It just seems to be the way of the world that whenever there is any kind of crisis, most people are coming together and displaying their best qualities. But there are always those few bad apples who spoil things. The lending sector during the 2020 pandemic has not escaped this unfortunate fallout. In this article from Accountancy Daily, it is reported that the FCA has flagged an 85% increase in lending scams in the three months since the coronavirus crisis began.
The increased numbers of fraudulent or unregulated lenders being identified by the FCA suggest they are stepping up their targeting of borrowers who are struggling with unemployment or with incomes cut by furloughing. It is likely that fraudsters suspect consumers may be even more susceptible to scams at present, due to having limited traditional borrowing options available to them.
Job cuts, furloughing and even the reduced amount of work in the informal economy have increased demand for short term finance as borrowers seek additional money to tide themselves through the lockdown. Reduced risk appetite among regulated lenders during the crisis may also be creating more of an opportunity for unregulated lenders.
Richard Barnwell, partner at BDO said: ‘With the number of scams rising significantly during the lockdown, it would suggest that opportunistic fraudsters are using the coronavirus crisis as a chance to target this part of the consumer finance market.
‘This is going to be an exceedingly difficult time for many consumers as their income levels may be significantly reduced. It is important that individuals who are looking to use a sub-prime lender or debt management company, opt for one regulated by the FCA and check their details against the FCA website.’
‘Unfortunately, technology makes it extremely easy for fraudsters to set up websites and call centers which, to the casual observer, appear to be legitimate. It’s easy to see how consumers might be duped.’
Barnwell added: ‘The FCA is doing its best to clamp down on this problem by actively naming and shaming scammers but shutting down overseas operators is never easy.
MoneyThumb has many legitimate lenders who use our PDF financial file converters specifically designed for their use, making lending decisions more informed and quicker. The Rules of Thumb blog doesn't want to alarm our readers with this post about lending scams, we just want you to be advised. This is simply the time to be much more aware and cautious when searching for a lender. In this previous post, we have laid out tips for finding legitimate lenders.
Below are those tips:
- Lenders are legally required to make sure you can afford repayments before you take out a loan. That’s why legit lenders ask about your income, and monthly expenses when you apply. If a lender doesn’t ask you for any of that information, it probably isn’t legit.
- Better Business Bureau accreditation. The Better Business Bureau (BBB) is more than a century-old nonprofit organization that helps identify a trustworthy business. Different short-term lenders across the country have BBB accreditation, and dealing with these businesses provides extra peace of mind.
- Contact details. Take some time to find a lender’s contact details. If a lender provides no more than a contact form or an email address, see how responsive it is before you apply. A legitimate short-term lender shouldn’t shy away from providing a physical address, phone support, or live chat.
- Fees and charges. Direct lenders of legit short-term loans are legally required to be upfront about the fees and charges you have to pay during the loan term, and they adhere to all given maximum limits. The loan contract should clearly set out all applicable fees and charges.
- Abides by state regulations. With legit payday loans, you don’t have to worry about lenders charging you more than the maximum limits set by the state. Check the regulations in your state to make sure your lender is operating legally.
- Use the money for any reason. Legit short-term lenders don’t place any stipulations on how you can use loan funds as long as you’re using the money for a legal reason. If your lender tries to dictate how you can use your loan funds, it might not be legit.
- It doesn’t require money upfront. One of the biggest red flags when researching a lender is if it requests money upfront. Origination fees are paid out of your loan amount, and you shouldn’t have to pay anything before you borrow.
As we said at the beginning of this blog post, there will unfortunately always be a few bad apples and opportunists when things get shaky, but we believe the majority of people are good and honest. It is simply a time to be more cautious, in searching for a loan and in any other business dealings.
We would certainly appreciate it if you would share this post on your social media page so that your friends and family can be made aware of this situation.