Bogus advance fee loans set consumers back

Predatory and illegal advance fee loans continue to victimize consumers across the country, leaving those on shaky financial footing in worse shape than ever.

These offers, which often are found online, target consumers and companies who are struggling with debt and poor credit. The Better Business Bureau of Minnesota and North Dakota reminds people that anytime you're told you have to pay money upfront to receive a loan, it's a good time to hit the brakes. Experience has shown that individuals who pay these upfront fees never receive their loans.

Each year, anywhere between six to a dozen bogus advance fee loan websites pop up claiming addresses in Minnesota or North Dakota. The latest fraudulent entity to pop up on radar is Northwestern Financial, which purports to be located in downtown Minneapolis and has been given an "F" rating. The BBB has received three complaints against the company, all alleging the company sought advance fees in exchange for a promised loan.

"These 'offers' are among the cruelest out there," said Dana Badgerow, president and CEO of the BBB of Minnesota and North Dakota. "They give the appearance of being lifeboats, but are actually anchors and they pull a lot of people who are just barely keeping their heads above water down with them."

Based on information the BBB has gathered, it appears many people who are victimized by advance fee loan offers draw the attention of scammers by first looking into payday loans online.


Consumers submit detailed personal information on various payday loan websites and then either choose to think about it further before seeking a loan or ultimately decide against it. What happens in some cases is that the information they submitted is sold to other companies which then reach out to these individuals via phone or email saying they are eligible for a loan--regardless of their credit history.

After filling out all the necessary paperwork, people are then asked to pay upfront fees ranging from a few hundred to a few thousand dollars. The fee is either paid by wire transfer, often to locations in Canada, or debited directly out of the consumer's checking account. Green Dot MoneyPaks also may be used. Generally, once the requested fees are paid the companies making the offers cease contact or change their phone number, leaving consumers without a loan or the funds they sent away.

Legitimate lenders can and do charge application, appraisal or credit report fees. The difference between them and fraudulent advance fee loan operations is that they disclose their fees clearly and prominently; they take their fees from the amount you borrow (meaning you pay nothing out of pocket); and the fees usually are paid to the lender or broker after the loan is approved.

If you're asked to pay a fee upfront or wire funds to receive your loan, the offer is not legitimate. According to the Federal Trade Commission, it's illegal for companies doing business by phone in the U.S. to promise you a loan and ask you to pay for it before they deliver.

Be careful about how much information you provide online and watch out for lenders who say they won't check your credit history but request sensitive personal information. They might use that information to steal your identity.

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