BBB Warns that Advance Fee Loan Scams are Proliferating

1/25/2007

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[Arlington, VA, January 25, 2007] – The Better Business Bureau system today warned of a recent surge in advance fee loan scams.

Consumers across the U.S. and Canada are losing substantial sums of money, sometimes more than $1,000 per victim, responding to TV, newspaper or Web site advertisements that “guarantee” loans to people with poor credit.

“People with the poorest finances are being victimized. They don’t think they have any other option,” said Steve Cole, president and CEO of the Council of Better Business Bureaus.

Here’s how the scam works. The consumer calls a toll-free phone number listed in the ad. The person who answers “takes” their credit application over the phone or says they’ll send paperwork to complete. They are told they have been approved for a loan (from $5,000 to $100,000), and will receive the money once they pay a fee.

The “fee” is allegedly needed to cover the first loan payment or for “security and/or insurance”; some scammers call it a “premium” fee or a “processing fee;” others label it a “finder’s fee.”

The loan applicant is instructed to wire the money or send a money order. They never receive the loan and cannot recover their money. They also risk having their identity stolen if they provided their Social Security number or bank account number to a con artist.

Advance fee schemers commonly use a U.S. address (a P.O. Box or a mail drop), but direct consumers to send the “fee” to a location in Canada. The U.S. address turns out to be phony or non-existent.

Recent BBB investigations reveal an increase in bogus loan brokers who are impersonating 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.

“It is best to double-check any and all loan offers with the BBB to find out if the business can be trusted. We can tell you if other consumers have filed complaints and BBB staff can visit the place of business, check to see if it’s licensed and conduct other research to verify its legitimacy,” Cole said.

Remember, advance fee loan scams are illegal in the U.S. and Canada. The BBB advises people who need a loan to search locally for a reputable lender. Although legitimate lenders may charge application, appraisal or credit report fees, the fees generally are deducted from the loan amount.

In addition, there are nonprofit organizations in every state with trained credit counselors who can assist individuals with debt problems. Contact your local BBB for tips on selecting a trustworthy credit counseling organization.

Signs that the “Lender” is a Scammer

  • Pressures you to act immediately.
  • “Guaranteed” loans, even if you have bad credit, no credit or a bankruptcy.
  • Refuses to provide its street address location.
  • Demands that you wire or send money before you have a loan offer confirmed in writing.
  • Written communications contain typos and grammatical errors.
  • When you telephone, no one is ever “in”; your calls are not returned, or the voicemail box is always “full.”

Victims of bogus loan brokers are encouraged to file a complaint with the BBB (www.bbb.org). While the chance of recovering the payment fee is minimal, victims can provide information to help BBBs warn consumers and assist government investigations.

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