Households warned of increase in ‘loan fee’ fraud – how to spot warning signs
- Financial regulator is urging Britons to be aware of a growing loan fraud
- Scam sees criminals ask for fees before granting a full loan to the customer
- Victims lose around £260 on average, and the scam is set to grow
Households are being warned to watch out for scammers pretending to offer loans for a fee, ahead of a predicted boom in the fraud.
So-called ‘loan fee’ fraud is where criminals pretend to be legitimate financial firms offering to lend money – but victims instead end up losing an average of £260, according to the Financial Conduct Authority regulator.
This is because before granting a loan many fraudsters ask for an upfront fee. Once they pay the fee, the crooks vanish.
Often the scammers say the fee is a refundable deposit, or covers insurance costs or administrative charges.
Foul play: Loan fee fraudsters replicate genuine lenders that occasionally ask for fees upfront
Lloyds Bank has also warned of this type of fraud, and said other common reasons scammers give for needing payment in advance include a fee for verification or a guarantor.
Now the FCA is again warning the public about the fraud as it believes many could be about to fall victim.
FCA data shows that last summer there was a 26 per cent increase in complaints from consumers who had fallen victim to loan fee fraud, compared to 2021.
This year, the cost of living crisis coupled with summer spending pressures could increase the risk of loan fee fraud.
According to the FCA, 18 per cent of consumers plan to use savings to fund summer spending, and 12 per cent are turning to credit cards.
How to spot a loan fee scam
The FCA is urging consumers looking for a loan that three things are classic warning signs of loan fee fraud:
- If you are cold called or emailed
- If you’re asked to pay an upfront fee
- If you’re asked to pay quickly or unusually
If consumers need to apply for a loan they should first check out a lender on the FCA register.
That will tell you if a firm is authorised by the FCA. If it is not, is is likely a scam.
Also check that the firm’s contact details match those on the register.
If there are no contact details on the register, or the firm claims they are out of date, call the FCA on 0800 111 6768.
If a consumer deals with an unauthorised firm, they will not be covered by the Financial Ombudsman Service or Financial Services Compensation Scheme if things go wrong.
That means they risk losing all the cash they have paid to loan fee fraudsters.
FCA executive director of enforcement and market oversight Steve Smart said: ‘With inflation, energy costs, and rising mortgage bills, this summer spending will come at a time of enhanced vulnerability for many.
‘For fraudsters, this provides the perfect opportunity to take advantage of people considering how to make ends meet over the summer months.’