Citzens advice warning over loan scams

11 February 2006

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National problem-solving charity Citizens Advice today warned people to beware of companies who offer to arrange personal loans but request an upfront fee.

The words of caution come as the Office of Fair Trading launch their Scams Awareness Month to alert the public to deceptive and fraudulent mass-marketed scams.

Citizens Advice Bureaux are reporting increasing numbers of people falling victim to a scam involving paying money upfront to unscrupulous loan companies for a loan that rarely materialises. The arrangement fee is never returned and even if the loan does arrive, it is less than the agreed amount, with a high rate of interest.

The loan companies operate the scam by placing adverts and promotional literature in local papers, the internet and by conducting unsolicited mailings and telephone calls. They lure in people who have credit problems and offer them a solution to their money troubles.

People are invited to apply for a loan of up to £10,000 by giving their bank details and enclosing a cheque for the arrangement fee, which can be between £30 and £60. In a further twist when the cheque doesn’t arrive borrowers have the option to call a costly premium rate telephone number to resolve the matter, usually to no avail and leaving people further out of pocket.

Peter Tutton Social Policy Officer at Citizens Advice said:
“These conmen prey on vulnerable individuals and promise them a low-interest loan as an easy solution to their money problems. Unfortunately in most cases there is no loan and this is just a front for scammers looking to make a quick buck.

“The problem is that once people have sent off their money it is very difficult to get it back. We want to see measures in the Consumer Credit bill to give people a way of putting things right if they get duped into paying for a loan they will never receive.

“If the loan advertisements do not mention an arrangement fee but suddenly request a fee on application, be very wary. If you are asked for an advance payment alarm bells should ring - avoid at all costs firms who ask for money up front.”