in your credit application including the customer’s history with the institution. However, when purchasing a credit score for yourself, make sure to get the FICO score, as this is the score most lenders will look at in making credit decisions.

It is important to remember that no one piece of information or factor alone will determine your score and while lenders use scores to help them make lending decisions, every lender will have its own set of guidelines for a given credit product.

What does a FICO score take into consideration?

Your FICO score only looks at information in your credit report and considers both the positive and the negative information on the report including:

  • Payment History – (accounts for about 35%)
  • On-time payments on credit accounts including credit cards, retail accounts (such as department store credit cards), installment loans (loans where you make regular payments, like car loans) and mortgage loans. 
  • Late payments (delinquencies) on credit accounts including how late the payments were, how much was owed, how recently the late payments occurred and how many times payments were late.
  • Public record and collection items including delinquency payments on utility bills that are sent to collection agencies,  bankruptcies, foreclosures, lawsuits, wage attachments, liens and judgments. (Older items and items with small amounts will count less than recent items or those with larger amounts.)
  • Amount of credit – (accounts for about 30%)
  • The total amount owed on each account, in addition to the overall amount you owe.
  • Having balances on certain accounts. (Having a very small balance without missing a payment shows that you have managed credit responsibly, and may be slightly better than carrying no balance at all.)
  • The number of accounts that have balances. (A large number can indicate higher risk of over-extension.)

Length of Credit History – (accounts for about 15%)

  • The age of your oldest account and the average age of all of your accounts.
  • How long it has been since you used certain accounts.
  • New Credit – (accounts for about 10%)
  • How many new accounts you have or how long it has been since you opened a new account.
  • How many requests for credit you have made in the last 12 months.
  • How long it has been since a lender made a credit report inquiry.
  • Whether you have repaired your credit history, following past payment problems.
  • Types of Credit - (accounts for about 10%)
  • What type of credit accounts you have, and how many of each type.  This includes:
    • Revolving credit – American Express, Visa, MasterCard, Discover Card, and department store cards.
    • Installment credit – Personal loans, car loans, student loans and mortgages.

How Does the FICO Score Count Inquiries?

The FICO score counts inquiries or requests a lender makes for your credit report or score when you apply for credit. Too many inquiries can have a negative impact. Looking for a mortgage or an auto loan (rate shopping) may cause multiple lenders to request your credit report within a short period of time. The score counts multiple inquiries in any 14-day period as just one inquiry. The score also ignores all inquiries made in the 30 days prior to scoring. If you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping. One credit inquiry will usually take less than five points off a score. Inquiries can have a greater impact if you have very few accounts or a short credit history.

What FICO Scores Do Not Look At:

  • Age, race, sex, religion, nationality, medical history, criminal history, and marital status.
  • Salary, occupation, title, employer, date employed or employment history.
  • Interest rates being charged on a particular credit card or account.
  • Support obligations, rental agreements or utility payments.
  • Requests you make, requests from employers, and requests lenders make without your knowledge.
  • Information that is not found in your credit report.

Tips on Improving Your Credit Score

  • Request and check your own credit report and your own FICO score once a year. This won’t affect your score, as long as you order your credit report directly from the credit reporting agency or FICO. While having credit cards and managing them responsibly can lead to a high credit score, having no credit cards can make you seem like a risk.
  • Keep your balances low or, if possible, pay them off completely each month.
  • Pay off debt instead of moving it around. Owing the same amount but having fewer open accounts may lower your score.
  • Don’t open credit cards that you don’t need just to increase your available credit or because you want it to look like you have a better mix of credit.
  • If you have only had credit for a short time, don’t open a lot of new accounts at the same time. New accounts will lower your average account age, which will affect your score if you don’t have a lot of other credit information.
  • Shop for auto or mortgage loan rates for within a set period of time. FICO scores distinguish between a search for a single loan and a search for many new credit lines by the length of time over which inquiries occur.
  • Don’t close credit cards to try to raise your score. Closed accounts show up on your credit report.
  • Repair your credit history if you have had problems. Open new accounts responsibly and pay the bills on time.


