Citizens Advice warning over loan scamLoan scam prompts warning from Citizens Advice

13 February 2006

Steer clear of companies which offer to arrange personal loans but want a fee upfront.

That's the latest warning from Citizens Advice. The consumer advocacy charity says it's seeing increasing numbers of victims of this scam.

Such loans rarely materialise but the arrangement fee is never returned. Even if the loan does arrive, it's for less than the agreed amount, and comes with a high interest rate.

Citizens Advice has not named the companies involved, but issued a general warning about companies charging a fee upfront. Evidence from its bureaux around the UK shows that these loan companies target people on a low income who can't get loans from regular sources because they have a poor credit rating.

Alarm bells

Peter Tutton, Social Policy Officer at Citizens Advice, said: 'If the loan advertisements do not mention an arrangement fee but suddenly request a fee on application, be very wary. If you are asked for an advance payment alarm bells should ring - avoid at all costs firms who ask for money upfront.'

People are invited to apply for a loan of up to GBP 10,000 by giving their bank details and enclosing a cheque for the arrangement fee, which can be between GBP 30 and GBP 60.

When the cheque for the loan amount doesn't materialise, consumers have the option of chasing their money by calling a costly premium-rate phone number - but this is usually to no avail.

Fee never returned

One CAB client from Denbighshire, north Wales, applied for a loan of GBP 10,000 and sent off a cheque for almost GBP 50 as the arrangement fee. But after the money had left his account he received a letter turning him down for the loan - and his fee was never returned.

Mr Tutton added: 'These conmen prey on vulnerable individuals and promise them a low-interest loan as an easy solution to their money problems. Unfortunately in most cases there is no loan and this is just a front for scammers looking to make a quick buck.

'The problem is that once people have sent off their money it is very difficult to get it back. We want to see measures to give people a way of putting things right if they get duped into paying for a loan they will never receive.'