Loan Scams: What You Need to Know

There’s always someone looking to make a quick buck, and last year, fraudsters made nearly $100 million of them off of unsuspecting Canadians through scams. Even worse? Many people don’t report when they’ve been scammed, often because they’re embarrassed that they were duped, so that number is likely significantly greater.

Scams targeting Canadians run the gamut from romance scams, in which scammers create fake online dating profiles and woo others only to eventually ask for money, to tax scams, in which scammers pose as someone from the CRA and claim people owe money and must pay up immediately or go to jail.

So, with March being National Fraud Month in Canada, the Government’s annual campaign that seeks to help you recognize, reject, and report fraud, this seemed like a good time to talk about Canada loan scams – what they are and how to avoid loan scams.

What is a Loan Scam?

Loan scams can be employed by unscrupulous individuals or companies posing as legitimate lenders to take advantage of you and steal your money. While most scammers used to target so-called “easy prey” such as newcomers and seniors, today’s digital world has opened up the doors for them to go after anyone and everyone, and loan scams do just that. After all, there’s a type of loan scam for just about every demographic out there:

• Auto Loan Scams
• Student Loan Scams
• Personal Loan Scams
• Mortgage Loan Scams

So what do these loan scams, which can occur at very different stages of a person’s life, have in common? They usually involve either promises to settle or forgive your debt (for a fee) or offer money (which never comes). Thankfully, the signs of a loan scam, regardless of the type, are all very similar. You can learn how to avoid loan scams by knowing what to look for.

Top 7 Loan Scam Warning Signs

1) No Credit Check or Guaranteed Approval

Sure, it’s possible to get a legitimate loan without a credit check (the interest rate will just be sky-high or collateral will be necessary), but think about it: Any reputable company wants some reassurance that they’ll recoup their money. So, if you’re offered guaranteed money with no credit check, it’s probably wise to take a step back.

2) Urgency or Aggressiveness

These two go hand-in-hand. Scammers often use verbal or written language designed to provoke action, such as Must Act Now, Limited-Time Only, Offer Expires Soon, etc. The hope is that they will ensnare somebody in their scam before they’ve had time to consider what they’re signing or agreeing to. A reputable company, on the other hand, wants people to analyze all their options and feel comfortable doing business with them.

3) Upfront Payment or Unusual Payment Methods

Asking for payment, even if it’s just a “processing fee,” during the loan approval process means you’re dealing with a scammer who does not intend to give you the loan. It is, in fact, illegal to request payment before a contract has been signed. In addition, asking for an unusual form of payment (i.e. wire transfer, Bitcoin, or gift card) is another warning sign, as is asking you to send money directly to an individual.

4) Unsolicited Loan Approvals

Reputable lenders don’t telephone people to congratulate them for being approved for a loan they didn’t initiate, and they don’t need to send unsolicited approval notifications by mail to get business. If you receive a phone call, mail, or email about a loan approval that you didn’t ask for, this should serve as an immediate red flag.

5) Consumer Complaints

The good thing about the internet is that it’s a two-way street. While scammers have easy access to your information online, you also have easy access to theirs. You can use the internet to see if they have a lot of consumer complaints through the BBB’s Scam Tracker or Google Reviews, or to see if they’ve been called out by other reputable publications. Chances are, if they’ve scammed someone in the past, you’ll find out about it through some good old-fashioned detective work.

6) Shady Backgrounds

If a company seems to have little or no history or appears to have just “sprouted up,” there’s a good chance it’s not a new company, but a rebranded company. Many scammers frequently change their names to escape negative reviews and publicity.

You might also raise an eyebrow if they don’t seem to have a physical address, if they’re using a P.O. Box, or if their website doesn’t include a Privacy Policy (this is required by law in Canada; you can usually find a link to it at the bottom of a website along with their copyright information and Terms and Conditions).

Lenders are also required to register their business in each province or territory in which they do business, so if you come across one that isn’t licensed to operate in your area, even if it’s licensed in other areas, ignore their inquiries; there’s a good chance they are fraudulent.

7) Incomplete (or No) Contracts

Scammers are hesitant to provide contracts; when they do, it will likely be full of confusing terminology, blank spaces that they can fill in later, and pre-checked boxes. A reputable company will always walk you through a contract and answer any questions you may have.

Are Any Canada Loan Scams Legal?

How can a scam be legal? Simply put, it can’t be. We bring this up for one reason. While you may hear something referred to as a scam, it could be legitimate but just a bad deal. For example, we often hear people complain about “overdraft fee scams” or “payday loan scams.” Now, don’t get us wrong; overdraft fees and payday loan stipulations can be, and often are, awful; however, they usually operate within the law and are legal.

The scams we are referring to completely ignore the law or find loopholes in order to keep their nose clean (for example, while a loan can’t ask for upfront payment for their services, they can say that the payment is going toward a “free” item or another incentive, thereby skirting the law). That’s why we encourage you to always read the fine print and watch for the obvious scam signs we identified above, and to check out the Government of Canada’s Little Black Book of Scams for more.

How to Report Loan Scams

The bad news: Loan scams are becoming more and more widespread. The good news: It’s become easier than ever to report them. Whether you feel you were scammed via mail or phone, or through an online loan scam, help is available, and you are encouraged to make reports. And, even if you weren’t scammed but felt an attempt was made, you can alert authorities to take down scammers and protect other innocent people from becoming victims of a scam.

To report a scam or a suspected scam, contact the Canadian Anti-Fraud Centre (CAFC). You can also file a complaint with your provincial Consumer Protection agency. If you want something to change, involving your provincial Consumer Protection agency will help. For a full list of provincial and territorial consumer protection agencies across Canada, click here.

Looking for financial help and want to be certain you’re not speaking to a scammer? Contact us at Credit Canada. We are a non-profit credit counselling agency and the winner of the Consumer Choice Award for Credit and Debt Counselling Services. We are accredited by Credit Counselling Canada, have an A+ consumer rating with the Better Business Bureau, and have helped more than 2 million Canadians find financial freedom. Check out our client testimonials and get to know our Credit Counsellors, then give us a call at 1(800) 267-2272 or contact us online today.