If you have been turned down for credit, the Equal Credit Opportunity Act (ECOA) gives you the right to find out why within 30 days. You are also entitled to a free copy of your credit bureau report within 60 days, which you can request from the credit reporting agencies.

When a lender receives your credit score, up to four “score reasons” are included. These will explain the reason for your score. If the lender rejects your request for credit, and your FICO score was part of the reason, these reasons can help the lender tell you why you were rejected and can help you determine how to improve your credit.

Disputing Errors

The Fair Credit Reporting Act requires that incomplete or incorrect information on your credit report must be corrected for free by the credit reporting agency. If you find an error and ask that it be corrected, the credit reporting agency has 30-45 days to investigate. Only inaccurate information may be removed from your credit report; negative information that is accurate will stay on your credit report as long as governing laws allow.

To submit a dispute:

  • Inform both the credit reporting agency and the company that supplied the information to the credit reporting agency that you believe your credit report contains inaccurate information. The best way to do this is by writing each of them a letter. If you don’t have the resources to write the letter, the credit reporting agency may be willing to help you.
  • In the letter, include your full name and address, the full name of the company that supplied the disputed item and the account number of the disputed item (from your credit report).
  • Include copies of any documents that support your position (credit card statement, court document, etc.).
  • Identify each item in the report that you dispute, explain why you dispute the information, and request deletion or correction. Enclose a copy of your report with the items in question circled or highlighted.
  • Keep copies of your dispute letter and any records you send along with it. Do not send original documents.
  • Send the letter by certified mail, return receipt requested.

The credit reporting agency will ask the party that generated the information for their records.  After the investigation you can expect the following from the credit reporting agency:

  • If the lender cannot find a record of the disputed information, the credit reporting agency should delete the information from your credit report.
  • If they find evidence that the information is inaccurate they will make a correction to your report or add any missing information and will usually mail you an updated copy of your report.
  • At your request, they will send a ‘notice of correction’ to any creditor who has checked your report in the last six months. 
  • The agency should also send the corrected information to the other credit reporting agencies, but you should confirm that this has been done by rechecking all of the reports.

If you feel that the credit reporting agency has not resolved your dispute you can add a statement to your report that explains your side of the story. The statement must be less than 100 words and will remain on your report for seven years. It will be sent to anyone who requests a copy of your report.

Free Credit Freezes

The three major credit reporting agencies are required by federal law to offer free credit freezes. A credit freeze (also called a security freeze) restricts access to your credit file, making it difficult or impossible for identity thieves or others to open an account or borrow money in your name using breached or stolen information.

A freeze also prevents lenders and creditors from accessing your credit files to review your history and, as a result, prevents new credit from being opened in your name, unless you authorize the credit reporting agencies to lift the freeze and allow access.

Parents and guardians of children under 16 years may also freeze a child's credit file. The three major credit reporting agencies must offer free electronic credit monitoring services to active duty military personnel.

You will have to temporarily or permanently lift or "thaw" the freeze if you are applying for a loan or a credit card. Lifting a freeze is free. Many consumer advocates and security experts recommend credit freezes as one of the best ways to protect your credit information from fraud and prevent identity theft.

The procedures for obtaining a freeze are different for each of the three credit reporting agencies, and for a freeze to work you must place one with each of the three agencies. Consumers should visit their websites to learn more about how to freeze your file:

You can also call each agency (Equifax, 800-349-9960; Experian, 888-397-3742; TransUnion, 888-909-8872) to place the freeze.

Consumer Credit Reporting Agencies and Data Breaches

In response to a 2017 Equifax data breach, DFS issued a regulation that requires consumer credit reporting agencies register with DFS, comply with New York's separate first-in-the-nation cybersecurity regulation, subjects the agencies to examinations by DFS, and prohibits them from engaging in certain conduct, including unfair, deceptive or abusive acts or practices, misrepresenting or omitting any material information in a credit report, or failing to comply with the provisions of federal law relating to the accuracy of the information in any consumer report.

