Action: Loan scam key is your advance fee

Advance fee loans are those that require you to pay a fee or put down a deposit before you apply. The pitch is the guarantee of a loan or some other type of credit in exchange for a processing or application fee, often several hundred dollars or more. What happens, of course, is that the lender takes off with your money and the loan never materializes. (According to the National Consumers League, telemarketing victims of these scams lost an average of $464, and those who pursued offers on the Internet lost an average of $880.

These loans are advertised everywhere, in the classified sections of newspapers and magazines, on television, radio and the Internet, through the mail, by phone and in fliers. Keep in mind that just because an ad appears in a media outlet that you know, this does not mean it's legitimate. In 2000, advance fee loan scams ranked fifth in both telemarketing and Internet frauds reported to the National Consumers League's National Fraud Information Center/Internet Fraud Watch, and they were near the top of the Council of Better Business Bureaus' list of most-asked-about topics.

How can you distinguish an advance fee loan scam from a legitimate preapproved credit offer from banks, credit unions, mortgage brokers and others?

The key is the requirement of an advance fee. Legitimate lenders making a preapproved credit offer require only your verbal or written acceptance. A preapproved offer essentially means that you have been selected to apply. You still have to go through the normal application process and can still be turned down.

Pressure to make an immediate decision or offers that are "good today only" are another clue that you are setting yourself up to become a victim.

The Federal Trade Commission offers these additional tips to avoid being bitten by advance fee loan sharks:

If the offer is made by phone, know that according to the Telemarketing Sales Rule, it is illegal to promise a loan and then ask for money from you upfront. In other words, don't pay for a promise.

Ignore any ad that guarantees a loan in exchange for an advance fee. Likewise, hang up on any caller offering such a loan. Legitimate lenders do not guarantee loans, especially if you have no or bad credit.

Never give your credit card, bank account or Social Security number to someone over the telephone unless you originated the call or are familiar with the caller or company and know why the information is required. By the way, this advice holds true in all cases, not just when a loan is involved.

If you are asked to pay before you have the offer in hand or confirmed in writing, don't do it. It's fraud and against the law.

Advance fee loan scams do not originate only in this country. In November, the Canadian Council of Better Business Bureaus issued an alert that advance fee loan scams originating in Canada were once again blanketing the United States. According to the U.S. Better Business Bureau, the Canadian Council reported receiving more than 20 calls weekly from U.S. consumers who had sent checks and money orders to Canada for loans ranging from $5,000 to $25,000. No loan money was or will be received, and in addition to losing the fees they paid upfront, the consumers were also conned into providing considerable personal information, said Bob Whitelaw, the president of the council.

He added that the Canadian Better Business Bureau, Canadian law enforcement and government agencies had rarely been able to locate the companies in question. Beware of any hesitation by a prospective lender to give a physical location or address.

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Sources: Consumer.gov (http://www.consumer.gov, provides links to a broad range of federal information resources online); Federal Trade Commission (http://www.ftc.gov, (877) 382-4357 (FTC-HELP); Better Business Bureau (http://www.bbb.org); National Consumers League (http://www.nclnet.org).

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