Borrowers are being urged to be on alert after victims lost £3.5 million to loan scams in 2017.
The Financial Conduct Authority (FCA) is warning people to be wary after an increase in fraudsters targeting those taking out loans.
The number of cases of loan fee fraud reported to the FCA soared by 44% last year.
Loan fee fraud involves fraudsters offering borrowers a loan. The victim is often told they must pay an upfront fee for the loan, but the loan never materialises.
Victims have usually been searching for loans online and think they are being contacted by a legitimate provider. They are often persuaded to make multiple payments to the fraudster. Last year, the average amount lost in each case was £740.
There were more than 4,700 reports of this type of fraud in 2017 yet, worryingly, some 72% of people say they are unaware of loan fee fraud.
Mark Steward, executive director of enforcement at the FCA, says: “Scammers take advantage of the excitement people feel when they are offered or accepted for a loan and make the loan conditional of an upfront fee, which can increase to hundreds of pounds. Of course, no loan ever materialises.”
Loan fee fraud has overtaken investment fraud as the most common scam reported to the regulator. Some 34% of those surveyed by the watchdog say they aren’t confident they know how to check a loan provider is legitimate, while 36% of those who have taken out a loan in the past three years did not check whether their provider was legitimate.
Fraudsters often target vulnerable people and those on lower incomes.
Peter Tutton, head of policy at debt charity StepChange, says: “People struggling with debt or looking for credit to make ends meet can be especially vulnerable. People need more help to spot fraudsters and stop them getting away with these scams.”
The FCA says companies charging a fee in advance of providing a service should be a warning sign that the provider could be fraudulent.
Other signs include being asked to pay in an unusual way, such as with vouchers or a money transfer service, being put under pressure to act quickly, and being asked to pay multiple fees.
Borrowers should always be sure to check who they are dealing with before applying for a loan. You can check the FCA register to make sure a company is registered with the regulator. You should ensure the details given by a firm exactly match those on the register.