Victims are being scammed out of more than £3.5 million a year by fraudsters tricking them into transferring an upfront fee before they are given a loan, the Financial Conduct Authority is warning.
The regulator has seen a 44% increase in loan fee scams, where victims are tricked into paying an upfront fee for a loan which they ultimately never receive, and says the average loss is £740 per person.
This is now the most common type of scam reported to the Financial Conduct Authority (FCA), with more than 1,276 reports in 2017 compared to 888 reports in 2016
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How to protect yourself
The FCA says fraudsters target those who are searching for a loan online - usually the most financially vulnerable, including those on lower incomes and with low credit ratings, who have limited access to mainstream credit. They may give various excuses for charging an upfront fee, such as claiming it's a deposit, admin fee or insurance for those with low credit ratings.
While there are legitimate loan brokers who charge fees in advance and are authorised by the FCA, being asked to pay a fee can be a warning sign of this type of scam. Other warning signs include:
- Being asked to pay in an unusual way e.g. by iTunes vouchers or a money transfer
- Being put under pressure to pay the fee quickly
- Being asked to pay multiple fees
If you are asked to pay an upfront fee ALWAYS check you're dealing with authorised firm on the FCA register and make sure the details match those you are being given.
What does the FCA say?
Mark Steward, executive director of enforcement and market oversight at the FCA, said: "We're seeing an increasing number of cases of loan fee fraud reported to us. Fraudsters target people making online loan applications and who think they're being contacted by a legitimate loan provider, when they are not at all.
"Scammers take advantage of the excitement people feel when they are offered or accepted for a loan and make the loan conditional of an upfront fee, which can increase to hundreds of pounds. Of course, no loan ever materialises.
"Before applying for a loan always check who you’re dealing with, be sceptical, make sure the loan provider is authorised by the FCA."