Loan and Credit Scams: Difference between revisions

Latest revision as of 03:41, 3 May 2017

This page is used in the Scams to Avoid Lesson Module, a law-related ESL lesson for newcomers to Canada.

This information applies to British Columbia, Canada. Last reviewed for legal accuracy by People's Law School in March 2017.

To trick you out of your money, some scams involve offers to loan you money or help you borrow money.

Loan scams

In a loan scam, a company tells you they can "guarantee" you a loan even if you have bad credit or no credit (that is, a poor history of paying back loans and paying bills). All you need to do is pay an upfront fee to "process the loan" or cover "insurance costs".

You send this "advance fee", but they don’t send the promised loan. Instead, they keep your money and send you a letter saying that your loan application has been denied.

This is illegal in BC. It is against the law for a company to charge an advance fee to obtain a loan, even if that fee is described as the first or last month’s payment.

Legitimate lenders never "guarantee" that you will qualify for a loan before a credit check is done. In a credit check, they look at your history of paying bills and repaying loans, which are detailed in a credit report. A legitimate lender would want to review your credit report before approving any loan.

Credit repair scams

The pitch goes something like this:

"Credit problems? You can now wipe your credit report clean of bankruptcies, judgments, foreclosures and lien payments. AND IT’S 100% LEGAL!"

This is a credit repair scam. It promises to help you improve your credit report. The detail in your credit report helps businesses, banks and others decide if you are likely to pay your bills on time. The scam typically urges you to dispute the negative information in your credit report or to set up a new credit identity for yourself.

In fact, there's no legal way to erase accurate negative information from within the last 5 years from your credit report. After 6 years, negative information can be purged from your credit report.

When accurate negative information is challenged, if the credit reporting agency cannot verify the information within a reasonable period of time, the information is removed. But it may be only temporarily. If the information is later verified, it will be placed back in your report.

Preventing problems

Here are ways to reduce the risk of being the victim of a loan or credit scam.

Know who you're dealing with

If you are seeking to borrow money, apply for loans through local banks and credit unions.

Research the company

See what other people are saying about the company. Search online for their name together with the word "reviews" or "complaints". Contact the Better Business Bureau to find out what they know of the company (see the "Where to Get Help" section for contact details).

Seek out help to improve your credit report

If you’ve got a poor credit history, get advice on how to improve your credit score. You can improve your score by improving your track record on managing credit. The Credit Counselling Society helps people learn how to manage their money and debt better. See the "Where to Get Help" section for contact details.

Scams to Avoid © People's Law School is, except for the images, licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International Licence.

