With a Christmas blighted by the cost of living crisis, there are fears more people could lose money to fraudsters offering non-existent loans.
The Financial Conduct Authority said it receives an annual increase in reports of loan fee fraud over the festive period.
Loan fee fraud happens when someone pays a fee for a loan they never receive – and the FCA is concerned that rising financial stress could place more people at risk of scammers’ tactics this year.
Emma Francis (not her real name) fell victim after escaping an abusive relationship where her ex-partner controlled all their money.
The single mother-of-three found herself facing a Christmas with no money and didn’t want to let her children down.
After searching for payday loans, she found a website offering “guaranteed” loans and paid, what she thought was, a £49 admin fee for a £500 loan.
“After paying, I rang them and they told me to go to a bank for a loan,” she told Sky News.
She then looked at the small print of the website which admitted the firm was a “broker, not a lender”.
“The advice they offered me was just that one line. Go to the bank. I knew then I wasn’t getting my money back,” she said.
“I was very vulnerable and looking back I was quite naive about it.
“It was a lot of money and I felt so foolish.”
Read more:
Cost of living advent calender – how crisis isn’t stealing Christmas
How kitchen table project turned into charity helping thousands
Powering up 40,000 Christmas lights in an energy crisis
Victims lose hundreds of pounds on average
An often-used tactic by loan fee fraudsters is to pressurise people who are seeking quick access to cash – but victims stand to lose £260 on average.
The regulator said such scams have already increased in frequency in the past year, with the number of cases reported rising by around a fifth (21%) between November 2021 and October 2022 compared with the same period a year earlier.
Nearly two-thirds (64%) of consumers are unaware of what loan fee fraud is.
The FCA is asking people to check its register if they are asked to provide an upfront payment for a loan.
Mark Steward, executive director of enforcement and market oversight at the FCA, said: “This Christmas period is going to be tough for many consumers, and those who have been hardest hit by the rising cost of living will understandably be anxious about meeting the additional expenses that Christmas brings.
“Some consumers may be tempted to take out loans to meet these extra costs. Unfortunately, this is where loan fee fraud scammers and illegal lenders see an opportunity.
“At a time of heightened stress and pressure, scammers and illegal lenders will rush consumers into bad decision-making.”
Ms Francis’s advice was to “talk to your children”.
“I know it seems silly,” she said, “but children are a lot more understanding than we give them credit for.
“I know my children would much rather watch a Christmas movie with me than open a big box of presents.”
She also said she doesn’t let Santa take all the credit.
“I tell my children one gift is from Santa and the rest are from mummy’s hard work,” she added.
“Because otherwise how do you explain that he brought your friend an Xbox and not you?”
Click to subscribe to the Sky News Daily wherever you get your podcasts
Most commonly used tactics of loan fee fraud
• Having made several loan applications online, you are then contacted out of the blue by text, email or phone and offered a loan
• Being asked to make an upfront payment into a bank account, or transfer money via an unusual method
• Scammers may claim that the fee is refundable and will be used as a deposit, administrative fee, insurance, or because of bad credit history
• You may be put under pressure to pay the fee quickly
• Once the first payment has been made, the scammer might contact you again to ask for more payments before they can give you the loan
• Even though you make the payments, you never receive the loan
