Watch Out for the Advance Fee Loan Danger Zone

Among the abusive lending practices in telemarketing and on the Internet, the worse is the advance fee loan scam. The crooks who commit this fraud not only don't deliver what they promise, but they take the consumer's last dime.

Victims are "guaranteed" personal or business loans, even if they have no credit history or bad credit. They're asked to pay a fee upfront, usually $300-$400 but sometimes much more, for "processing," or a deposit. In some cases, the company strings victims along, even going as far as sending them letters referring them to another company which demands more money. But most victims never hear anything; in any case, the loans never materialize.

In 2000, advance fee loan scams ranked #5 in both the top ten telemarketing and Internet frauds reported to the National Consumers League's National Fraud Information Center/Internet Fraud Watch, a hotline for consumers to get advice and report telemarketing and Internet fraud. Telemarketing fraud victims of these scams lost an average of $464; Internet victims lost even more, an average of $880. The pitches are made by phone, by mail, in print advertisements that provide a number to call (the most common way that telemarketing victims of the scam are solicited), by email, and by people in newsgroups on the Internet (surprisingly, this is the most common way that Internet fraud victims of the scam are solicited).

Younger people are disproportionately victimized by advance fee loan scams. While 22 percent of the people who reported Internet fraud to NCL last year were under the age of 30, that age group represented 32 percent of the advance fee loan complaints. In telemarketing fraud, 14 percent of all complainants in 2000 were under 30, but 33 percent of the advance fee loan victims were in that age group. Many young people don't understand how credit works and haven't have established credit records yet, making them vulnerable prey to loan cons.

One woman who recently made a complaint to NCL said she thought the loan offer was her salvation because she was about to be evicted unless she could pay the back rent. Now she had lost what little money she could scrape up and her apartment. Often the victims borrow the fees from friends or relatives, compounding the problem.

• Don't believe promises you'll get a loan even if you have no credit or bad credit;

• It's against the law for telemarketers who guaranty or imply that there is a strong chance of getting a loan to ask for payment in advance;

• While there is no similar law for loan offers on the Internet, no legitimate lenders, online or offline, will guarantee a loan before you've even applied;

• Mortgage lenders may ask for payment for a credit report or appraisal, but legitimate lenders won't ask you to pay anything upfront for personal or business loans;

• If you're having money trouble get advice free or at a very low fee from your local nonprofit Consumer Credit Counseling Service.