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Advance- Fee Loan Scams
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Facts for Consumers from the Federal Trade Commission
Advance-Fee Loan Scams -- October 1993
Produced in cooperation with Call For Action, Inc., a Washington,
D.C.-based international network of radio and television consumer
hotlines
Beware of advertisements for "advance-fee" or "guaranteed"
consumer and small-business loans. This brochure tells how to
recognize ads for advance-fee loan scams and how to distinguish
them from offers by legitimate credit grantors. It also tells you
how to protect yourself, what to do if you are a victim, and
where you can find low-cost help in dealing with credit problems.
How to Recognize an "Advance-Fee" Loan Scam
Advertisements that promise loans generally appear in the
classified section of local and national newspapers, magazines,
and tabloids. They also may appear in mailings, radio spots and
on local cable channels. Often "900" numbers that result in
charges on your phone bill, or toll-free "800" numbers, are
featured in the ads. However, simply advertising through
recognized media outlets does not ensure the legitimacy of the
company behind an ad. In addition, such companies often use
delivery systems other than the U.S. Postal Service, such as
overnight or courier services, to avoid detection and prosecution
by postal authorities.
Some companies claim they can guarantee you a loan for a fee paid
in advance. The fee may range from $100 to several hundred
dollars. Small businesses have been charged as much as several
thousand dollars as an advance fee for a loan. But whether you
are an individual consumer or a small business owner, the result
is the same: once the con artists have your money, they disappear
and you never get your loan.
Do not confuse advance-fee loan schemes with legitimate offers of
credit from mortgage brokers, banks, savings and loans, and
credit unions. Legitimate credit grantors may charge fees to
process your loan application, but they will not guarantee that
you will qualify for a loan. Illicit advance-fee loan schemes, on
the other hand, either promise or strongly suggest that a loan
will be provided in exchange for an up-front fee. Salespeople for
such companies also may verbally promise that some or all of your
advance fee will be refunded if your application is unsuccessful.
Some fraudulent companies also may claim that your advance fee
will be credited toward repayment of the loan. Usually none of
these claims is true.
How to Protect Yourself
The FTC suggests the following precautions before you respond to
ads for advance-fee loans.
l Be wary of advertising that claims that bad credit is no
problem in getting you a loan. If money is not available to you
through traditional lending institutions, it is unlikely to
become available in response to a classified ad.
l Be cautious of lenders who use "800" and "900" numbers. You
may call an "800" number which then directs you to dial a "900"
number. You pay for "900" number calls, of course, and the
charges may be high.
l Check out the company. Contact your local consumer protection
agency and the state Attorney General's Office to learn if they
have received any complaints about companies offering advance-fee
loans. Keep in mind, however, that suspect companies often
establish their operations in one state, advertise heavily for
only a few months, collect their loan fees, only to close up shop
and move on to another state before complaints are registered and
local authorities have a chance to act. Therefore, just because
your local consumer protection agency has no complaints on file
does not mean that an advance-fee loan business is legitimate.
l Be careful about making any loan agreements over the
telephone.
l Do not give your credit card, checking account, or Social
Security numbers over the phone unless you are familiar with the
company. This information can be used against you with other
frauds. For example, if you give your checking account number
over the phone to a stranger for "verification" or "computer
purposes," the number may be used to debit (withdraw) money from
your checking account.Ask to review any company's offer in
writing, and make sure you understand the terms of the agreement
before you complete the transaction.
What to Do if You Are a Victim
If you believe you have been victimized by a fraudulent
advance-fee loan operation, contact your local consumer
protection agency, Better Business Bureau (BBB), state Attorney
General and Call For Action (202/537-0585;
TDD 202/537-1551) to report the company.
You also may file a complaint with the FTC by writing to:
Correspondence Branch, Federal Trade Commission, Washington, D.C.
20580. Although the FTC generally does not intervene in
individual disputes, the information you provide may help to
indicate a pattern of possible law violations requiring action by
the Commission.
Where to Find Low-Cost Help for Credit Problems
First, try to solve your debt problems with your creditors as
soon as you realize you will not be able to make your payments.
If you cannot resolve your credit problems yourself or need
additional assistance, you may want to contact a Consumer Credit
Counseling Service (CCCS) office _ a nonprofit organization with
more than 850 offices located in 50 states that counsels indebted
consumers. CCCS counselors will try to arrange a repayment plan
that is acceptable to you and your creditors. They also will help
you set up a realistic budget and plan for expenditures. These
counseling offices, funded by contributions from credit-granting
institutions, are offered at little or no cost to consumers.
Check the White Pages of your telephone directory to get the
number for the CCCS office nearest you, or call 1-800-388-2227
using a touch-tone phone. If you have other questions, write or
call:
National Foundation for Consumer Credit
8611 Second Avenue, Suite 100
Silver Spring, MD 20910
(301) 589-5001
In addition, non-profit counseling programs sometimes are
operated by universities, military bases, credit unions, and
housing authorities. They are likely to charge little or nothing
for their assistance. Or, you can check with your local bank or
consumer protection office to see if it has a listing of
reputable, low-cost financial counseling services.
For More Information
The FTC has a series of Facts for Consumers that explain
fraudulent sales practices and precautions you can take to avoid
losing your money. Titles include:
Automatic Debit Scams
"900" Numbers
"Gold""and "Platinum" Credit Cards
Land Sales Scams
Telemarketing Travel Fraud
Job Ads, Job Scams and "900"Numbers
Telephone Investment Fraud
Dirt-Pile Scams
Magazine Telephone Scams
Water Testing Scams
Art Fraud
Credit Repair Scams
If you want any of these free publications, or a complete listing
of all FTC consumer and business publications, contact: Public
Reference, Federal Trade Commission, Washington, D.C. 20580;
(202) 326-2222.
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