FCA warns consumers against loan fee fraudsters amid rising summer borrowing
As consumer borrowing in the UK peaks over the summer, the Financial Conduct Authority (FCA) is taking a strong stance against credit scammers with its latest campaign.
The FCA fights loan fee fraud
The UK’s financial watchdog has issued new advice to consumers to help them spot and avoid loan fee fraud, as it continues to pioneer initiatives that put the consumer’s interests front and centre.
According to its recent research, 24% of consumers are planning to turn to credit to fund their summer spending this year, an increasingly common action considering the ongoing cost-of-living crisis.
The data also indicates that 55% of consumers are more worried about their finances this summer than they were the year before.
This heightened concern coupled with the increased tendency to fund outgoings through credit lines has left a large majority of consumers susceptible to loan fee fraud.
Loan fee fraud is when a fraudster makes unsolicited contact with a consumer offering them the financing they need. But before the loan can be instated, they will typically request an upfront fee as a deposit, administrative fee or insurance.
Many consumers will mistakenly hand over this fee without ever seeing the loan arrive in their account.
The FCA has stated that “we receive hundreds of reports of loan fee fraud”, and while the average loss is around £260 per consumer, losses can span anywhere between £25 and £450.
According to its data, there was a 26% increase in complaints from consumers who had fallen victim to loan fee fraud last summer when compared to the same period during 2021.
Worse still, if consumers engage with an unauthorised firm, they are automatically excluded from the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS), meaning funds can’t be recovered or reinstated.
Taking on loan fee fraud
In anticipation of another rise in fraudulent activity, the regulator has delivered a ‘3-step check’ campaign to raise awareness around this type of fraud as it looks to better enable consumers to spot and counteract it through their own means.
Its call to action emphasises that if consumers are being cold called or emailed, asked to pay an upfront fee or to pay quickly or unusually, it could be a scam.
It also urges loan applicants to consult the FCA Register to determine if the firm offering them the loan is actually registered.
“With inflation, energy costs, and rising mortgage bills, this summer spending will come at a time of enhanced vulnerability for many,” comments Steve Smart, executive director of enforcement and market oversight at the FCA.
Smart says this setting provides the “perfect opportunity” for fraudsters to exploit those who are thinking about how to make ends meet this summer.
“Follow our 3-step check for loan fraud for how to spot the signs of loan fee fraud, and if you need to apply for a loan, check the Register to see if the firm is legitimate. Don’t get burned by scams on your summer holidays.”