For more information about credit freezes and other measures you can take to protect your credit files, visit the Federal Trade Commission's Consumer Information Credit Freeze FAQs.

Free Annual Credit Report

You Are Entitled To A Free Copy Of Your Credit Report…

  • Once every year.
  • If you have been denied credit in the previous 60 days.
  • If you have been denied employment or insurance in the previous 60 days.
  • If you suspect someone has been fraudulently using your accounts or your identity.
  • If you are unemployed and plan on applying for employment within the next 60 days.
  • If you are on public assistance.

(You are entitled to get your credit score free of charge from your lender when applying for a mortgage.)

Request your free annual credit report from all three major agencies online at You can also call (877) 322-8228 to request your credit report by phone. You will go through a simple verification process over the phone and your reports will be mailed to you.

Dealing with Debt Collectors

Many people struggle with what to do when contacted by a debt collector, especially when the collector is calling from a company they have never heard of. Under state and federal laws, you are protected from abusive, deceptive, and unfair debt collection practices. Set out below is more information on your rights when dealing with debt collectors, and tools and tips you can use to protect yourself from being defrauded into paying a debt you do not owe.

Request Additional Information from a Debt Collector

If you are contacted by a debt collector that you don’t recognize or about a debt you don’t recall, you may want to request additional information from the collector.

Under federal law, if you request information on a debt collector within 30 days of the first contact, the debt collector must provide you verification of the debt, including information about the original creditor.

Under New York debt collection regulations, New Yorkers have the right to request additional information on most “charged-off” debts, which are defaulted debts that a creditor removed from its books, and then, typically, sold to another entity to collect. For example, this could be a defaulted credit card debt that was sold by your credit card company to another company to collect. 

You can make this information request, called “Substantiation of a Debt,” on the phone with a debt collector, although the collector may then require you to send a written request. Sending a written request for Substantiation of a Debt is the best way to request this information, because it provides a record of the request. 

Whether you make the request by phone or in writing, you should keep records of when you asked for information from the debt collector and when you heard back. When a debt collector receives your request, it must stop collection efforts until it provides you the requested information. The debt collector has 60 days to comply after receiving the request.

Sample letter to request Substantiation of a Debt

If you are not sure whether the debt you’ve been contacted about is the kind of “charged-off” debt for which you are entitled to Substantiation, you may still make a request for Substantiation of the Debt. Even if the collector advises that the alleged debt is not “charged-off”, you can still ask a debt collector for additional information. Legitimate debt collectors often provide, at your request, some proof that the collector has a right to collect the debt and is not a fraudster.

Sample Letter for Requesting Substantiation of a Debt (MS Word)

Protections from Harassment and Abuse

Debt collectors are not allowed to:

  • Use or threaten violence.
  • Make repeated phone calls made with the intent to annoy, abuse, or harass you.
  • Use obscene or profane language when collecting from you.
  • Call you at times they know, or should know, are inconvenient, including before 8 am and after 9 pm (unless you give permission otherwise).
  • Contact you at work if the debt collector knows or has reason to know that your employer prohibits you from receiving personal calls, such as debt collection calls, at work.

Your rights:

You have the right to demand, at any time, that a debt collector stop contacting you. If you make this request in writing to the debt collector, they must stop most communication. While this will stop attempts to collect your debt, it does not cancel the debt or prevent the collector from trying to collect by other means, including by a lawsuit.

You can tell a debt collector the best time to contact you. Debt collectors cannot contact you at times they know are inconvenient, so you can tell collectors when they should and shouldn’t contact you. 

Avoiding Debt Collector Scams

These fraudsters will try to collect money from consumers who already paid off their loans or debts to the legitimate creditor, or consumers who merely started an application for a loan, including a payday loan, but who never actually took out a loan. Fraudulent debt collectors use various tactics to scare the consumer into paying, including threatening arrest, legal action, garnishment of wages, and seizure of the consumer’s assets.

