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FCA issues warning over festive season loan fee fraud

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‘Three Wise Warnings’ for consumers to look out for this Christmas as fraudsters attempt to steal two-thirds of average gift spend.

Loan fee fraud was the third most reported scam last December according to the FCA, making up 1 in 8 (12%) of all its scam reports. Loan fee fraud is when consumers are asked to pay an upfront fee for a loan or credit that they then never receive.

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%) of what would have been under their tree. This Christmas, 25% of people plan to spend more than ‘normal’ years – rising to a third (34%) among those who have faced financial hardship as a result of the coronavirus (Covid-19) pandemic, such as being furloughed or a loss of income, meaning the hit could be even harder.

The FCA is offering its ‘Three Wise Warnings’ to help people protect themselves against scammers this festive season:

  1. Are you being asked to pay a fee upfront?
  2. Are you being pressured to pay quickly?
  3. Are you being asked to pay by an unusual method?

Spot any of these and they are a clear warning sign of a loan fee fraud taking place.

Two-thirds (66%) of people feel confident they could spot a loan scam if approached by a scammer, but more than 1 in 4 (28%) would consider paying a fee first to secure a loan – one of the main warning signs of loan fee fraud. This rises to 54% for 25-34-year-olds, who are most likely to be hit by this type of fraud.

The FCA is warning the financial impacts of coronavirus may also make the amount lost to loan fee fraud even higher this December. The study shows 60% of people who have experienced a job loss, furlough or workload or pay cut due to the pandemic will turn to borrowing (eg credit cards, buy-now-pay-later schemes and loans), to pay for their additional festive spend, meaning they could be more susceptible to loan fraud.

Nearly two-thirds (65%) of people who have faced financial hardship due to the pandemic say falling for a scam at Christmas would be worse than any other time of year, and 64% say being a scam victim in 2020 would be worse than any other year.

Mark Steward, Executive Director of Enforcement and Market Oversight, FCA, said: ‘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.

‘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.”

Before agreeing to a loan, check who you’re dealing with via the FCA Register.

Notes to editors

  1. All figures, unless otherwise stated, are from 3gem, with 2000 nationally representative respondents between 20 November 2020 and 23 November 2020.
  2. On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
  3. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this, it has three operational goals: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system, and to promote effective competition in the interests of consumers.
  4. Find out more about the FCA.

This news item was originally published by the Financial Conduct Authority (FCA UK). For more information, please see the Source Link.

Regulator Information

Regulator Name: Financial Conduct Authority
Abbreviation: FCA
Jurisdiction: United Kingdom

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