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Avoid Lending Scams

I recently received an email from a lady in the Midwest who was the victim of an online lending scam. She found my blog about P2P lending and wanted to know if P2P lending was a scam or if she could use it to lift her out of her financial troubles. With her permission I’m sharing an excerpt from her letter:

    “…my husband and I have not had very good financial luck in the past 3 – 4 years.
    We are interested in borrowing money; however, anytime we have tried to borrow money, our credit rating holds us back. We have been scammed out of over $2,000.00 in funding costs by prospective lenders, and we really do not have any extra money to lose.
    If we need to borrow money, but do not want to give out our private information for fear of being scammed again, how could we know if we could qualify…
    We have fallen behind on several bills, paid several others, but really need about $20,000.00 to just take care of all the creditors we have in one consolidated loan. We want to build our credit so we can get back into a house to make it a home for our family.
    Please let me know if there is a way to apply for a loan without giving up our checking information and any ‘up front fees’ before we find out if we could possibly qualify.”

Peer to peer lending is a perfect option for her and others in her situation — particularly because there are no hidden charges, and fees are only charged as a result of an accepted and approved loan. Unfortunately, however, loan scams are quite common and can make people reluctant to seek loans online. In her words, here is what happened in this lending scam:

    “I found a company online…they were out of Portland, Oregon. I spoke with 3 or 4 gentlemen (of which I did keep names and numbers) — they told me what information they needed and promised me that after they sent the legal forms, I signed and returned them, they would wire transfer the $25,000 into my account the next day.
    …they called me later after I faxed the papers and said everything was a go, and gave me the information to Western Union the money. I got all the money together and sent $1,785.00 to the guy in Canada, plus another $125.00 in WU costs, and then called to let them know the money had been sent.
    I waited until the next day to see if the money was in my account and nothing showed up. I called and got the man’s answering machine, but no return phone call. I called the next day and the number had been disconnected. I called WU and told them I thought I had been scammed and faxed all the paperwork to them. It was a very difficult lesson to learn, so now I am paying the price every week to payday and title loans.”

You should never pay an advance fee to secure a loan. Legitimate loans, like loans obtained through Lending Club, do not require an up-front payment. Here are tips from the Federal Trade Commission on how to avoid lending scams:

    • Don’t pay for the promise of a loan. It’s illegal for companies doing business by phone in the U.S. to promise you a loan and ask you to pay for it before they deliver. Requiring advance fees for loans also is illegal in Canada
    • Ignore any ad — or hang up on any caller — that guarantees a loan in exchange for a fee in advance
    • Remember that legitimate lenders never guarantee or say that you will receive a loan before you apply, or before they have checked out your credit status or contacted your references, especially if you have bad credit or no credit record
    • Don’t give your credit card, bank account, or Social Security number on the telephone, by fax, or via the Internet unless you are familiar with the company and know why the information is necessary
    • Don’t make a payment to an individual for a loan; no legitimate lending organization would make such a request
    • Don’t wire money or send money orders for a loan through Western Union or similar companies. You have little recourse if there’s a problem with a wire transaction. Legitimate lenders don’t pressure you to wire funds

    • If you are not absolutely sure who you are dealing with, get the company’s number in the phone book or from directory assistance, and call it to make sure you’re dealing with the company you think you are. Some scam artists have pretended to be the Better Business Bureau or another legitimate organization

    • Check out questionable ads by calling Project Phonebusters in Canada toll-free at 1-888-495-8501. If you live in the U.S. and think you’ve been a victim of an advance-fee loan scam, report it to the FTC online at or by phone, toll-free, at 1-877-FTC-HELP (1-877-382-4357)

I can empathize with this lady who was scammed. I consider myself to be pretty financially savvy but I was also scammed out of several hundred dollars in a different situation years ago. Scams work because people generally trust each other and want to believe that they can make money quick or get out of the troublesome financial situation they are in. We here at Lending Club remind you that the best defense against these lending scams is to spread the word. Please pass this post on to anyone that may benefit.

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