“Getting into a financial bind is no fun at all,” says Carmen, of San Antonio, Texas. “I once pawned a bunch of my favorite CDs and couldn’t afford to get them out again without missing a car payment. I lost most of my classic rock and had to buy the White Album again.”
Trying to make ends meet, she says was all she was trying to do. But once she got involved in the bind, she found herself getting in deeper and deeper debt.
“I’m sure if I’d had a call out of the blue offering to loan me a few thousand dollars to pay bills I would’ve been tempted — until they asked me to pay hundreds up front,” she says. “Major red flag.”
That’s what Better Business Bureau calls an advance fee loan scam. The advance fee loan scam is a simple one. In the United States, per Federal law it is illegal for any business to ask for up front fees for loans. These fees are often referred to by a host of different names, such as taxes, processing fees, insurance, or collateral. Regardless of what they are called, these fees are illegal.
BBB serving the Snake River Region is aware of victims paying a requested advance fee to the scammer, but never received a loan, or their advance fee refunded back to them.
Some red flags can tip you off to scam artists’ tricks. For example:
- Credit history. A lender may offer loans or credit cards for many purposes — for example, so you can start a business or combine your bills. But one who doesn’t care about your credit record should worry you. Ads that say “Bad credit? No problem” or “We don’t care about your past. You deserve a loan” or “Get money fast” or even “No hassle — guaranteed” often show a scam.
Banks and other legitimate lenders generally evaluate creditworthiness and confirm the information in an application before they grant firm offers of credit to anyone.
- Undisclosed fees. Scam lenders may say you’ve been approved for a loan, then call or email demanding a fee before you can get the money. Any up-front fee that the lender wants to collect before granting the loan is a cue to walk away, especially if you’re told it’s for “insurance,” “processing,” or just “paperwork.”
Legitimate lenders often charge application, appraisal, or credit report fees. The differences? They show their fees clearly and prominently; they take their fees from the amount you borrow; and the fees usually are paid to the lender or broker after the loan is approved.
And if a lender says they won’t check your credit history, but wants your personal information, like your Social Security number or bank account number? Go somewhere else. They may use your information to debit your bank account to pay a fee they’re hiding.
- Loan by phone. It is illegal for companies doing business by phone in the U.S. to promise you a loan or credit card and ask you to pay for it before they deliver.
- Copy-cat lender. Crooks give their companies names that sound like well-known or respected organizations and create websites that look professional. Some scam artists have pretended to be the Better Business Bureau, a major bank, or another reputable organization; some even produce forged paperwork or pay people to pretend to be references. Always get a company’s phone number from the phone book or directory assistance, and call to check they are who they say they are. Get a physical address, too: a company that advertises a PO Box as its address is one to check out with the proper authorities.
- Unregistered lender. Lenders and loan brokers are required to register in the states where they do business. To check registration, call your state Attorney General’s office or your state’s Department of Banking or Financial Regulation. Checking registration does not guarantee that you will be happy with a lender, but it helps weed out the crooks.
- Wire transfer loans. Don’t make a payment for a loan or credit card directly to an individual; legitimate lenders don’t ask anyone to do that. In addition, don’t use a wire transfer service or send money orders for a loan. You have little recourse if there’s a problem with a wire transaction, and legitimate lenders don’t pressure their customers to wire money.
Finally, just because you’ve received a slick promotion, seen an ad for a loan or credit card in a prominent place in your neighborhood or in your newspaper, on television or on the Internet, or heard one on the radio, don’t assume it’s a good deal — or even legitimate. Scam artists work hard to make you think they’re legitimate, so it’s really important to do your homework.
Do you homework – call the state Department of Finance, BBB, chambers of commerce, other lending institutions, your neighbors.