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Just When You Thought It Was Safe . . . Advance-Fee Loan Sharks

A different breed of loan shark is preying on unwary consumers by taking their money for the promise of a loan, credit card or other extension of credit.

Advertisements and promotions for advance-fee loans "guarantee" or suggest that there's a high likelihood of success that the loan will be awarded, regardless of the applicant's credit history. But, to take advantage of the offer, the consumer first has to pay a fee. And that's the catch: The consumer pays the fee, the scam artist takes off with the money, and the loan never materializes.

Legitimate guaranteed offers of credit do not require payments up front. Legitimate lenders may require consumers to pay application, appraisal or credit report fees, but these fees seldom are required before the lender is identified and the application completed. In addition, the fees generally are paid to the lender, not to the broker or arranger of the "guaranteed" loan.

Legitimate lenders may guarantee firm offers of credit to creditworthy consumers, but they rarely do this before evaluating a consumer's creditworthiness.

Advertisements for advance-fee loans generally appear in the classified section of daily and weekly newspapers and magazines. Often, the ads feature "900" numbers which result in charges on your phone bill. Advance-fee loans also are promoted through direct mail and radio and cable TV spots. The appearance of ads in media outlets that you recognize – like your local newspaper or radio station – is no guarantee of the legitimacy of the company behind the ad.

The Federal Trade Commission says you can avoid being bitten by advance-fee loan sharks: Here's how:

  • Don't pay for a promise. It's illegal for companies doing business by phone to promise you a loan and ask you to pay for it before they deliver.
  • Ignore any ad – or hang up on any caller – that guarantees a loan in exchange for an advance fee. Legitimate lenders never "guarantee" or say that you will receive a loan before you apply, especially if you have bad credit or no credit record.
  • Never give your credit card or bank account numbers, or Social Security Number, over the telephone unless you are familiar with the company and know why the information is necessary.

The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint, or to get free information on consumer issues, visit www.ftc.gov or call toll-free 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261.

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