Avoiding Advance Fee Loan Scams
Consumer Correspondent Elisabeth Leamy provides tips on avoiding these scams.
Nov. 19, 2007 — -- The Better Business Bureau is warning consumers that an old -- and devastating -- scam is back in a big way. It's called an "advance-fee loan scam." Here's the deal: lenders are not allowed to guarantee you a loan in exchange for fees you pay in advance. It's a true scam -- not just a rip-off -- because you pay money up front then get nothing.
The BBB says consumers across the country have filed complaints about a Chicago-based outfit. The complaints allege that the company requested up-front fees ranging from $700 to $2,775 in exchange for loans. The consumers sent in their money, but not one of them received a loan.
The advance-fee loan scam has always been cruel, because it targets people who are down on their luck: the unemployed, the poor, and people with bad credit. The ads appear in newspapers, on telephone poles and the Internet. Telemarketers also hawk advance-fee loans. Don't fall for it. The bad guys have no intention of giving you a loan or a credit card. It's actually illegal to guarantee somebody a loan in exchange for a fee.
A telemarketer promised Jennifer P. a low-interest credit card with no annual fee. All she had to do was send a $199 processing fee and the offer was guaranteed. The one-day special even included her choice of a laptop computer or satellite dish. The telemarketer was friendly and persistent, and Jennifer fell for it. She waited weeks and never received her credit card. She tried to contact the company but it had disappeared.
It's easier to spot an advance-fee loan scam if it comes in the form of a credit card, because normally you don't have to pay out any money to get a new piece of plastic. But sometimes the advance-fee loan is a mortgage and that can be confusing. After all, when you get a mortgage, you do shell out all sorts of money for credit checks and appraisals and surveys. The key is that the scammers want the money in advance. Normally, most fees associated with mortgages aren't paid until closing.
Unsure? Type the name of the lender into a search engine along with the word "scam" and see what comes up. If it's a fraudulent offer, chances are other victims have left a trail of breadcrumbs for you to follow. If you're still not certain whether the offer is legitimate, contact your state or county consumer affairs office or the Better Business Bureau for guidance.
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