Consumer Credit: Scams - 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 credit-worthy 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.
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