‘Loan fee fraud’ on the rise – how you can avoid the scam of the summer
The financial watchdog has urged borrowers to watch out for signs of a common advance fee loan scam this summer.
The Financial Conduct Authority (FCA) is warning the public about a surge in loan fee fraud (aka advance loan fee fraud).
This type of fraud scams borrowers into paying an upfront fee for a loan they then don’t receive, with losses averaging £260 per person.
The FCA warned that this type of fraud has been growing year-on-year. Last summer, there was a 26% increase in complaints from borrowers who had fallen victim to loan fee fraud compared to 2021. The FCA is concerned that this year the rising cost of living coupled with summer spending pressures could increase the risk of loan fee fraud.
How does loan fee fraud work?
Fraudsters committing loan fee fraud pretend to be legitimate financial firms offering loans, and often cold call their victims.
Before granting a loan, the fraudsters ask for an upfront fee, saying it is a refundable deposit, or to cover insurance or administrative costs. But once the fee has been paid, the loan never materialises, and the fraudsters vanish.
FCA research shows more than half (55%) of UK adults are more worried about their finances this summer than they were last year
With a quarter (24%) of all consumers surveyed turning to credit or loans to fund additional summer related spending, the regulator said consumers may be more susceptible to being targeted by loan fee fraudsters.
Steve Smart, FCA executive director of enforcement and market oversight, said: “For many, summer brings with it the chance to relax and unwind but it also brings with it financial pressures – from holidays and festivals to funding days out, or out of term childcare for parents. With inflation, energy costs, and rising mortgage bills, this summer spending will come at a time of enhanced vulnerability for many.
“For fraudsters, this provides the perfect opportunity to take advantage of people considering how to make ends meet over the summer months.”
If consumers need to apply for a loan, the FCA urges them to check the information on the FCA’s website. This includes checking the FCA Register to find out if the firm they are applying to for a loan is authorised. If the firm is not authorised, it is likely to be a scam.
If a consumer deals with an unauthorised firm, they won’t be covered by the Financial Ombudsman Service (FOS) or Financial Services Compensation Scheme (FSCS) if things go wrong.