The Financial Conduct Authority (FCA) has issued a warning about the dangers of loan fee fraud in the run up to Christmas.
The FCA found that cases of loan fee fraud are up by a fifth compared to last year. This troubling rise comes at a time when consumers have seen additional pressure placed on their finances.
Here, we explain how loan fee fraud works and offer advice on how to report scams.
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What is loan fee fraud?
Loan fee fraud (also called advance fee fraud) is a scam where a fraudster asks you for an upfront fee, usually between £25 and £450, in order to take out a loan.
Scammers target people who have been searching for loans online. Victims who have made several online loan applications are contacted by scammers via text, email or telephone and are offered a non-existent loan. The catch is that an upfront fee needs to be paid, and in some cases, more than one fee is requested.
People experiencing financial difficulties, those with a poor credit history and those on a low income are particularly vulnerable to scammers preying on their inability to access mainstream loans.
Victims are told that the fee acts as a deposit, administrative fee, insurance or is required because of their bad credit history and will be refunded later. Scammers may ask for the fee to be paid in an unusual way, such as via Western Union or in vouchers, and may pressure victims to make the payment as soon as possible.
How these scammers obtain your details in the first place isn’t as clear cut. Your personal information may have been accessed by fraudsters if you’ve entered them on unsecure broker or loan comparison website. Scammers can also target you through fake loan companies advertised on social media.
Consumers facing Christmas pressures
The FCA’s research into loan fee fraud highlights a worrying trend during the cost of living crisis.
The regulator found that two in five consumers felt pressured by family and friends to conduct Christmas spending as usual this year. A third of those that felt pressured were worried about how they’d afford to pay for Christmas.
Overall, one in eight consumers said they planned to take out a loan to cover their Christmas shopping, potentially leaving them vulnerable to scammers.
How to avoid and report fraud
If you want to take out a loan and you’re unsure about the legitimacy of the lender, use the FCA’s register to check that the lender is authorised. You can also contact the FCAs consumer helpline on 0800 111 6768. Suspicious firms can be reported via the regulator's reporting form.
If you have been scammed, report it to Action Fraud. Suspicious websites should be reported to the National Cyber Security Centre at www.ncsc.gov.uk.
source https://www.which.co.uk/news/article/shoppers-warned-of-loan-fee-scams-in-the-run-up-to-christmas-avBvl2c9oWCX