Don’t be victimized by this scam.  Be mindful of the following:

  • Payday Loans Are Illegal In New York. If a collector is claiming to collect on a payday loan, be aware that these loans are void under New York law and debt collectors do not have the right to collect them. If you have taken out one of these illegal loans, you can find out how to stop the loan in the Payday Loans in New York section below.
  • Ask for Proof of Debt.  Ask the caller for written proof of the debt, including for his or her right to collect it. A legitimate debt collector should be able to provide you documentation showing what you owe and to whom.  If the caller refuses to provide proof, the caller may be a fraudster.
  • Don’t Provide Personal Information.  Fraudsters sometimes try to trick consumers into giving them their personal information. Don’t provide your personal information to anybody you’re not sure you know. 
  • Contact the Original Lender. Even if you think you may owe money, do not send payments in response to an unknown caller’s demands.  Contact your original creditor to ask whether or not your account is in collection, which company it has hired to collect on your account, or which company has purchased your debt. If a company purchased your debt, contact them directly to find out the status of your debt.
  • Don’t Respond to Threats.  It is illegal for debt collectors to harass borrowers or make threats of any kind.  Also, while you may be sued to collect a debt, the police cannot arrest you for failing to pay back a debt. 

Phantom debt collection scams can take many forms. These scams can target payday loan borrowers and consumers who have never taken out a payday loan.

Debt Collection Lawsuits

In 2014, DFS adopted 23 NYCRR 1, a regulation to reform debt collection practices by debt collectors, including third-party debt collectors and debt buyers. In order to assist debt collectors in complying with these rules, DFS provides some answers to frequently asked questions in our FAQs: Regulation of debt collection by third-party debt collectors and debt buyers (23 NYCRR 1)

If you are sued or have been sued by a debt collector, the New York State Unified Court System has information on your rights, how to handle a debt collection lawsuit, and in some cases, how to overturn a wrongful judgment against you.

Find out more at the New York State Unified Court System’s website.

Predatory Loans and Loan Scams

Cash-Advance Loan

A cash advance loan is a small, short-term, high-interest loan that is offered in anticipation of the receipt of a future lump sum of cash or payment. Although a cash advance may be made in anticipation of future legal winnings, pensions, inheritances, insurance awards, alimony or real estate proceeds, the most common cash advance loans are Payday Loans and Tax Refund Anticipation Loans.

Payday Loan

A payday loan is a relatively small, high-cost loan, typically due in two weeks and made with a borrower’s post-dated check or access to the borrower’s bank account as collateral

Payday loans are illegal in New York State. It is a violation of New York State law to make payday loans in-person, by telephone, or over the Internet. It is also illegal for a debt collector to collect, or attempt to collect, on a payday loan in New York State.

Payday lending is illegal in New York for a number of reasons:

  • Payday loans are designed to trap borrowers in debt. Due to the short term, most borrowers cannot afford to both repay the loan and pay their other important expenses.
  • If the loan cannot be paid back in full at the end of the term, it has to be renewed, extended, or another loan taken out to cover the first loan. Fees are charged for each transaction.
  • The annual percentage rates on payday loans are extremely high, typically around 400% or higher.
  • Lenders ask that borrowers agree to pre-authorized electronic withdrawals from a bank account, then make withdrawals that do not cover the full payment or that cover interest while leaving principal untouched.
  •  If the lender deposits a repayment check and there are insufficient funds in the borrower’s account, the borrower is hit with even more fees for insufficient funds.

New Yorkers should steer clear of payday loans. If you are struggling to pay your bill:

  • Ask your creditors for more time. Find out what they charge for late payments, finance charges or interest rates since it may be lower than what you might end up paying for a payday loan.
  • Work with a community development credit union or a non-profit financial cooperative, which may provide affordable small-dollar loans to eligible members.
  • Ask for a salary advance from your employer, or borrow from family or friends.
  • Consult social service agencies, they may have programs to help with food, housing and home heating costs.

Tax Refund Anticipation Loan

Some tax return preparers offer what they may call ‘instant’, ‘express’ or ‘fast money’ refunds. These refunds are actually loans borrowed against the amount of your anticipated refund. These loans often include extremely high interest rates and high fees. They must be repaid even if you don’t get your refund or it is smaller than anticipated. To avoid the temptation of getting a Refund Anticipation Loan:

File your tax return electronically and have your refund deposited directly into your bank account. This will speed up your refund. Some refunds will be deposited in as few as 10 days.

