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Borrowers duped of £3.5m in loan fee scams

Paloma Kubiak
Written By:
Paloma Kubiak

Borrowers are warned to be on guard when searching and applying for loans as the financial watchdog revealed £3.5m was lost to loan fee scams in 2017.

Loan fee scam reports have increased 44%, from 888 in 2016 to 1,276 in 2017, according to the Financial Conduct Authority (FCA).

When borrowers search for loans online, they’re targeted by fraudsters who offer a loan on condition they pay an upfront fee. However, the loan never materialises and consumers have been left out of pocket by an average £740.

The FCA said these scammers often target the most vulnerable in society; those on lower incomes, with low credit ratings and who have limited access to mainstream credit.

In total for 2017, 4,700 reports were made to Action Fraud on loan fee scams and the FCA said this type of fraud has now overtaken investment fraud as the most common scam reported.

FCA research also highlighted that 34% of those surveyed admitted they weren’t confident in checking if a loan provider was legitimate. Further, 36% of those who took out a loan in the last three years didn’t do any checks to ensure the legitimacy of their loan provider.

There are legitimate loan brokers (authorised by the FCA) which charge fees in advance of providing a service. But if you’re asked to pay a fee before receiving a loan, this can be a warning sign of this type of scam.

Other warning signs include:

  • Being asked to pay in an unusual way e.g. by iTunes vouchers or a money transfer service.
  • Being put under pressure to pay the fee quickly.
  • Being asked to pay multiple fees.

Many people usually just accept what financial firms tell them and fraudsters take advantage of this, giving them a number of genuine-sounding reasons for asking for a fee, such as to cover a deposit, an admin fee or insurance for those with low credit ratings.

Mark Steward, executive director of enforcement and market oversight at the FCA, said: “Fraudsters target people making online loan applications and who think they’re being contacted by a legitimate loan provider, when they are not at all.

“Scammers take advantage of the excitement people feel when they are offered or accepted for a loan and make the loan conditional of an upfront fee, which can increase to hundreds of pounds. Of course, no loan ever materialises.

“Before applying for a loan always check who you’re dealing with, be sceptical, make sure the loan provider is authorised by the FCA.”

To report a suspected loan fee scam, contact the FCA at www.fca.org.uk/consumers or via the contact centre on 0800 111 6768. Fraud should also be reported to Action Fraud on 0300 123 2040 or at www.actionfraud.police.uk.