As the cost of living continues to squeeze household finances, more people could be considering taking out a loan.
Indeed, the most recent figures from the Bank of England show that people borrowed an extra £1.5 billion using consumer credit, including credit cards and loans, in November last year compared to £0.7 billion in October.
But scammers are also on the rise, with experts highlighting the danger of people looking to take advantage of financially stretched households through ‘advance fee’ or ‘payment in advance’ scams.
These scammers work by asking you to pay an upfront fee to receive a loan but then never giving you the loan itself. You may be told that the fee is refundable and will act as a deposit, insurance or to cover administration costs.
The Financial Conduct Authority (FCA), the UK’s financial regulator, recently reported that cases of loan fee fraud increased by more than a fifth between November 2021 and October 2022, with the average loan fee scam costing consumers £260.
Wayne Stevens, national fraud lead at Victim Support, a charity that supports victims of crime in England and Wales, warns: “Anyone can experience these scams. Particularly as the cost of living crisis takes hold, more of us are looking for quick fixes to tide us over or cover the costs of essentials.
“People who need to access money quickly can be more at risk, as these ‘loans’ are typically advertised in a way that makes them appear low-risk. For example, fraudsters often say that they will be approved quickly or that the fee is refundable.”
Sarah Sinden, the manager at banking trade body UK Finance who led the Take Five to Stop Fraud campaign, agrees that anyone could be at risk of this scam, particularly people who are proactively looking for loans online.
“With the particular focus at the moment on the rising cost of living, it’s likely that many people could be looking at ways to delay payments or to take out loans to help with their current circumstances,” she explains. “They could be making applications online for loans and then receive contact out of the blue by text, email or phone from a fraudulent loan provider.”
Too good to be true?
The risk of falling victim to these fee scams is high. Almost two thirds (64%) of consumers are unaware of what loan fee fraud actually is and only 22% say that they would be able to spot all the warning signs, according to research from the FCA.
If a loan offer sounds too good to be true, it probably is. Stevens identifies some of the warning signs that could alert you to a loan scam. Phrases such as: “We accept applications from anyone, regardless of your credit score,” should ring alarm bells.
You should also be wary if the loan provider is putting pressure on you by suggesting it is a limited time offer, forcing you into making a quick decision without all the information. Scammers may use this kind of tactic to persuade people who want a loan as soon as possible to send a fee without performing thorough checks, Stevens adds.
He also says that the fraudsters may initially be easy to reach and respond quickly, but then disappear once you have paid them the fee.
In some cases, the scammer may even ask you to pay additional fees to get the loan after you have already paid an initial fee.
If in doubt, check and double-check
If you have any doubts about the legitimacy of a loan, you should take time to research the company and make sure that it’s registered with the FCA.
Cross-reference the details the company is using with the official ones on the FCA website or Companies House. Don’t rely on or trust any information the company gives you directly, unless you have verified it with an official source.
The Take 5 to Stop Fraud campaign has more information on how to stay vigilant against loan fee fraud and other types of scams.
Report loan fee fraud
If you live in England, Wales and Northern Ireland, and think that you have been a victim of loan fee fraud, or any other type of scam, you should report it to Action Fraud online or by calling 0300 123 2040. If you are in Scotland, you should report it to Police Scotland directly by calling 101.
Action Fraud doesn’t investigate individual cases, but the information you provide will help gather data so that it can offer up-to-date advice to consumers.
You should also report loan fee scams to the FCA via its online form and you can phone its consumer helpline for advice on 0800 111 6768.
Last but not least, contact your bank or credit card provider as soon as you realise that you may have made a payment to a fraudster. Make sure you use a phone number you know is correct, such as one on the bank’s website, your bank statement or card.
Depending on the evidence you have of being scammed, the amount you paid, and whether you paid by bank transfer, debit or credit card, you may be able to get your money back from your bank or card provider, so always ask for information about how to claim a refund.
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