If you don’t have a bank account, open one. All banks in New York State are required to offer low-cost Basic Banking Accounts.

Go to a Volunteer Income Tax Assistance (VITA) site at your local library or community center. The IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) programs offer free tax help for taxpayers who qualify.

AARP Tax-Aide helps people of low-to-middle income, with special attention to people who are 60 and older, with taxes and refunds. To locate the nearest AARP Tax-Aide site, call 1-888-227-7669.

Advance Fee Loan Scam

These scams involve a company claiming that they can guarantee you a loan if you pay them a processing fee, an application fee or pay for ‘insurance’ on the loan in advance. The company will advertise on the Internet, in the classified section of a newspaper or magazine, or in a locally posted flyer. They will sometimes use a legitimate company’s name or use a variant of a trusted name. They will sometimes ask you to call them at a "900" number, which will result in charges to your phone bill. They will usually ask to be paid via overnight or courier service or by wire, so that they can’t be traced. In order to avoid being taken in by this scam you should be aware that:

It is against the law for anyone to ask you to pay in advance to receive a loan or credit card.

A legitimate lender will never guarantee you a loan or a credit card before you apply, especially if you have bad credit, no credit, or a bankruptcy petition on your credit report.

These scams should not be confused with:

  • pre-qualified offers, which mean you are selected to apply and must go through the normal application process, or
  • pre-approved offers, which require only verbal or written acceptance.

Don’t ever give out personal information or agree to a loan over the phone or via the Internet.

Government Grant and Loan Scam

This scam, like the advance fee loan scam, uses the internet, phone and newspaper to advertise. A company claims that they can guarantee a grant or loan from the government in exchange for a fee. Victims are instructed to send money to pay for ‘insurance’ on the promised grant or loan. They will usually ask that the money be sent via overnight or courier services or by wire, so that they don’t leave any trace of their identity or location. They then provide the victim with information that is available in any library or can be ordered directly from the government.

Bounce Protection Programs

Traditional overdraft protection services allows you to avoid bouncing checks by linking your checking account to your savings account or to a line of credit or credit card that you have with the bank.

With overdraft payment programs, also called ‘courtesy’ overdraft protection or bounce coverage, the bank pays any checks that you write, debit purchases or ATM withdrawals that are for more money than you have in your account. The decision to make this payment is at the sole discretion of the bank. The bank will charge a fee for each transaction and some banks will also charge a daily fee until the account has a positive balance. Some banks will charge loan fees, sometimes twice in a billing period. In order to avoid the imposition of additional charges, the customer must repay the bank the amount that it covered plus any accumulated fees.

High Cost Home Equity Loans

Home equity is the value of your home minus the money you still owe on the home. You can sometimes borrow money from a lender by using the equity in your home as security on a loan. Home equity lending fraud occurs when someone talks a homeowner into taking out a loan that they don’t need or that is bigger than they need, or has higher interest rates and higher fees and larger monthly payments than they can afford. If the homeowner falls behind on payments, the lender can take the home.

To avoid Home Equity Lending Fraud:

  • Don’t give out personal information or agree to a loan over the phone or via the Internet.
  • Don’t let anyone who may be working on your home, like a contractor, steer you to a particular lender.
  • Don’t borrow more than you can afford. Educate yourself. Know what the prevailing interest rates are. Remember that a low monthly payment isn't always a deal. Look at the TOTAL cost of the loan.
  • Learn the real value of your home by getting an independent appraisal.
  • Don't trust ads promising "No Credit? No Problem!" If it sounds too good to be true, it probably is.
  • Get your credit report and your credit score. See if you qualify for better rates than are being offered.
  • Never lie about your income, expenses or available cash to get a loan and avoid any broker or lender that encourages you to do so.
  • Avoid early repayment penalties and fees of more than 3% of the loan amount (4% for FHA or VA loans).
  • Be aware that credit insurance premiums (insurance that a borrower pays a lender) should never be financed into the loan up-front in a lump-sum payment.
  • Don’t ever sign a document that has blank spaces or pages in it that the lender promises to fill out later.
  • Ignore high-pressure sales tactics. Take your time and read everything thoroughly.
  • Be wary of a lender that promises to refinance the loan to a better rate in the future. A predatory lender will let you keep refinancing a bad loan and will charge fees every time.
  • Know that even if you have already signed the agreement you have three days to cancel it.
  • Take your documents to a housing counselor and have them review the documents or refer you to someone who will.

