If a loan company offers you a way out of debt as long as you pay an upfront fee – hang on to your wallet.
These types of advance-fee loan offers are illegal, and always result in
further economic troubles for the consumer.
That’s what happened to Carlos Valiente, who needed helping paying his mortgage and didn’t know where else to turn.
Then, while thumbing through a magazine at a friend’s house, he saw an advertisement for a lender called Chicago Homestart Services. Carlos called the company, who told him they could reduce his mortgage by $700 per month with no fee. He filled out the required paperwork, including income and credit card information.
But that’s when the situation changed. The next time Carlos talked to the company, he was pressured into sending a fee.
“The guy told me I had to send them $5,500, which was going to the bank,” Carlos told Team Fixer. “I told him there was supposed to be no fee, but they told me the fee had to go to the bank within three days.”
Carlos sent the fee to an address in Irvine, Calif., and never heard back. The next time he called, he was put through to a different customer service rep, who told him the first person he talked to no longer worked there. Carlos was told he was misinformed, and that $5,500 was their fee for doing business.
“He told me, “No one works for free,’ ” said Carlos, who still hasn’t gotten his money back.
Sadly, what happened to Carlos isn’t unusual. There are lots of sham loan companies preying on people who are down on their luck, says Steve J. Bernas, president of the Better Business Bureau of Chicago and Northern Illinois, which collects complaints about advance-fee loan scams.
Consumers of all ages have to be careful. “It used to be the elderly, but because of the Internet, they (the companies) can send millions of emails to get in touch with people,” Bernas says.
Here are some tips:
• No lender can guarantee a loan without first checking the customer’s credit. If a lender promises a loan regardless, that’s a red flag.
• Be wary of lenders outside the United States (though some use domestic mail drops to make it appear they are local). These companies will ask you to wire the fees abroad.
• Never give your Social Security or bank and credit card information over the phone.
• And remember, it’s illegal for a lender to take an upfront fee – so if they ask, it’s obviously a scam.
Gerri Detweiler, personal credit expert on Credit.com, says these scammers take advantage of people who are desperate for quick loans.
Carlos agrees: “When you’re feeling down, you hope someone will help you.”
To reel in their victims, the companies claim they have investors -- but
investors don’t take chance on consumers who have bad credit. Making matters worse, Detweiler says the scammers sometimes resell customers’ information to other companies, who in turn pitch their own get-out-of-debt schemes.
Most of the victims Detweiler talks to have lost $4,000 to $5,000. However, one couple lost $50,000 on a business loan that never materialized. The company was overseas and the couple never got their money back. “I don’t know of a case where the company turned out to be legitimate,” says Detweiler.
Consumers can take precautions to make sure they aren’t taken advantage of, such as checking the company’s address on Google Maps for legitimacy. (Detweiler says one fraudulent lender’s listed address turned out to be a church. )
Be sure to research the company’s domain name, too, as it’s easy for someone to put up a nice-looking website. And look into how long and where the lender has been licensed.
Unfortunately, not much can be done to retrieve your money if you’ve sent it to an advance-fee loan company. If you’ve become a victim of this scam, place a fraud alert on your credit report.
And most importantly, get the word out by telling your story on online message boards and filing complaints at IC3.gov, BBB.org, FTC.gov and illinoisattorneygeneral.gov.
Bernas says advance fee loan scams are common because they work. The best way to stop them?
“Don’t give the loan company your business in the first place,” he says.