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Families are urged to take extra precautions this summer to avoid falling for loan fee fraud, as scammers exploit the rising cost of living to trick households out of hundreds of pounds.
The Financial Conduct Authority said reported cases of loan fee fraud — where scammers steal an upfront fee for a fake loan — had risen by 26 per cent between the summers of 2021 and 2022. It said reports spiked on a seasonal basis, including around Christmas.
In a recent survey by the regulator, one in five parents said they had either taken out a loan or were considering doing so as they looked to finance back-to-school costs and summer activities, including holidays.
“Loan fee fraud is starting to reach people who are more vulnerable than they would have been in the past,” said Emma Stranack, FCA head of consumer engagement. She said the rising cost of living meant families with previously comfortable finances were now falling victim to scams.
Loan fee fraud is one of a number of growing criminal scams targeting consumers.
Social media platforms including Meta-owned Facebook and Instagram have become a key channel for scammers involved in push payment fraud, while Microsoft’s LinkedIn has been a venue for recruitment scams which have seen individuals parted with fake “administration fees”.
The FCA said victims of loan fee fraud typically lost around £260, which is lower than losses for other types of fraud including investment and pension scams. However, Stranack said this type of fraud targeted those unable to afford even small losses.
Most loan fee fraud is initiated over the phone or via email, but the FCA said scammers were growing more sophisticated, targeting those likely to need cash due to pressures on household finances.
“Households across the country continue to be squeezed from all sides this summer, [and] unscrupulous scammers will no doubt use this opportunity to take advantage,” said Kate Hobson, senior consumer expert at charity Citizens Advice.
Hobson said individuals should check online reviews and details, including addresses to ensure loan providers were legitimate.
The FCA added that loan fee scammers often applied pressure on victims in an effort to force through payments and adopted less conventional means, including asking them for shopping vouchers. It said some scammers targeted those who applied for loans unsuccessfully elsewhere.
Individuals seeking a loan can check the FCA’s database to confirm whether a provider is regulated to carry out lending activities.
Unauthorised firms are not covered by the Financial Ombudsman Service or Financial Services Compensation Scheme, meaning there is little recourse if someone falls victim to this type of scam.
Instances of loan fee fraud and other scams can be reported to the regulator by telephoning 0800 111 6768.
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