BORROWERS could lose hundreds in cash due to loan fee fraud this Christmas, the financial regulator has warned.

The Financial Conduct Authority (FCA) receives hundreds of complaints from borrowers who lose between £25 and £450 every year after falling victim to loan fee fraud.

And the FCA typically receives an increase in reports of this type of fraud over the busy Christmas period.

Loan fee fraud happens when someone pays a fee for a loan that they never receive.

The FCA is concerned that rising financial stress due to the cost of living crisis could place more people at risk of scammers’ tactics this year.

Those falling victim to loan fee fraud stands to lose £260 on average, according to the regulator.


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These scams have already increased in frequency in the past year, with the number of cases reported rising by 21% between November 2021 and October 2022 compared with the same period a year earlier.

The FCA is reminding borrowers to check its register if they are ever asked to provide an upfront payment for a loan.

It found that nearly two-thirds 64% of consumers are unaware of what loan fee fraud is.

Mark Steward, executive director of enforcement and market oversight, FCA, said: "This Christmas period is going to be tough for many consumers, and those who have been hardest hit by the rising cost of living will understandably be anxious about meeting the additional expenses that Christmas brings.

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"Some consumers may be tempted to take out loans to meet these extra costs.

"Unfortunately, this is where loan fee fraud scammers and illegal lenders see an opportunity."

The FCA is warning consumers to beware of the red flags which include being asked for a fee or being asked to pay in an unusual way.

And if you are considering taking out a loan, please pause and check the FCA’s Register to make sure you are dealing with a legitimate lender.

The warning signs of loan fee fraud

Here are some warning signs of potential loan fraud, according to the FCA:

  • Having made several loan applications online, you are then contacted out of the blue by text, email or phone and offered a loan.
  • Being asked to make an upfront payment into a bank account, or transfer money via an unusual method.
  • Scammers may claim that the fee is refundable and will be used as a deposit, administrative fee, insurance, or because of bad credit history.
  • You may be put under pressure to pay the fee quickly.
  • Once the first payment has been made, the scammer might contact you again to ask for more payments before they can give you the loan.
  • Even though you make the payments, you never receive the loan.

How to avoid loan fee scams

If you are asked to pay an upfront fee before getting a loan from an authorised firm, the firm should send you a notice setting out certain information.

The notice should include the legal name of the firm as it appears on the Financial Services Register and a declaration that the firm is acting as a credit broker.

The notice should also include a statement saying that you will, or may need to pay a charge for the firm’s services, the amount of the charge or how it will be calculated and when and by what method the firm will take payment of the charge.

It is also necessary for you to reply to the notice acknowledging that you have received it, and confirming that you are aware of its contents.

If you are asked to pay an upfront fee from a firm that doesn’t follow the above process, it could be a scam.

How can I borrow safely this winter?

The first thing you should always do is ask yourself if you actually need to borrow before committing to a new personal loan, credit card or overdraft.

When applying for a personal loan, you should only deal with FCA-authorised firms.

If you deal with an unauthorised firm, you won’t be covered by the Financial Ombudsman Service and will miss out on valuable protection under the Consumer Credit Act if things go wrong.

You can check which loans you’re most likely to get without damaging your score by using an eligibility tool such as the one on Compare The Market or

Credits cards with low rates, big limits, cheap fees and long interest-free windows are a sound way to borrow if you can afford to pay off your bills in full each month.

But the best credit cards are reserved for those with a top-notch credit score. 

It's wise to try and cut down your existing debt before applying for a new credit card as lenders may be reluctant to lend to you if you already have a large amount of debt.

Some may be considering utilising their overdraft this winter – but this is one of the most costly ways to borrow.

Some banks charge 40% interest which works out as almost double the average credit card rate.

But some banks do over new customers who switch current accounts 0% interest-free period over many months and these are worth considering as long as you'll be able to pay it off before the term ends.

Others may turn to buy now, pay later (BNPL), which in most cases allows individuals to borrow cash without undergoing a hard credit search.

BNPL is a type of borrowing which lets you make a purchase but delay paying for it.

Companies offering this service include Klarna, Clearpay and Laybuy.

And while BNPL is convenient, it is a form of debt.

And if you can't pay it off in time you could face high late payment fees and marks on your credit file.

If you use BNPL frequently, it could also be a red flag to regulated lenders who might think you don't have enough funds to make payments in full upfront.

This may impact especially now that BNPL purchases are beginning to appear on peoples’ credit reports.

Buy now, pay later is also unregulated so customers don't benefit from the same protections offered to those with credit cards.

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This includes buyer protections listed in Section 75 of the Consumer Credit Act.

This protection means that if you pay for a big purchase on your credit card and something happens – like the goods aren't delivered or the shop goes bust – your card provider is just as responsible as the retailer to refund you.

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