Advance-fee loan sharks take advantage of people who don't know what they're doing. They take their money in exchange for a loan or credit and then leave them in a bad situation. Scammers often pretend to be real lenders to get people to take them up on their fake offers.
Law enforcement agencies in the U.S. and Canada say that ads and promotions for advance-fee loans make it sound likely, or even "guarantee," that a loan will be approved, even if the applicant has bad credit. But the customer has to pay a fee to take advantage of the offer. How does it work? The scammer runs away with your money, and the loan never comes through.
In the classified sections of daily and weekly newspapers and magazines, you can find ads for a lot of advance-fee loans. Most of the time, the ads have toll-free numbers like 800, 866, or 877, or area codes from Canada like 416, 647, 905, or 705 in them. There is also direct mail, radio, and cable TV advertising for the loans. Even if an ad is in a reliable source of news, like the local newspaper or radio station, that doesn't mean the company that put it there is reliable.
Credit offers that are real don't ask for money up front. Fees for the application, appraisal, or credit report may be charged by legitimate lenders, but the fees are usually taken out of the amount borrowed. And the fees are usually paid to the lender or broker after the loan is approved. Legitimate lenders can make firm credit offers to "credit-worthy" customers, but first they check the customer's creditworthiness and make sure the information on the application is correct. Canadian police warn that it's very unlikely that a legitimate Canadian lender would take a chance on a U.S. citizen with bad credit who can't get a loan in the U.S.
Most of the time, advance-fee loan sharks say that the money you pay them will go to a third party for credit insurance or something similar. Sometimes, they even send faxes with logos and letterheads from real companies that they stole or made up. Officials in charge of law enforcement say that the materials are fakes, and the contracts that the scam artists ask people to sign are worthless. To make matters worse, some scammers have used the information they get from people to steal their identities.
Most of the time, scammers who offer advance-fee loans tell people to send the fees through Western Union money transfers made out to a person instead of a business. They tell people who want to send money through Western Union to use a "password code." This lets the scammers hide their identity.
Law enforcers in the U.S. and Canada say that people can avoid getting ripped off by advance-fee loan sharks. This is how:
Don't pay for a loan promise. In the U.S., it is against the law for a company that does business by phone to promise you a loan and ask you to pay for it before they give it to you. It is also against the law in Canada to ask for a loan fee up front.
Ignore any ad or caller that says they can get you a loan if you pay them a fee up front.
Remember that real lenders will never promise or guarantee that you will get a loan before you apply or before they check your credit or talk to your references. This is especially true if you have bad credit or no credit record.
Don't give out your credit card, bank account, or Social Security number over the phone, by fax, or on the Internet unless you know the company and know why they need that information.
Don't give a loan payment to a person; no legitimate lending company would ask you to do that.
Don't send money orders or wire money through Western Union or a similar company to get a loan. If something goes wrong with a wire transaction, you don't have much you can do.
Legitimate lenders don't pressure you to wire funds.
If you're not sure who you're dealing with, look up the company's number in the phone book or call directory assistance to make sure you're dealing with the company you think you are. Some scammers have said they were from the Better Business Bureau or another legitimate group.
