FCA warns public of loan scams as borrowers lose over £3.5m a year

Written by Oliver Wade

The FCA is urging the public to be aware of the growing threat of loan fee scams targeting borrowers, as last year over £3.5m was lost to loan fee fraud while reports to the FCA consumer helpline increased by 44%.

Loan fee fraud victims are often targeted while searching for loans online and are then contacted by fraudsters who are offering a loan, advising the victim that they have to pay an upfront fee for the loan which they ultimately never receive, the regulator reported. Once the first payment is made, victims are often persuaded to make multiple payments, with the average loss per individual recorded at £740 last year.

FCA executive director of enforcement and market oversight Mark Steward said: “We’re seeing an increasing number of cases of loan fee fraud reported to us. Fraudsters target people making online loan applications and who think they’re being contacted by a legitimate loan provider, when they are not at all.

“Scammers take advantage of the excitement people feel when they are offered or accepted for a loan and make the loan conditional of an upfront fee, which can increase to hundreds of pounds. Of course, no loan ever materialises.”

The FCA has advised consumers to always “check who you’re dealing with” and to be sceptical, while also ensuring that the loan provider is authorised by the FCA.

In 2017 there were over 4,700 reports of loan fee scams made to Action Fraud, according to the FCA, and this type of fraud has now overtaken investment fraud as the most common scam reported to the FCA. Scammers supposedly target the most financially vulnerable in society, those on lower incomes and with low credit ratings.

However, there are some legitimate loan providers that do charge fees in advance of providing their services.

Research has revealed that approximately 36% of consumers usually accept what financial firms tell them, which fraudsters take advantage of and therefore utilise a range of genuine sounding reasons for asking for a fee, such as claiming the fee is a deposit, admin fee or insurance for those with low credit ratings.

The FCA has announced that it assesses every loan fee fraud report received and will issue public warnings about unauthorised firms that breach the regulators rules.

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