Auto Title Loans

These are small, high-interest loans given using a car as collateral. If you default on the loan, you lose your car.


When you rent furniture or appliances you will often end up paying much more than it would have cost you to buy that furniture all at once. If you miss a payment the company may repossess the items and you will forfeit any payments you may have already made.

Payday Loans in New York

Payday loans are illegal in New York State. It is a violation of New York State law to make payday loans in-person, by telephone, or over the Internet. It is also illegal for a debt collector to collect, or attempt to collect, on a payday loan in New York State.

What is a Payday Loan?

A payday loan is a relatively small, high-cost loan, typically due in two weeks and made with a borrower’s post-dated check or access to the borrower’s bank account as collateral.

Payday lending is illegal in New York

  • Payday loans are designed to trap borrowers in debt. Due to the short term, most borrowers cannot afford to both repay the loan and pay their other important expenses.
  • If the loan cannot be paid back in full at the end of the term, it has to be renewed, extended, or another loan taken out to cover the first loan. Fees are charged for each transaction.
  • The annual percentage rates on payday loans are extremely high, typically around 400% or higher.
  • Lenders ask that borrowers agree to pre-authorized electronic withdrawals from a bank account, then make withdrawals that do not cover the full payment or that cover interest while leaving principal untouched.
  •  If the lender deposits a repayment check and there are insufficient funds in the borrower’s account, the borrower is hit with even more fees for insufficient funds.

New Yorkers Should Stay Away From Payday Loans.

If you are struggling to pay a bill:

  • Ask your creditors for more time. Find out what they charge for late payments, finance charges or interest rates since it may be lower than what you might end up paying for a payday loan.
  • Work with a community development credit union or a non-profit financial cooperative, which may provide affordable small-dollar loans to eligible members.
  • Ask for a salary advance from your employer, or borrow from family or friends.
  • Consult social service agencies, they may have programs to help with food, housing and home heating costs.

To stop recurring bank account debits to a payday lender:

  • Contact your bank or credit union and provide an oral or written request to stop payment to the payday lender. Your bank or credit union may require written confirmation of your request. Include your contact information in your request so that the bank or credit union can get in touch with you if necessary.
  • Revoke the authorization for the payday lender to withdraw money from your account. Follow the instructions in any paperwork you received from the payday lender, or send the payday lender a written notice with these instructions: “My authorization to withdraw money from my account is revoked.” Include your contact information.
  • Then send a copy of this written notice (revoking authorization and stating that the lender’s authority to withdraw payments from your account has been revoked) to your bank or credit union.
  • Inform the bank that you would like to contest any prior withdrawals by the payday lender as unauthorized since the payday loan is illegal, void, and unenforceable in New York.
  • After you have made a stop payment request, a lender may continue to try to withdraw money from your account, sometimes using multiple payment systems. You should continue to monitor your account closely. If you see a withdrawal from the payday lender, contact your bank and explain that you previously requested to stop payment and that the lender is still trying illegally to withdraw money from your account.
  • If you need to contact your bank again, discuss any fees that the bank may charge, and make sure the bank knows that the unauthorized withdrawals are due to the repeated actions of an illegal lender. In some cases, banks may waive stop payment fees.
  • In the event that you take the steps set out above and your account is still being debited, you may want to consider closing your account and opening a new one.

If you have any problems, including debt collectors contacting you about the transaction, contact DFS at (800) 342-3736 or File a Complaint.