Don’t pay upfront for a loan warns Citizens Advice
10th February 2006
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.
Evidence from Citizens Advice Bureaux around the country shows that the loan companies target people who can’t get loans from regular sources, often people with a poor credit rating and on a low income - people who really can't afford to lose the arrangement fee.
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.
For example, a CAB client from Denbighshire responded to an advert offering loans at a reasonable rate of interest in a local paper. He applied for the loan and sent off a cheque for £49.50 so that the company could process his £10,000 loan. After the money had left his account he received a letter turning him down for the loan but no repayment of the cheque.
In another case a CAB client from Wiltshire received a letter offering to arrange a loan of £5,000 if he sent a postal order for £49.50. He sent the money and then received another letter explaining that he was eligible for a loan of up to £1,000 but only on condition that he had a guarantor. The company refused to refund the £49.50.
A CAB client in Gwent applied for a loan of £1,500. He paid an administration fee of £30 and was told that he would receive the loan within seven working days. After a month he had not received any money so he telephoned the loan company, which cost him £10. He was then redirected to another premium rate number to get further information. He has still not received the loan.
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."
For advice on any credit problems, contact any Citizens Advice Bureau. More information can be found on www.adviceguide.org.uk
Last updated: February 22, 2007