The Federal Trade Commission, the nation's consumer protection agency, warns us of "Advance-Fee Loan Scams."
Looking for a loan can be frustrating for someone who doesn't have a good credit history. After being turned down by several conventional lenders and creditors, it may be tempting to try your luck with a lender who claims they can give you a loan regardless of your credit history. But, watch out before you apply with a so-called "lender" who says they can loan you money when no on else will.
People with a poor credit history are often targeted by scam artists claiming to lend money. These scammers know that someone with a less-than-perfect credit history really doesn't have access to the credit and loans that many others do. They prey on desperate people who have no alternatives to gain credit, and present themselves as a solution to your liquidity needs. They may run ads, call you on the phone, send ads to your mailbox, or hand out business cards claiming to be a finance specialist.
The scam artist will lead you to believe that you've finally met a lender who doesn't hold your credit history against you. Then, after you believe you've been approved, or that your approval is nearly finalized, they'll tell you about a fee they must collect before you can get the loan or credit card. If you fall for their trick and pay the fee, you may receive another application for credit, or a credit card that's only good for purchases from their catalog of junky merchandise.
Keep in mind that these loans scams differ from credit cards for people with poor or limited credit histories. Legitimate credit card issuers that cater to people with poor credit may charge a number of fees to activate and maintain an account, but these charges are normally taken from the credit line, rather than charged up-front and out-of-pocket before you even get your credit card. The steep prices of these types of cards may have you feeling like they are a scam, but some may feel that the price is worth it to improve their credit history. (But drop the high-fee credit card for a lower-fee card when you improve your credit history!)
Watch out for tip-offs that you may be dealing with a scam artist:
- A lender that makes statements like, "Anyone can qualify," "Credit-worthiness is not important," "Everybody deserves a second chance," "Get money fast, for anything," or "No hassle - Guaranteed."
- A lender who doesn't care about your credit history. Legitimates lenders always care about your credit history. Even lenders who deal with people who have credit blemishes will care about the likeliness of getting paid back, and will always check your credit and confirm your personal information.
- Fees that you were not told about or were not disclosed in the advertisement or the initial pitch. Scammers want to hook you before they tell you about the fees involved in getting their loan. They may call or write you and tell you that you've been approved, but that you have to pay them before you have access to the loan or credit card. They may try to justify the cost by calling it a processing fee, an administrative fee, or that it's for insurance. These up-front fees differ from the fees for loans from legitimate lenders- those fees are disclosed in the application process, the fees are taken from the amount you borrow, and the fees are usually paid to the lender after the loan is approved.
- It’s also a warning sign if a lender says they won’t check your credit history, yet asks for your personal information, such as your Social Security number or bank account number. They may use your information to debit your bank account to pay a fee they’re hiding.
- A pitch for a loan that starts with a telemarketer calling your mobile, work, or home phone. It's against the law for any company in the U.S. that does its business over the phone to promise you a loan and ask you to pay for it before they deliver.
- A lender whose name sounds familiar to that of a respected business organization. Scam artists attempt to gain your confidence by giving their company a name you may confuse with a legitimate lender. They may set up a professional-looking website that gives the impression of a legitimate lender. Some scam artists have pretended to be the Better Business Bureau or another reputable organization, and some even produce forged paperwork or pay people to pretend to be references. Check out a company in the phone book or directory assistance, and call to check they are who they say they are. Be suspicious of any lender that only gives a P.O. Box as its address; a legitimate lender should have a physical address for customers who need personal assistance.
- A lender who isn't registered as a 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.
- A lender who asks you to wire money or pay an individual. 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 funds.
Finally, research any lender before you contact them. It's not enough to trust them just because you heard an ad on the radio, or saw them on TV or on the web. Remember that anyone can pay for ad space, print business cards, or design a website, and that scammers will think of every detail to make themselves look like a legitimate lender.
If you've had an experience with an advance-fee loan scam, report it to the FTC at 1-877-FTC-HELP begin_of_the_skype_highlighting 1-877-FTC-HELP end_of_the_skype_highlighting or www.ftc.gov.
Source:
The Federal Trade Commission