Facts for Consumers from the Federal Trade Commission

Advance-Fee Loan Scams -- October 1993

Produced in cooperation with Call For Action, Inc., a Washington, 
D.C.-based international network of radio and television consumer 
hotlines

Beware of advertisements for "advance-fee" or "guaranteed" 
consumer and small-business loans. This brochure tells how to 
recognize ads for advance-fee loan scams and how to distinguish 
them from offers by legitimate credit grantors. It also tells you 
how to protect yourself, what to do if you are a victim, and 
where you can find low-cost help in dealing with credit problems.

How to Recognize an "Advance-Fee" Loan Scam

Advertisements that promise loans generally appear in the 
classified section of local and national newspapers, magazines, 
and tabloids. They also may appear in mailings, radio spots and 
on local cable channels. Often "900" numbers that result in 
charges on your phone bill, or toll-free "800" numbers, are 
featured in the ads. However, simply advertising through 
recognized media outlets does not ensure the legitimacy of the 
company behind an ad. In addition, such companies often use 
delivery systems other than the U.S. Postal Service, such as 
overnight or courier services, to avoid detection and prosecution 
by postal authorities.

Some companies claim they can guarantee you a loan for a fee paid 
in advance. The fee may range from $100 to several hundred 
dollars. Small businesses have been charged as much as several 
thousand dollars as an advance fee for a loan. But whether you 
are an individual consumer or a small business owner, the result 
is the same: once the con artists have your money, they disappear 
and you never get your loan.

Do not confuse advance-fee loan schemes with legitimate offers of 
credit from mortgage brokers, banks, savings and loans, and 
credit unions. Legitimate credit grantors may charge fees to 
process your loan application, but they will not guarantee that 
you will qualify for a loan. Illicit advance-fee loan schemes, on 
the other hand, either promise or strongly suggest that a loan 
will be provided in exchange for an up-front fee. Salespeople for 
such companies also may verbally promise that some or all of your 
advance fee will be refunded if your application is unsuccessful. 

Some fraudulent companies also may claim that your advance fee 
will be credited toward repayment of the loan. Usually none of 
these claims is true.

How to Protect Yourself

The FTC suggests the following precautions before you respond to 
ads for advance-fee loans.

l  Be wary of advertising that claims that bad credit is no 
problem in getting you a loan. If money is not available to you 
through traditional lending institutions, it is unlikely to 
become available in response to a classified ad.

l  Be cautious of lenders who use "800" and "900" numbers. You 
may call an "800" number which then directs you to dial a "900" 
number. You pay for "900" number calls, of course, and the 
charges may be high.

l  Check out the company. Contact your local consumer protection 
agency and the state Attorney General's Office to learn if they 
have received any complaints about companies offering advance-fee 
loans. Keep in mind, however, that suspect companies often 
establish their operations in one state, advertise heavily for 
only a few months, collect their loan fees, only to close up shop 
and move on to another state before complaints are registered and 
local authorities have a chance to act. Therefore, just because 
your local consumer protection agency has no complaints on file 
does not mean that an advance-fee loan business is legitimate.

l  Be careful about making any loan agreements over the 
telephone.

l  Do not give your credit card, checking account, or Social 
Security numbers over the phone unless you are familiar with the 
company. This information can be used against you with other 
frauds. For example, if you give your checking account number 
over the phone to a stranger for "verification" or "computer 
purposes," the number may be used to debit (withdraw) money from 
your checking account.Ask to review any company's offer in 
writing, and make sure you understand the terms of the agreement 
before you complete the transaction.

What to Do if You Are a Victim

If you believe you have been victimized by a fraudulent 
advance-fee loan operation, contact your local consumer 
protection agency, Better Business Bureau (BBB), state Attorney 
General and Call For Action (202/537-0585; 
TDD 202/537-1551) to report the company.

You also may file a complaint with the FTC by writing to: 
Correspondence Branch, Federal Trade Commission, Washington, D.C. 
20580. Although the FTC generally does not intervene in 
individual disputes, the information you provide may help to 
indicate a pattern of possible law violations requiring action by 
the Commission.

Where to Find Low-Cost Help for Credit Problems

First, try to solve your debt problems with your creditors as 
soon as you realize you will not be able to make your payments. 
If you cannot resolve your credit problems yourself or need 
additional assistance, you may want to contact a Consumer Credit 
Counseling Service (CCCS) office _ a nonprofit organization with 
more than 850 offices located in 50 states that counsels indebted 
consumers. CCCS counselors will try to arrange a repayment plan 
that is acceptable to you and your creditors. They also will help 
you set up a realistic budget and plan for expenditures. These 
counseling offices, funded by contributions from credit-granting 
institutions, are offered at little or no cost to consumers. 
Check the White Pages of  your telephone directory to get the 
number for the CCCS office nearest  you, or call 1-800-388-2227 
using a touch-tone phone. If you have other questions, write or 
call:

National Foundation for Consumer Credit
8611 Second Avenue, Suite 100
Silver Spring, MD 20910
(301) 589-5001

In addition, non-profit counseling programs sometimes are 
operated by universities, military bases, credit unions, and 
housing authorities. They are likely to charge little or nothing 
for their assistance. Or, you can check with your local bank or 
consumer protection office to see if it has a listing of 
reputable, low-cost financial counseling services.

For More Information

The FTC has a series of Facts for Consumers that explain 
fraudulent sales practices and precautions you can take to avoid 
losing your money. Titles include:

Automatic Debit Scams
"900" Numbers
"Gold""and "Platinum" Credit Cards
Land Sales Scams
Telemarketing Travel Fraud
Job Ads, Job Scams and "900"Numbers
Telephone Investment Fraud
Dirt-Pile Scams
Magazine Telephone Scams
Water Testing Scams
Art Fraud
Credit Repair Scams

If you want any of these free publications, or a complete listing 
of all FTC consumer and business publications, contact: Public 
Reference, Federal Trade Commission, Washington, D.C. 20580; 
(202) 326-2222.


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