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Advance-Fee Loan Fraud and Other Scams to Avoid in 2020

July 20, 2020

From advance-fee loan scams to phishing scams and social security scams, the number of ways scam artists are trying to part you from your money is on the rise. In 2019, the Federal Trade Commission reported a staggering 1.7 million instances of fraud. In just the first four months of 2020, the FTC has already reported $13.4 million in COVID-19-related scams affecting more than 18,000 Americans.

While scams are now an unfortunate part of our modern lives, having to navigate a new crop of scams this year in the face of so many other unprecedented financial challenges just feels…wrong.

Thankfully, there are ways to avoid falling for scams (new or old), without adding more stress on top of everything else right now. Be on the lookout for these telltale signs of common scams.

What are Advance-Fee Loan Scams?

In advance-fee loan scams, lenders contacts you with an offer for allow interest loan in exchange for an upfront fee. Scammers often pretend to represent a familiar bank or non-profit, but sometimes use a company name you haven’t heard of.

These fees are often worded with legitimate terms like “application fee” or “processing fee”. However, these scams are anything but legitimate, and often ask you do things that may seem odd, like purchase a prepaid card, like an Apple gift card, Google Play gift card, Green Dot® prepaid card, or Vanilla Visa®.

If you say you can’t pay the fees, the scam lender will offer to add those to your loan amount, and then proceed to create a fake ACH deposit to your bank for the total amount. When you see the pending transaction, it’s easy to feel more confident about buying the card and giving them the number. No surprise, they drain the prepaid card, and the pending ACH deposit never clears the bank.

Red flags of an advance-fee loan scam

1. Asking for money up front

Ignore any ad, email, or hang up on cold callers guaranteeing you a loan in exchange for fees paid in advance. Banks will not do this.

2. No credit check

No legitimate lender makes loans without reviewing the borrower’s credit report first. Often scam lenders target individuals or businesses with poor credit or debt problems, knowing they can offer loans that legitimate banking institutions can’t. If they don’t ask for a credit report, they aren’t a real institution  

3. The offer is too good to be true

If the loan credit limit is higher or the interest rate is lower than anything else you’ve seen, be on high alert—especially if you have bad credit.  

4. Pressure to make a decision immediately, or keep an offer secret

A legitimate financial institution will never do this. Always research lending companies online (we recommend the Better Business Bureau) and in the instance of fraud, report the case to the FTC.

Phishing Scams

Phishing is an email tactic used to gain access to a target’s computer or accounts. In phishing scams, a scammer will send you an email tailored to look like it’s from a legitimate source—or from someone you know—tricking you into providing personal financial information, such as your social security number, credit card number, bank account number, or account passwords.

Once this personal information is given out, the scammer can gain access to your accounts, transferring your funds or otherwise impersonating you, often at the expense of your credit score.  

Red flags of a phishing scam

1. Email attachments

Most people automatically open attachments, but almost any type of file can be used to deliver malware and other malicious payloads. Be very cautious about any attachments you’re not expecting.

2. Poor grammar and structure

Often the email will sound strange and contain misspellings, missing tenses, transposed words, and over generalities.

3. Familiar email address

Phishing scammers know you’re more likely to open and and trust the content within an email if it looks like it was sent by someone you know. They do this by slightly adjusting the domain name of the sender’s email address, e.g., JaneASmith@wobble.com comes through as JaneASmith@wobbel.com. (Notice the misplaced ‘e’.)

Government Imposter Scams

Imposters will often call or email you, pretending to be someone representing a federal or state government agency. While this is traditionally perpetuated by scam artists pretending to be the Internal Revenue Service, during the last few months, these scams have expanded to include things like expedited stimulus checks. Often, scammers will call or email you, offering to expedite your payment (or even increase your stimulus amount). If you agree, they’ll ask for your personal information, effectively stealing your identity.

The bad news is these are intentionally alarming calls, often threatening your account will be frozen, or you will be arrested. The good news is the government will never do this, especially over the phone, so it’s easy to quickly dismiss these. Always pay attention to the URL structure, and always verify emails come from a “.gov” extension. If in doubt, use a web browser to search for the email address. Official government email addresses will likely show up in search results, scam emails will not.

Red flags of a government imposter scam

1. Phone or email contact

Government agencies usually mail letters on official stationery. If you haven’t recently made contact with that agency yourself, it’s probably a scam.

2. Law enforcement impersonation

If the police want to arrest you, they will not call to ask you for money first. You cannot pay your way out of being arrested. If someone calls you saying you are going to be arrested, hang up immediately.  

Fake Check Scams

In fake checks scams, you’re contacted by a random person (or company) and asked to cash a check, cashier’s check, or money order, and give them the money in order to receive some benefit. Usually, the check bounces because it’s a fake. But you won’t receive notification of this for a few days. In the end, you’re out any money you sent, plus bank penalties.

Variations on the fake check scam

  1. Giving you a fake check to cash in exchange for a small fee or a portion of the money.
  2. Claiming to offer you a job, then sending you a counterfeit check to buy “office supplies” from a specific vendor.
  3. Sending you a fake cashier’s check as an advance against alleged foreign lottery winnings, then asking you to immediately wire money for taxes or other fees.
  4. Pretending to want to buy something you’re selling online, then “accidentally” sending a check for more than the cost of the item, and then asking you to send the difference between the cost of your item and what they sent.

Debt Settlement Scams

Debt settlement, or debt relief, companies promise they can get your debts cancelled or reduced to “pennies on the dollar.” Their business is to negotiate with your creditors and get them to change their contracts with you.

Though some debt settlement companies are legitimate, fraudulent debt settlement companies take your money and fail to negotiate anything for you. We recommend better alternatives, such as debt management plans, or consolidating debt if you can with a lower-interest personal loan that has a lower interest rate.

Red flags of a debt settlement scam

1. Asking for payment or money upfront

A legitimate debt relief company won’t make you pay upfront.

2. “Guarantees” your debts will be forgiven

Getting settlements from creditors is a negotiation. No one can guarantee that the negotiation will succeed.

3. Advising you to stop making payments

Debt settlement does not wipe away your debt.

Donation or Charity Scams

One of the most unfortunate instances of fraud is opportunistic scam artists who pretend to be charities during difficult times, like the current coronavirus crisis.

Donation or charity scams are very similar to both phishing and advance fee loan scams, in that scammers will often pretend to be legitimate organizations like the World Health Organization or the American Red Cross. However, with the prevalence of crowdsourcing, and newly created legitimate charities helping those affected by COVID-19, it can be even more difficult to determine what’s legitimate.

Take the time to research who is asking for your money. The BBB has a list of accredited charities, and if you can’t find it there, it may be worth verifying a charity through someone else who has given to them directly.

Exercise More Care Than Ever During the Pandemic

Knowing how to spot common scams like these can help you prevent identity theft and protect your private personal and financial information, especially in difficult financial times when people are desperate and scammers are on the prowl. If you suspect or fall victim to a scam, the Consumer Financial Protection Bureau recommends several important steps you should take right away, including filing a complaint with the Federal Trade Commission.

Losing money or property to scams and fraud can be devastating. Learn more about how to recognize, prevent, and protect yourself and others from fraud and common types of scams.

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