Advance Fee Loan Scams

Have you seen ads like these in your local newspaper?

Often advertisements promise financial help by guaranteeing you credit - regardless of your past history - for a fee paid in advance.  Unfortunately once the promoters who've placed the advertisement have your money, they rarely deliver on their promises.

The Truth About Advance-Fee Loan Scams

The vast majority of lenders are legitimate professionals. But fraudulent loan brokers and other individuals misrepresenting the availability of credit and credit terms are definitely looking for your business too. One of their favorite strategies is the "advance-fee" loan. That's when they guarantee you'll get a loan or other type of credit - but you must pay before you apply.

·         It's illegal in Connecticut for brokers of unsecured loans to require that applicants pay any fee before loan proceeds are disbursed.

Legitimate offers of credit do not require payments up front.  Legitimate mortgage lenders, for example, may require consumers to pay application, appraisal or credit report fees, but these fees seldom are required before the lender is identified and the application completed.  In addition, the fees generally are paid to the lender, not to the broker or arranger of the "guaranteed" loan.

Recognizing An Advance-Fee Loan Scam

Advertisements that promise loans generally appear in the classified section of local and national newspapers and magazines and on the Internet. They also may appear in radio advertisements, on local cable stations, and in flyers circulated in neighborhoods, shopping centers and at military bases. Often, these ads feature "900" numbers, which can result in exorbitant charges on your phone bill, or toll-free "800" numbers. Unfortunately, advertisements are not legitimate just because they are printed or aired via recognized media outlets or on the Internet.  In addition, fraudulent lenders often use delivery systems other than the U.S. Postal Service, such as overnight or courier services, to avoid detection and prosecution by postal authorities.

Some companies claim they can guarantee you a loan for a fee paid in advance. The fee may range from $100 to several hundred dollars. Indeed, small businesses have been charged as much as several thousand dollars as an advance fee for a loan. Whether you are an individual consumer or an owner of a small business, the result is the same: you don't get your money; the con artist does. And once con artists get your money, they disappear.

Don't confuse a legitimate pre-approved credit offer with a legitimate pre-qualified offer from mortgage brokers, banks, savings and loans, and credit unions.  A pre-approved offer requires only your verbal or written acceptance. A pre-qualified offer means you've been selected to apply. However, you still must go through the normal application process, and you still can be turned down.

Protecting Your Money

In Connecticut it is against the law for a company to ask you to pay - or to accept payment - for their service until you get your loan or credit.  Keep these points in mind before you respond to ads that promise easy credit, regardless of your credit history:

• Legitimate lenders never "guarantee" or say that you are likely to get a loan or a credit card before you apply, especially if you have bad credit, no credit, or a bankruptcy.
• If you apply for a real estate loan, it is accepted and common practice for lenders to request payment for a credit report or appraisal. However, legitimate lenders never ask you to pay for processing your application.
• Never give your credit card account number, bank account information, or Social Security Number over the telephone or Internet unless you are familiar with the company and know why the information is necessary.
• If you don't have the offer in hand or confirmed in writing and you are asked to pay, don't do it. It's fraud and it's against the law.

Canadian "Cross-Border" Fraud

Many of these phony loan sharks operate outside the United States in order to avoid legal action.  Most are Canadian companies - which list their address as a U.S. Post Office box - that target consumers in the U.S.  This "cross-border" fraud is a growing problem.  The Federal Trade Commission (FTC) receives thousands of complaints each year about "cross-border" fraud.  

The Department of Banking receives complaints from Connecticut consumers concerned about giving out money for a loan, many of which turn out to be Canadian advance fee loan scams.  Be sure to contact the Department BEFORE giving any of your hard earned money to a lender.  Find out FIRST if they are legitimate.

If you believe you have been tricked by one of these loan sharks, or if you wish to report suspected fraud, you may contact Canada's PhoneBusters, an agency run by the Ontario Provincial Police which collects information on these type of scams and shares it with the appropriate law enforcement agencies.  Their toll-free number is 1-888-495-8501. 

Educating Consumers

It is illegal in Connecticut for brokers of unsecured loans to require that applicants pay any fee before loan proceeds are disbursed.  If you have paid or have been asked to pay such a fee, or would like more information, contact the Department of Banking's Government Relations and Consumer Affairs Division.

The Department of Banking has joined forces with Connecticut newspapers in a cooperative campaign to warn consumers about these types of scams.  Many newspapers now carry public service announcements in their classified sections advising loan applicants to contact the Department of Banking prior to paying any type of fee for a loan.  

Remember these tips:

• Be sure to contact the Department BEFORE giving any of your hard earned money to a lender.  Find out FIRST if they are legitimate.
• Don't pay for a promise. It's illegal for companies doing business by phone to promise you a loan and ask you to pay for it before they deliver.
• Ignore any ad - or hang up on any caller - that guarantees a loan in exchange for an advance fee. Legitimate lenders never "guarantee" or say that you will receive a loan before you apply, especially if you have bad credit or no credit record.
• Never give your credit card or bank account numbers, or Social Security Number, over the telephone unless you are familiar with the company and know why the information is necessary.

You may be interested in the following publications produced by the Federal Trade Commission (FTC) (both are PDF files):

If You Are A Victim

If you think you've been a victim of an advance-fee loan scam, contact the Department of Banking's Government Relations and Consumer Affairs Division as soon as possible.  

Canada's PhoneBusters is also a valuable resource for reporting fraud and suspected scams.  This Canadian national call center accepts complaints and provides information to law enforcement agencies.  You may contact PhoneBusters toll-free at 1-888-495-8501. 

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