A growing army of internet scammers have been targeting the secured loan industry, costing firms money and causing irreparable damage.

Would-be borrowers turning to the internet to enquire about obtaining a loan are playing right into the hands of fraudsters, some of whom are buying data and impersonating loan companies in a bid to secure an upfront fee from customers.

So what can you do if you are their next target and how can the industry protect itself against fraudsters?

Buyer Beware

According to Action Fraud – the UK’s national reporting centre for fraud and internet crime – there were 599 cases of loan fraud reported against firms in March 2014 with 8,255 cases in the twelve months prior to March, costing each victim around £655.20.

One such fraud is advance fee fraud; where a person will typically reply to an advert for a fast loan and will have their application approved regardless of their credit history. Before they receive the loan, they are told they must pay an upfront fee to cover insurance for the loan.

Once this fee is paid, the victim does not hear from the company again and the loan is never received.

Another scam Action Fraud is warning firms about is loan repayment fraud where fraudsters use a company name that is similar to an existing loan company. They send out letters claiming the recipient has missed a repayment deadline and now owes their original debt plus a ‘penalty charge’ of more money.

The victim pays the ‘debt’ to the fraudsters, to find out later that they still owe the full amount to their outstanding loan company.

Infecting the Industry

In May the Financial Conduct Authority issued a warning to consumers about dealing with a secured loan brokerage calling itself ‘Loan.co.uk Limited Group’ which was acting as a clone of ‘Loan.co.uk Limited.’

The FCA says fraudsters are using the details of firms registered to carry out consumer credit activities to try to convince people that they work for a genuine, registered firm.

Aaron Noone, head of operations at Loan.co.uk, says the fraudsters he encountered were some of the most offensive people he has ever come across.

The company first suspected something was wrong when it started to receive calls from members of the public saying they had made their first loan instalment but hadn’t received the loan.

“We were clueless as we don’t charge an upfront fee so we asked them to send in copies of their credit agreement,” he says. “If anyone had looked at the contracts closely they would have seen it was a scam but as long as there are gullible people out there, there will be people that take advantage.”

He says the giveaway signs on the contracts were things such as poor English and bad grammar.

Noone suspects that the fraudsters were operating out of offices based in Pakistan, yet when they called unsuspecting victims the dialling codes 0161, 01702 and 0114 appeared, which fooled customers into thinking they were being contacted by the firm’s real offices in Manchester. The cloned company was also using the similar but spurious email address [email protected].
He suspects that unscrupulous financial data sellers are supplying potential customers’ information to the fraudsters.

“I personally took it as a challenge to take on these people,” says Noone. I’ve had phone calls with them and they are possibly the most offensive people I ever spoken to: they would swear at me, make racist remarks and talk about what they wanted to do to my mother. I mean just vile, awful people.”

They even phoned the business and asked it to take down the scam warning it had put up on its own website because it was “affecting their business.”

Noone says: “Since last year I must have spent over four weeks solid challenging them and getting our name out there on the consumer forums because at one point I think we were their number one target.”

He says the fraudsters would also call the firm pretending to be customers so they could understand more about its processes and replicate them.

Brokerage Smart Money has also been a target of the scammers. A firm purporting to be ‘Smart Money Loans’ was asking people for money up-front for unsecured loans (which the firm does not offer) and getting them to transfer it via the Post Office of Western Union.

Paul Crewe, director at Smart Money, says the firm was first alerted to the scam after numerous calls from the public.

“We started to receive a high number of calls from people looking for refunds of their ‘membership fees’ that had been taken from their current accounts – we received around 300 calls in the first two weeks,” he says.

Sometimes the fraudsters are more blatant when it comes to cloning a company. Earlier this year Brightstar Financial discovered that its online identity had been hijacked by a firm calling itself ‘Goldenstar Financial Home’. It had switched the word ‘Bright’ with the word ‘Golden’ on the company’s logo, its employee profiles and every other aspect of the website.

Rob Jupp, chief executive officer of Brightstar Financial, says: “We were first alerted to the website by a broker who had requested a call back from us and decided to search our company online, it was then that he came across Goldenstar – it was duplication on a whole new level.

“We immediately tried to make contact with the company but the phone number and email address that appeared on the site did not work.”

It warned brokers and lenders about the site and reported it to the police and national fraud agency.

One explanation for the cloned site could be that the fraudsters were hoping to uncover potential applicants’ personal details.

