Households warned of rise in ‘loan cost’ fraud – how to spot warning signs
Households warned of rise in ‘loan cost’ fraud – how to spot warning signs
- The financial regulator urges the British to be aware of a growing loan fraud
- Scams involve criminals asking for fees before making a full loan to the customer
- Victims lose around £260 on average, and the scam will grow
Households are being warned to watch out for scammers pretending to offer loans for a fee ahead of a predicted fraud explosion.
In so-called loan fee fraud, criminals pose as legitimate financial firms lending money, but victims instead lose an average of £260, according to the Financial Conduct Authority’s regulator.
This is because many fraudsters require a prepayment before granting a loan. Once they pay the fee, the crooks disappear.
Often the scammers say that the fee is a refundable security deposit, or covers insurance or administrative costs.
Foul play: loan money scammers mimic real lenders who occasionally ask for fees upfront
Lloyds Bank has also warned against this type of fraud, saying that other common reasons scammers give for demanding prepayment are a verification fee or a guarantor.
Now the FCA is once again warning the public about the fraud as it believes many are about to fall victim.
FCA data shows that last summer there was a 26 percent increase in consumer complaints about loan fraud, compared to 2021.
This year, the cost-of-living crisis combined with summer spending pressures could increase the risk of loan fraud.
According to the FCA, 18 percent of consumers plan to use savings to fund summer spending, and 12 percent are turning to credit cards.
How to Spot a Loan Fee Scam
The FCA urges consumers seeking a loan that three things are classic warning signs of loan fee fraud:
- If you receive an unsolicited call or e-mail
- If you are asked to pay a fee in advance
- If you are asked to pay quickly or unusually
If consumers need to apply for a loan, they must first visit a lender’s website FCA Registry.
That will tell you if a company is authorized by the FCA. If not, it’s probably a scam.
Also check that the contact details of the office match those on the register.
If there are no contact details on the register, or if the company claims they are out of date, please call the FCA on 0800 111 6768.
If a consumer is doing business with an unauthorized company, they will not be covered by the Financial Ombudsman Service or Financial Services Compensation Scheme if something goes wrong.
That means they risk losing all the money they paid to loan money scammers.
FCA Executive Director of Enforcement and Market Surveillance Steve Smart said: ‘With inflation, energy costs and rising mortgage bills, this summer spending comes at a time of heightened vulnerability for many.
“For fraudsters, this is the perfect opportunity to take advantage of people thinking about how to make ends meet in the summer months.”