Kansas City, MO – This year Americans got full exposure to the destruction caused by scams when the depth of Bernie Madoff”s Ponzi scheme was revealed. His arrest and conviction fostered much needed caution in American investors. Though it brought scamming to the front page of every major paper in the US, the attention has done surprisingly little to tame public hunger for get-rich-quick gimmicks.
Of course it is more fun to think of how to spend huge sums of money than it is to admit the money does not exist. The glistening appeal of easy money can make people hope against reason. The idea of mass amounts of money can make consumers aim their skepticism toward the advice we give that suggests they are being deceived. This common reaction to potential wealth is used by scam artists to weaken a consumer’s disbelief of unreasonable claims. Some scam artists can speak so smoothly and explain everything so logically, one may feel comfortable giving them thousands of dollars.
One of the more common scams during a recession is the “Bad Credit Loan Scam.” Economic hardship sends millions of Americans looking for help from private lenders in order to help ease their financial strain. Most who search for easy outs will find out the hard way that desperate digging turns up criminals who are waiting to exploit just such a situation. The scam appears as a blessing to those scrambling to make ends meet. Thousands find themselves entangled in this scam's web by trying to acquire a little cushioning money to buffer the distance between living costs and bankruptcy.
Bad credit loan scams advertise in hundreds of newspapers nationwide. Most scammers also institute a vigorous email campaign to go along with their newspaper ads. They all promise unlikely loans for people with bad credit. The ads provide a phone number to call and apply. Sometimes the scammers take information over the phone, other times they ask consumers to fill out an online application. The website typically lists a United States address to reinforce the impression of legitimacy.
Once the application is submitted, the applicant must wait a few days before hearing from the company. A representative from the company calls with heroic grandeur announcing the happy news: the applicant is approved for a loan of $5,000 to $10,000. The fake lenders count on the elation of the applicant to blind him to their true purpose. Because of the high risk of the loan, the lender says some provisions, such as ‘security deposits’ are necessary. The deposit is usually between $750 and $995. The lender explains that this is only a precaution. In case a payment is missed the lender will take money from the deposit. This way, the loan won’t automatically default. It may sound reasonable, but advance fees for loan approval are illegal in the United States.
These 'lenders' take advantage of the consumer’s bad credit by making unreasonable demands. They insist that the so called security deposit be sent Western Union because it will reach them faster, it is more reliable, and it verifies that the consumer has enough money for the deposit. This is necessary, they say, for anyone with a low credit score. The money is to be sent to a supposed “insurance representative” for the lender. The representative is usually in Canada, but sometimes resides in Jamaica, Nevis, Puerto Rico or other countries.
After the money is sent, the consumer will not hear from the lender. When the consumer gets tired of waiting and calls the lending company, he is informed that there was a problem with his credit report and even more money is required in advance. The consumer has already invested a large amount of money and scammers hope he will submit more money to see the process through. If the consumer pays this second installment, he will never hear from the lender again. No number of phone calls or messages will provoke a response. Eventually the phone line is disconnected, leaving the consumer bewildered and out of money.
To implement this scheme, scam artists pick up a disposable phone at their local Wal-Mart. Using fake names, they set up a toll-free number to be forwarded to the disposable phone. They build a website with impressively glitzy graphics and an online application form. To finish off the façade, the scam artists look through rental ads for available space in large office buildings. They pick a building and list it online as their address, they conveniently leaving off the suite number, making it more difficult to verify their tenancy. They then place ads in newspapers, set up automated emailed advertising, and wait for the phone calls to pour in.
Scam artists will nearly always ask consumers to pay them via Western Union wire transfer. Western Union has consumer friendly options that incidentally benefit scam artists. Western Union has been an essential tool in getting money to friends and family in dire situation outside the country. A wayward traveler can lose his passport and wallet, finding himself stranded in an unfamiliar place with no money and no identification. His family can wire him up to $1000 via Western Union to get him out of the jam. He does not need identification, only a “password” or “keyphrase” to verify he is the one who should receive the money. Due to this convenience, scam artists need not worry about presenting identification. Also, Western Union is a large and well-known company. They have several locations in a most areas. When the sender wires money from the United States to a city in Canada, let’s say Vancouver, the recipient can pick up the money at any one of the seven locations there. The police cannot know where the recipient will be or at what time.
Once the scam artists set up a victim’s payment through Western Union, they have someone pick it up as soon as possible. The reason most don’t run the risk of asking for more than $995 is because anything over a thousand dollars requires government issued identification. To create a fake ID is often more trouble than a scam artist is willing to commit to. It would also require the scam artist to give out a photo of himself that may be copied. It could give authorities valuable evidence against him. Because it is easily avoidable, most scammers opt not to go for big money, in favor of smaller, less dangerous payouts. Some loan scammers ignore the downside and go for broke. They ask for $2,995 to be wired through Western Union. If a scammer picks up more than $3000, Western Union informs the government of the transaction, a risk that most scam artists find unnecessary.
These thieves operate under one assumed business name for about four to six weeks before changing it. They shut down the website, throw away the phones and start up again with a new name, new phone numbers, new site, and new ads.
By taking all the precautionary steps, advance-fee loan scam artists make themselves extraordinarily difficult to track down—not impossible, though. In August of 2008, twenty scam artists from Canada were charged with defrauding Americans out of more than $2,000,000 in an advance-fee loan scam.¹ Scam artists will get caught if the right people find out about them.
Victims of advance-fee loan scams should contact the Federal Trade Commission (1-877-FTC-HELP). If the scam is in Canada, the BBB encourages all victims to contact Phonebusters (1-888-495-8501) and the Royal Canadian Mounted Police Fraud Department (613-993-6884).