Illegal Loan Fees

How can you tell the difference between legitimate short-term lenders and loan fee scams?

Loan fee scams are an international phenomenon and victimize people around the globe. A lot of people. In the United States, for example, the Insurance Information Institute, an industry association, reported that there were almost 44,000 potential cases of personal and business loan scams in 2019. And in Great Britain, for example, loan fee scams amounted to 12% of all scams reported to the country’s financial regulator in 2020. Therefore, report any suspicions you may have immediately to the appropriate government law enforcement and financial regulatory agencies.

The British regulator, the Financial Conduct Authority (FCA), advises that loan fee scams can be detected in advance by asking yourself the following three questions:

1. Are you being asked to pay a fee up-front?

2. Are you being pressured to pay quickly?

3. Are you being asked to pay by an unusual method?

How Do People Become Victims of Loan Fee Scams?

You needed a bit of extra cash to reduce your overdraft, or even to prevent going into overdraft. Perhaps you don’t have a credit card, or even if you do, you always pay your balance in full to avoid the high interest rates that credit cards charge. And you didn’t want to apply for a traditional bank loan, since that takes time and involves too much paperwork. Perhaps you knew in advance that you wouldn’t even get a bank loan because of a low credit rating, or because you’re in between jobs, or because you already took out a bank loan and are still repaying it.

So, you surfed the internet and found an online lending company with an attractive website that says they guarantee they’ll grant you a short-term loan. You have nothing to lose, right? So, you fill out their online form and then click “apply.”

Wrong. No legitimate lender will guarantee a loan in advance for the simple reason that it would be a lousy business plan. That’s the first sign you’re probably dealing with loan fee scams. The second sign is if you’re not even asked to provide a credit history. No legitimate lender will approve a loan without reviewing the applicant’s credit score or at least receiving collateral, like a lien on your car.

Check to Make Sure the Lender is Legitimate

There are, of course, legitimate, online, short-term lenders. How do you know if they are? First, check to make sure they’re registered in your country, state or province to lend money. If they’re not, assume the worst. If they email you from a Gmail, Hotmail, Yahoo, Outlook, or other generic address, assume the worst. If they try to pressure you by promising a lower interest rate if you sign now, assume the worst. If they tell you that they want to loan you more than the figure you request, assume the worst.

And yes, while there are legitimate lending institutions that engage in direct marketing, as a general rule most do not. If you are called out of the blue by someone claiming to be from a lending institution or sent an email from one, do not reply. If you are interested in their offer, find their contact information on your own and call them back to make sure that their solicitation is genuine.

That is critical because many loan scams use corporate names that may sound like that of a bank, but aren’t. Or they may even pretend to be calling from a bank, or may send you an email or text that includes a legitimate bank’s stolen logo. To check their credentials, say you’re busy and can’t speak right now, but ask for their phone number and address. If they hesitate or refuse, assume the worst. If they provide a number and address, check to make sure it’s the same used by the real bank, assuming, of course, you find that it’s a bank that actually exists. Finally, check to see that the name of the supposed bank is spelled the same way as that of the legitimate bank. It’s a common ploy to confuse potential victims by using a slight variation.

How Loan Fee Scams Make Money

But, you’ll probably ask, how can impostors make money if the loan is a scam? They can do so in any one of a number of ways.

One prominent trick is to charge an application or other pre-processing fee, or even insurance on the loan. That’s so that the lender can get compensation should you not pay it back. Or the lender can ask you to wire the money (most always to an individual, not a corporate account) and then promptly disappear. Legitimate lenders never ask a client to pay a fee by wire. Scammers do, because wired funds do not enjoy chargeback protection. Another gimmick is to pretend to ask you for a credit history by providing a credit card number. Scammers can then use it without your authorization to withdraw funds from your account. Or they may ask you for a prepaid debit card so that payments will be untraceable. Either way, of course, they will promptly disappear after stealing your money.

How to Avoid Loan Fee Scams

How can you make sure that a potential loan provider is legitimate and above board? Here is a good summary from Forbes magazine:

  • Read online reviews
  • Get recommendations from friends and family
  • Review the Better Business Bureau’s rating
  • Check for up-to-date state registration
  • Evaluate the lender’s contact information and website

If you think you’ve been the victim of a loan fee scam, contact the fund recovery experts at MyChargeBack.