As Christmas approaches, the FCA has issued an urgent warning to consumers on fraudulent activity that is prominent during the holiday period. Utilising data from December 2019, the regulator found “loan fee fraud” was the third most reported scam, with it often being used by fraudsters to attempt to steal from consumer’s gift spending budgets.
It is estimated that loan fee fraud made up 1 in 8 (12%) of scams in December 2019. This type of fraud involves consumers being asked to pay an upfront fee for a loan or credit deal that they 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.
According to the FCA, this type of fraud could hit consumers even harder this year. It’s estimated that this Christmas, 25% of people plan to spend more than ‘normal years’ – rising to a third (34%) among those who have faced financial hardship due to the pandemic, such as being furloughed or a loss of income.
How to protect yourself
So how can you protect yourself from this type of fraud? To help protect consumers over the holiday period, the FCA has issued its ‘Three Wise Warnings’. Before taking any action, spenders should ask themselves the following questions:
- Are you being asked to pay a fee upfront?
- Are you being pressured to pay quickly?
- 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.
Interestingly, even though two-thirds (66%) of people feel confident they could spot a loan scam if approached by a scammer, 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. Worryingly, this rises to 54 percent for 25-34 year olds, who are most likely to be hit by this type of fraud.
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, be sure to check who you’re dealing with using the FCA Register.