Advance fee loan scams prey on consumers and business owners who are struggling financially; ads and websites promise easy loans, credit cards, and other financing offers—regardless of credit history.
Victims are told they qualify for loans, but must pay upfront fees—usually hundreds or thousands of dollars. Sometimes, victims are instructed to forward or wire funds back to the sender or a third party. The scammer pockets the money and the borrower never receives the expected loan or credit, as promised.
Red Flags: Be wary of:
It's a warning sign if the company promises loan approval before the borrower applies.
Pressure to act immediately. Advance fee loan schemers will try to get consumers to send money or give out personal information (bank account information, credit card and Social Security numbers) before providing any paperwork.
Hidden fees. Be suspicious if the lender understates loan costs or won't provide a written summary of all fees associated with the loan.
Evasive tactics. Be wary if a company refuses to provide location information. If they hesitate to reveal their physical location, it is usually a ploy to avoid law enforcement detection.
Internet lenders. When applying for loans online, the consumer may have to fill out a detailed application; providing bank account information and other personal details. If the lender does not abide by strict privacy policies or fails to secure their website, identity theft risks abound. Additionally, some internet lenders may attempt to bypass state usury, licensing and consumer protection laws by residing in states with lax regulations or outside the U.S.
- Don't buy into bogus loan promises. If a loan offer is made and you must pay to get access to the funds, it is a scam. It is illegal for telemarketing loan providers to offer a loan and require an upfront payment before it is issued.
- Never wire money or send money orders to obtain a loan. Legitimate lenders won't pressure you to wire funds. Never send funds to a third party.
- Be wary of loan approval or financing guarantees. Be suspicious of any lender that pre-approves loans or financing without checking your credit status or contacting references—especially if you have bad credit or no credit record.
- Don't pay for a referral. Beware of referral service companies that promise to connect you with "guaranteed" lenders, creditors or loan officers for an upfront fee. Instead, contact potential lenders or financial institutions directly to discuss options.
- Avoid copy-cats. Be on the lookout for forged paperwork and websites; scammers often mimic legitimate organizations or use well-known or common business names.
- Question their "connections." Many of the schemers using telemarketing to promote loans have no connection to established financial institutions. Ask which lenders the "loan broker" deals with, and ask for the lender's physical address. Contact purported partner companies to confirm affiliations.
- Research the business. Take time to examine the company and collect information on the opportunity. Refuse to do business until you have their physical address or location and can research them online. Get free BBB Reliability Reports on lenders and other businesses at www.bbb.org
- Review qualifications. Lenders and loan brokers should be registered in all states where they do business. To verify, call your state’s regulatory and licensing offices.
- Collect paperwork upfront. Before applying for loans or credit, expect a written contract or agreement. Make sure all verbal guarantees, details, fees, terms and timelines are enclosed. Under the Truth in Lending Act, all loan costs should be clearly and prominently disclosed in writing.
- Apply with caution. Before giving out your credit card, bank account or Social Security number, find out why the information is necessary. Verify the company's credibility before applying or giving out any personal details.
- Don't make loan payments to an individual. Payments should only be issued to a legitimate lender or authorized borrowing institution.
- Look at other financing options. Consider an advance on pay from your employer, or a small loan from a family member, friend, credit union or other lender.
- Ask for a deferment. Ask creditors for more time to pay bills. Find out what charges apply: Will there be a late charge, additional finance charge or higher interest rate?
- Get debt assistance. If facing financial troubles, contact a local consumer credit counseling service for help. Many non-profits charge small fees or no costs. Try using BBB's free online program Managing Credit – Made Simpler.
Report Scams: Advance loan scheme victims can file complaints with the:
Additional Tips, Articles and Resources:FTC: Money Matters – Advance Fee LoansFTC: Advance Fee Loan SharksFTC: The Truth About Advance FeeLoan ScamsBBB: Don't Pay an Up Front Fee For a LoanBBB: Understand the Risk of Payday Loans
- Federal Trade Commission at www.ftc.gov.
- Internet Crime Complaint Center if the scheme occurred online or by e-mail.
- State Attorney General's Office and other local agencies: Alaska Division of Banking & Securities, Oregon Division of Finance and Corporate Securities, Washington State Department of Financial Institutions.
- Better Business Bureau at www.bbb.org