The City regulator has issued ‘Three Wise Warnings’ for consumers to look out for to prevent loan fee fraud this Christmas.
Loan fee fraud is when consumers are asked to pay an upfront fee for a loan or credit that they then never receive. According to the Financial Conduct Authority (FCA) it was the third most reported scam last December, making up one in eight (12 per cent) of all its scam reports.
New research shows people spend an average of £355 on Christmas presents. However, with the average loan fee fraud scam costing consumers £220 each, they could lose nearly two-thirds (62 per cent) of what they would have spent on Christmas gifts.
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The FCA warned the figure could increase this year with 25 per cent of people planning to spend more than ‘normal’ years, rising to 34 per cent among those that have faced Covid-19 induced hardship.
And 60 per cent of people who have experienced a job loss, furlough or workload or pay cut due to the coronavirus will turn to borrowing to pay for their additional Christmas shopping, meaning they could be more susceptible to loan fraud.
The FCA’s ‘Three Wise Warnings’ to protect consumers against fraudsters this festive season include asking it they are being asked to pay a fee upfront, being pressured to pay quickly or being asked to pay by an unusual method.
The regulator told consumers that these are clear warning signs of a loan fee fraud taking place.
“This December will be different to previous years in lots of ways, and we know many people will enter the festive season and end the year having been negatively financially impacted by the pandemic,” said Mark Steward, executive director of enforcement and market oversight at the FCA.
“Unfortunately, fraudsters will seek out every opportunity to exploit vulnerable people. Loan fee fraud is an issue that shouldn’t be overlooked. At the end of a tough year, anyone seeking a loan for any reason needs to watch out for the red flags and look to spot the warning signs.
“It’s always best to check with the FCA’s register to check the firm’s details and to make sure it is authorised to provide credit, before taking out a loan. Don’t give scammers what they ask for this Christmas.”
Two-thirds (66 per cent) of consumers feel confident they could spot a loan scam if approached by a fraudster.
However, over a quarter (28 per cent) would consider paying a fee first to secure a loan – one of the main warning signs of loan fee fraud.
Nearly two-thirds (65 per cent) of people who have faced financial hardship because of Covid-19 said falling for a scam at Christmas would be worse than any other time of year.