Lloyds Bank has issued an urgent warning to people due to a recent spike in the number of ‘advance fee’ loan scams.
Loan scams are a type of scam involving paying an upfront fee to a company appearing to offer you a loan. Reports of this scam has increased by 90% and led to victims losing up to £231 in recent months.
About the increase in loan scams, Liz Ziegler, Retail Fraud & Financial Crime Director, Lloyds Bank, said: “Organised crime gangs will ruthlessly exploit any change in consumer behaviour. We saw that during the pandemic with the surge in purchase scams as certain goods became scarce and more people shopped online.”
She added that the scams have increased due to the cost of living crisis, because fraudsters know “some people will need more support with their money,” during such difficult times.
Here’s what you need to know about loan scams and how they work.
What are loan scams?
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Loan scams happen when a victim is asked to pay an upfront fee by bad actors pretending to be a company offering loans.
Usually, the scam will involve replying to an online advert offering a ‘fast loan’, either from a company you’ve never heard of before or a fraudster pretending to be a genuine company, according to Lloyds.
The victim will then have their application for approved regardless of credit history. But they’ll be told that they need to make an advance payment by bank transfer before they can receive the loan amount.
Sometimes, the scammers may even ask for further payments after you make the first one. What eventually happens is that victim won’t hear back from the company again.
They don’t receive the loan and also lose the amount they paid upfront.
How does a loan scam work and how to protect yourself?
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Victims of a loan scam are contacted after they search for a loan online and enter a fake but professional looking website, where they provide contact details.
The scammers will contact you pretending to be a representative of a company offering you a loan, and may even send you documentation to make themselves seem legitimate.
Usually fraudsters will invent reasons for an advance payment before the loan amount is released.
Some common reasons given by scammers when they ask for an upfront fee include:
- Payment release fee
- Verification fee
- Loan company fee
- Processing fee
- Guarantor fee
- Tax payment
Liz Ziegler, Retail Fraud & Financial Crime Director, Lloyds Bank, advises: “The important thing to remember is that a genuine loan company will never ask for an upfront payment before releasing the funds.”
She added: “If you’re concerned in any way about your finances there are lots of organisations that can help, and it always makes sense to speak to your bank first.”