Festive shoppers at rising risk of loan fee scams

FCA research showed with the rising cost of living impacting consumers’ finances, consumers may be more susceptible to loan fee fraud over the festive period.

The research revealed the impact of pressure tactics loan scammers employ as 64 per cent of consumers feel time pressure leads to poorer and riskier choices.

Time pressure at Christmas already leads to regrets from consumers. Forty-one per cent of Christmas shoppers regret last-minute purchases.

The FCA is urging consumers to check the FCA’s register if they are asked to provide an upfront payment for a loan, which is often a sign of a scam.

With the incidence of loan fee fraud — where a consumer pays a fee for a loan they never receive — already rising, the FCA’s latest research highlighted a heightened risk to vulnerable consumers of being pressured into falling for this scam at Christmas.

The FCA typically receives an increase in reports of loan fee fraud over the festive period. It has already risen in frequency in the last year (November 2021 to October 2022), with the number of cases reported rising by 21 per cent compared to the previous year.

This Christmas, consumers are under even more financial pressure than usual, which is likely to leave people more vulnerable to fraudsters’ tactics.

Two in five of those celebrating the festive period feel pressured by family and friends to maintain their usual Christmas spending this year; a third of these are worried about how they will afford it amid the cost-of-living crisis. More than one in eight said they plan to take out a loan this year to support their Christmas spending, making them susceptible to loan fee fraud.

Fraudsters seek to pile on time pressure at Christmas

One frequently used tactic by loan fee fraudsters is to pressurise consumers, seeking fast payment for a non-existent loan.

Making decisions under time pressure is all too familiar to last-minute Christmas shoppers as are the consequences. While 87 per cent of Christmas shoppers undertake last-minute purchases, 41 per cent have bought a last-minute present they regret. Time-limited offers are also highly effective.

Nearly half of Christmas shoppers would be more likely to buy a present with a limited-time offer, with 32 per cent likely to place a deposit to secure the present. Despite the effectiveness of these offers, two-thirds (64 per cent) of consumers acknowledge that time pressure leads to making poorer decisions and taking riskier choices, typically reducing the time spent researching choices.

The average loan fee fraud costs consumers £260, more than half the total amount people expect to spend on Christmas presents this year (£444).

With nearly two-thirds of consumers unaware of what loan fee fraud is (64 per cent) and just one in five (22 per cent) able to identify all its warning signs, the FCA is launching its latest campaign to arm consumers with the knowledge and tools they need to avoid loan fee fraud this Christmas.

The FCA is calling on those who are contacted about a loan or asked for an upfront payment to be vigilant and check the loan fee fraud information on our website along with the FCA Register before accepting.

The most commonly used tactics of loan fee fraud to be aware of include:

• Having made several loan applications online, you are then contacted out of the blue by text, email, or phone and offered a loan
• Being asked to make an upfront payment into a bank account or transfer money via an unusual method
• Scammers may claim that the fee is refundable and will be used as a deposit, administrative fee, insurance, or because of bad credit history
• You may be put under pressure to pay the fee quickly
• Once the first payment has been made, the scammer might contact you again to ask for more payments before they can give you the loan
• Even though you make the payments, you never receive the loan