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+To trick you out of your money, some scams involve offers to loan you money or help you borrow money.
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-Bogus loan or credit offers are often pitched to people who need extra money. You may see the ads online, in the classified section of the newspaper, or on bulletin boards. Or you may receive a phone call from a telemarketer.
-==<span class="noglossary">Advance</span> fee loan scams==
+==Loan scams==
-You are told you are “guaranteed” or highly likely to get a loan. All you need to do is pay an upfront fee to process the loan.
+In a '''loan scam''', a company tells you they can "guarantee" you a loan even if you have bad '''credit''' or no credit (that is, a poor history of paying back loans and paying bills). All you need to do is pay an upfront fee to "process the loan" or cover "insurance costs".
-===Facts===
+You send this "advance fee", but they don’t send the promised loan. Instead, they keep your money and send you a letter saying that your loan application has been denied.
-* Bogus fee loan companies don’t send the promised loan. Your fee is not refunded. You get a letter saying that your loan application has been denied.
-* Legitimate lenders never “guarantee” that consumers <span class="noglossary">will</span> qualify before a credit check is done.
-===What the law says===
+This is illegal in BC. It is against the law for a company to charge an advance fee to obtain a loan, even if that fee is described as the first or last month’s payment.
-In BC it is against the law for a company to charge an <span class="noglossary">advance</span> fee to obtain a loan, even if that fee is described as the first or last month’s payment.
-===What you can do===
+{{PLSTipsbox
-* Apply for loans through local banks and credit unions. Know who you’re dealing with.
+| text = Legitimate lenders never "guarantee" that you will qualify for a loan before a credit check is done. In a credit check, they look at your history of paying bills and repaying loans, which are detailed in a '''credit report'''. A legitimate lender would want to review your credit report before approving any loan.
-* If you have poor credit, it is unlikely that any legitimate bank or other financial institution <span class="noglossary">will</span> give you a loan. Your credit history is one of the main criteria they use to determine whether you <span class="noglossary">will</span> be able to repay a loan.
+}}
-* If you can’t get a loan yourself, a friend, relative or employer may be willing to apply with you for a loan. Warning: If you co-sign for someone else’s loan, you are equally responsible for the debt. If the other person can’t make payments on time, you can be held liable for the loan and your credit record <span class="noglossary">will</span> be affected.
-* Get free or low-cost help with credit problems. If you’ve got bad credit or no credit, get advice on how to build a good credit record. See the [[Sources of Help for Consumers]] section for places that can help.
-==Bogus credit cards==
+==Credit repair scams==
-Scammers target people who are having credit problems and haven’t been able to get credit cards elsewhere. They <span class="noglossary">claim</span> “guaranteed approval” for a credit card, regardless of your credit rating. They want you to pay an upfront “processing fee” to get the credit card.
+The pitch goes something like this:
-===Facts===
+::''"Credit problems? You can now wipe your credit report clean of bankruptcies, judgments, foreclosures and lien payments. AND IT’S 100% LEGAL!"''
-* Few victims ever receive credit cards. Those who do get a card discover that there are additional processing and annual fees.
-* In some cases, all you get is a list of banks you can then send an application to.
-* In other cases, consumers who gave out their chequing <span class="noglossary">account</span> numbers found money had been debited from their <span class="noglossary">account</span> without their permission.
-* In offers that claimed that the card would be issued by an "offshore" bank, the credit card never showed up and the bank didn't exist.
-===What the law says===
+This is a '''credit repair scam'''. It promises to help you improve your credit report. The detail in your credit report helps businesses, banks and others decide if you are likely to pay your bills on time. The scam typically urges you to dispute the negative information in your credit report or to set up a new credit identity for yourself.
-It is illegal to make false or misleading statements about providing credit cards. Any company that promises approval and charges a fee is breaking the law.
-===What you can do===
+In fact, there's no legal way to erase accurate negative information from within the last 5 years from your credit report. After 6 years, negative information can be purged from your credit report.
-* If someone offers you a credit card regardless of your credit history, be wary. It’s probably a scam.
-* Don’t give out your bank <span class="noglossary">account</span> number to anyone unless you intend to have money withdrawn from your <span class="noglossary">account</span>.
-* Ask for written information about a credit card or any other offer to be mailed to you.
-* If the seller insists that you have to apply immediately, do not apply. A legitimate financial institution <span class="noglossary">will</span> be just as happy to consider your application tomorrow.
-==Wipe your credit report clean==
-The pitch goes something like this:
-<blockquote>''Credit problems? You can now wipe your credit report clean of bankruptcies, judgments, foreclosures and lien payments. AND IT’S 100% LEGAL!''</blockquote>
+When accurate negative information is challenged, if the credit reporting agency cannot verify the information within a reasonable period of time, the information is removed. But it may be only temporarily. If the information is later verified, it will be placed back in your report.
-Usually the scam urges you to dispute the accurate negative information on your credit report or to set up a new credit identity for yourself.
+==Preventing problems==
+Here are ways to reduce the risk of being the victim of a loan or credit scam.
-===Facts===
+=== Know who you're dealing with===
-* There’s no legal way to erase accurate negative information from your credit record.
+If you are seeking to borrow money, apply for loans through local banks and credit unions.
-* Legitimate financial institutions don’t issue credit cards without first checking your credit. Ignore these offers.
-===What you can do===
+===Research the company===
-Report suspected frauds to the Better Business Bureau and the Canadian Anti-Fraud Centre (CAFC). See the [[Sources of Help for Consumers]] section for <span class="noglossary">contact</span> details.
+See what other people are saying about the company. Search online for their name together with the word "reviews" or "complaints". Contact the Better Business Bureau to find out what they know of the company (see the "[[Where to Get Help for Scams to Avoid|Where to Get Help]]" section for contact details).
+===Seek out help to improve your credit report===
+If you’ve got a poor credit history, get advice on how to improve your '''credit score'''. You can improve your score by improving your track record on managing credit. The Credit Counselling Society helps people learn how to manage their money and debt better. See the "[[Where to Get Help for Scams to Avoid|Where to Get Help]]" section for contact details.
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