Borrowers warned to watch out for loan scammers demanding up-front fees

People whose incomes have been hit by the coronavirus pandemic are being urged to watch out for scammers offering them loans to pay for Christmas which require an up-front fee.

Loan fee frauds accounted for one in eight (12%) scam reports made to the Financial Conduct Authority (FCA) last December.

The scams happen when people are asked to pay a fee in advance for a loan or credit that they never then receive.

The FCA said the average loan fee fraud scam costs consumers £220 each.

It added that with research suggesting people spend an average of £355 on Christmas gifts, loan fee scams could cost the equivalent of around two-thirds of the value of the presents sitting under a Christmas tree.

The FCA’s research found 28% of people, including 54% of 25 to 34-year-olds, would consider paying a fee first to secure a loan. This is one of the main warning signs of loan fee fraud.

After the turmoil of 2020, people may be particularly at risk of loan-related scams this year.

Six in 10 (60%) people who have experienced a job loss, been furloughed or had their hours or pay cut due to the coronavirus pandemic will borrow to pay for Christmas, the FCA’s research suggests.

Nearly two-thirds (65%) of people who have faced financial hardship due to Covid-19 said falling for a scam at Christmas would be worse than at any other time of year, while 64% said being a scam victim in 2020 would be worse than in any other year.

Mark Steward, executive director of enforcement and market oversight at the FCA, said: “Unfortunately, fraudsters will seek out every opportunity to exploit vulnerable people.

“Loan fee fraud is an issue that shouldn’t be overlooked. At the end of a tough year, anyone seeking a loan for any reason needs to watch out for the red flags and look to spot the warning signs.

“It’s always best to check with the FCA’s register to make sure you are dealing with an authorised firm, before taking out a loan. Don’t give scammers what they ask for this Christmas.”

The FCA suggests people follow its “three wise warnings” and ask themselves the following questions to avoid such scams:

1. Are you being asked to pay a fee up-front?

Are you being pressured to pay quickly?

3. Are you being asked to pay by an unusual method?

Before agreeing to a loan, you can check who you are dealing with by using the register on the FCA’s website.