Advance Fee Loans Schemes

November 26, 2012
BBB advises that it is illegal for a company to charge a fee in advance to obtain a loan, even if that fee is disguised as the first or last month's payment.

The BBB has heard from many consumers of Advance Fee Loan Schemes who have sent money to process a loan, but have not received the loan as promised.

Although legitimate lenders may charge a fee, the fee is deducted from the loan amount. Consumers seeking credit are urged to seek it locally and to check with the BBB first.


Consumers have reported losing substantial sums of money responding to TV, newspaper, or Web site advertisements that "guarantee" loans to people. The consumer called a toll-free phone number listed in this ad. The person who answered took the credit application over the phone or said that paperwork will be forwarded to complete. The consumer is told the loan (from $5000 to $100,000) has been approved and the promised funds will be received once a fee is paid. This fee is often disguised as the "first loan payment" or for "security" or for "insurance," or as a "premium," "processing," or "finder's fee."

Although legitimate lenders may charge a fee, the fee is deducted from the loan amount. You should never have to pay a fee in order to obtain or apply for financing. The loan applicant is instructed to wire money or send a money order. The loan is never provided and the applicant never recovers the money sent. The applicant also risks identity theft if personal information is provided to a con artist. Advance fee schemers commonly use a mail drop or postal box address, but direct consumers to send the fee elsewhere through money transfer services. The address turns out to be phony or non-existent. Recent BBB investigations reveal an increase in bogus loan brokers who impersonate legitimate lenders. They make illegal use of the names, logos, and/or addresses of reputable financial institutions or organizations that have no affiliation or connection with the fraudulent operation.

Signs that the "Lender" is illegitimate: Pressures you to act immediately. "Guaranteed" loans, even if you have bad credit, no credit or a bankruptcy. Demands that you wire or send money before you can have a loan offer confirmed in writing. Written communication contains typos or grammatical errors. When you telephone no one is ever available, your calls are not returned, or the voicemail is full.

The Better Business Bureau strongly urges individuals to report any suspected fraudulent schemes to their local police and the Canadian Anti-Fraud Centre (CAFC) at: 1 (888) 495-8501 Americans with complaints about any company charging an advance fee for a loan should contact the national fraud information center toll-free at (800) 876-7060.

Victims of bogus loan brokers also encouraged to file a complaint with the BBB. While the chance of recovering the payment fee is minimal, victims can provide information to help BBBs warn consumers and assist government investigations. Consumers seeking financing are urged to seek credit locally and check with the BBB first. In addition, there are nonprofit organizations with trained credit counselors who can assist individuals with debt problems. Contact the Better Business Bureau for tips on selecting a trustworthy credit counseling organization.