BORROWERS could lose hundreds in cash because of loan fee fraud this Christmas, the financial regulator has warned.
The Financial Conduct Authority (FCA) receives countless complaints from borrowers who lose between 25 and 450 every year after falling victim to loan fee fraud.
And the FCA typically receives a rise in reports of this kind of fraud over the busy Christmas period.
Loan fee fraud happens when someone pays a charge for a loan they never receive.
The FCA is worried that rising financial stress because of the cost of living crisis could place more people at risk of scammers' tactics this year.
Those falling victim to loan fee fraud stands to lose 260 typically, according to the regulator.
These scams have previously increased in frequency previously year, with the number of cases reported rising by 21% between November 2023 and October 2023 in contrast to exactly the same period last year.
The FCA is reminding borrowers to check on its register if they are ever asked to provide an upfront payment for a loan.
It discovered that nearly two-thirds 64% of shoppers are not aware what loan fee fraud is.
Mark Steward, executive director of enforcement and market oversight, FCA, said: "This Christmas period will probably be tough for many consumers, and people who have been hardest hit through the the cost of living will understandably be anxious about meeting the extra expenses that Christmas brings.
"Some consumers may be tempted to remove loans to satisfy these extra costs.
"Unfortunately, this is where loan fee fraud scammers and illegal lenders see an opportunity."
The FCA is warning customers to watch out for the warning flags which include being requested a fee or just being asked to pay within an unusual way.
And if you're planning on getting a loan, please stop and check the FCA's Register to make sure you coping a legitimate lender.
The warning signs of loan fee fraud
Here are a few symptoms of potential loan fraud, based on the FCA:
- Having made several loan applications online, you are then contacted out of the blue by text, email or phone and offered financing.
- Being asked to make an upfront payment into a banking account, or transfer money with an unusual method.
- Scammers may declare that the charge is refundable and will be used like a deposit, administrative fee, insurance, or because of poor credit history.
- You may be put under pressure to pay for the charge quickly.
- Once the very first payment has been created, the scammer might contact you again to inquire about more payments before they are able to give you the loan.
- Even though you result in the payments, you never receive the loan.
How to prevent loan fee scams
If you are required to pay for an upfront fee before getting financing from an authorised firm, the firm should send you a notice aiming certain information.
The notice should include the legal name of the firm because it appears on theFinancial Services Registerand a declaration that the firm is serving as a credit broker.
The notice should also incorporate a statement saying that you'll, or might need to pay electric power charge for that firm's services, the amount of the charge or the way it is going to be calculated and when by what method the firm will require payment of the charge.
It is also necessary for you to answer the notice acknowledging that you have received it, and confirming that you are conscious of its contents.
If you are required to pay an upfront fee from a firm that does not stick to the above process, it could be a scam.
How can one borrow safely this winter?
The first thing you should always do is consider if you really want to borrow before committing to a brand new personal bank loan, credit card or overdraft.
When trying to get an unsecured loan, you should only cope with FCA-authorised firms.
If you deal with an unauthorised firm, you will not be taught in Financial Ombudsman Service and will miss out on valuable protection under the Consumer Credit Act if things go wrong.
You can check which loans you're probably to get with no damage your score by using an eligibility tool such as the one onCompare The MarketorMoneySavingExpert.com.
Credits cards with reduced rates, big limits, cheap fees and long interest-free windows are a sound method to borrow if you can afford to repay your debts in full every month.
But the best credit cards are reserved for those with a top-notch credit score.
It's a good idea to try and reduce your overall debt before applying for a new charge card as lenders might be reluctant to give loan to you should you already have a large amount of debt.
Some might be considering utilising their overdraft this winter – but this is among the most costly ways to borrow.
Some banks charge 40% interest which fits out as almost double the average charge card rate.
But some banks do over new customers who switch current accounts 0% interest-free period over many months and these are worth considering so long as you'll have the ability to repay it before the term ends.
Others may turn tobuy now, pay later (BNPL), which generally allows individuals to borrow cash without undergoing a hard credit search.
BNPL is atype of borrowingwhich enables you to buy something but delay spending money for it.
Companies offering this service include Klarna, Clearpay and Laybuy.
And while BNPL is convenient, it is a form of debt.
And if you can't repay it over time you could face high late payment fees and marks on your credit report.
If you utilize BNPL frequently, it might also be a warning sign to regulated lenders who may think you don't have sufficient funds to create payments entirely upfront.
This may impact especially now thatBNPL purchases are beginning to appear on peoples' credit reports.
Buy now, pay later is also unregulated so customers don't benefit from the same protections offered to those with credit cards.
This includes buyer protections listed inSection 75 from the Consumer Credit Act.
This protection implies that should you pay for a big purchase in your charge card then one happens – like the goods aren't delivered or the shop goes bust – your card provider is just as responsible because the retailer to refund you.