Increasing numbers of people are falling victim to a con where companies charge money to arrange a loan which often never materialises. Such arrangement fees are rarely returned, even when then the loan doesn't arrive or is offered on different terms.

Evidence from Citizens Advice Bureaux shows that the loan companies target people who can’t get loans from regular sources, often people with a poor credit rating and on a low income who really cannot afford to lose the arrangement fee.

How The Scam Works

The loan companies operate the scam by placing adverts and promotional literature in local papers, the internet and by conducting unsolicited mailings and telephone calls. They lure in people who have credit problems and offer them a solution to their money troubles.

People are invited to apply for a loan of up to £10,000 by giving their bank details and enclosing a cheque for the arrangement fee, which can be between £30 and £60. In a further twist when the cheque doesn’t arrive borrowers have the option to call a costly premium rate telephone number to resolve the matter, usually to no avail and leaving people further out of pocket.

Cases Seen By The CAB

• A client from Denbighshire responded to an advert offering loans at a reasonable rate of interest in a local paper. He applied for the loan and sent off a cheque for £49.50 so that the company could process his £10,000 loan. After the money had left his account he received a letter turning him down for the loan but no repayment of the cheque.

• A Wiltshire man received a letter offering to arrange a loan of £5,000 if he sent a postal order for £49.50. He sent the money and then received another letter explaining that he was eligible for a loan of up to £1,000 but only on condition that he had a guarantor. The company refused to refund the £49.50.

• A client in Gwent applied for a loan of £1,500. He paid an administration fee of £30 and was told that he would receive the loan within seven working days. After a month he had not received any money so he telephoned the loan company, which cost him £10. He was then redirected to another premium rate number to get further information. He has still not received the loan.

Peter Tutton Social Policy Officer at Citizens Advice warns consumers to be careful when any company asks for any arrangement fee:

"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 up front."

References

Citizens Advice