Jupp says: “They may have been using our site as a pure content portal and to direct traffic elsewhere as they stood to gain something from it in terms of our traffic and trusted rating.

“Or they may have hoped our website linked through to a Content Management System or customers’ financial information that they could have accessed.”

How to Protect Yourself

Crewe advises any broker or lender who finds themselves a victim of the scammers to ensure that a policy is in place to deal with complaints.

He says: “Make the FCA aware of the issue and ensure all complaints are handled in line with company procedures. We also had to track down a company with a similar name to Smart Money to make sure it had procedures in place to stop the scam continuing.”

Noone says the worst thing a broker targeted by fraudsters can do is ignore the problem.

“Some brokers will say it isn’t anything to do with them but they need to be proactive,” he says.

“At one point we were getting about four enquiries a day from members of the pubic who had been a victim of this. Since we proactively targeted it, it has gone down to around one every three weeks.”
Noone has calculated that those applying for the loans have lost just under £1m through the scam with some people paying up to £5,000 in upfront fees.

But he says he cannot calculate the damage it has done to the brand.

“For a good few days I went on numerous websites and forums warning people about the scam. If someone were to go on the internet and search for our company a scam warning would appear and if they then didn’t click in and read the full details, they may have just gone elsewhere,” he says.

“We agreed with the FCA to put a warning on its website and that seems to have worked quite well. I would suggest firms make it quite clear on their website that they have been a victim of a scam with a warning that stands out. It is about protecting the needs of the ‘customer’ as well as the company.”

The company received around 40 letters from the Financial Ombudsman Service and had people showing up in person at their offices to complain. He says these were often people with bad credit histories, who under normal circumstances would not have been granted a loan

Application Fraud

It is not just scams from other companies that secured loan firms need to be vigilant for, but also applications coming in from potential customers.

According to CIFAS – the UK’s fraud prevention service – there was a 55% increase in loan fraud in 2013 and the trend is continuing in 2014 – although the numbers are relatively small. In Q1 of 2014, there were 28 cases of secured loan application fraud reported, compared to just 6 in Q1 of 2013.

Application fraud relates to applications with material falsehoods (lies) or false supporting documentation (where the name provided has not been identified as false).

There has also been an increase in identity fraud, where the identity of the victim is stolen or an entirely fictional identity is created.

In its Fraudscape report, CIFAS attributes the growth in loan fraud to the raised profile of the sector, due in part to the payday lending industry.

Its report  says: “The recent emergence of the payday lender – a sector that has, within a couple of years, gone from marginal to near ubiquitous – has reshaped the perception society has of how to obtain funds.

“Irrespective of how a person feels about the industry, or whether an individual would ever use such a facility, payday lenders have quickly become known as a speedy and convenient way to obtain money with relative ease.

“The very convenience that is an attractive selling point has, of course, proved extremely tempting to the fraudster. The knock-on effect is that the profile of the entire loans sector (encompassing banks, and other secured and unsecured credit providers) comes into sharper focus.

“It could be concluded, therefore, that the rapid emergence of payday lending has made the loans sector an inevitable target for the fraudster.”

Tim Wheeldon, joint managing director at Fluent Money, says a common attempted fraud in the secured loan industry is that of a borrower trying to secure a loan on a property they share with someone without getting the other owner’s permission.

But he says it also comes across scenarios where they will phone somebody who has applied for a loan only for them to deny all knowledge of it.

He says: “Whether it is somebody else applying in their name or they did apply and didn’t realise they had, we don’t know. We get people saying to us ‘how did you get my mobile number’?

“It could have been a genuine mistake or it could be somebody using their mobile number to try and get a loan.”

Robert Sinclair, chief executive of the Association of Finance Brokers, says all firms have a duty to carry out thorough identity checks on all applicants.

He says: “I know a lot secured loan firms operate on a remote basis but I see no reason why they shouldn’t carry out a reasonable identification check on customers and have them send in the necessary documents.”

He advises firms to also ask customers to see a copy of their credit bureau report to clarify what they have told them about their past credit history.

Scammers and fraudsters are nothing new to the secured loan market but as the sector’s profile increases and business volumes rise, there will be opportunists waiting in the wings to take advantage.

Firms in the secured loan market are somewhat distracted at the moment with the new regulator, and scammers will see this as an opportunity to strike. Now is the time for firms to train their staff to be on guard against anything suspicious as the scammers could be just around the corner.