FCA Cautions Holiday Shoppers Against Rise in Loan Fee Scams

online fraud

The U.K.’s financial regulator has warned consumers to be wary of Christmas scams.

With inflation in the double figures, many in the country are turning to credit options to help fund their Christmas shopping, and fraudsters are taking advantage of the seasonal upsurge in borrowing to scam unsuspecting consumers.

Loan fee fraud involves consumers paying fees for loans they never receive. And as recent research from the Financial Conduct Authority (FCA) shows, this year the volume of scams has risen.

At the beginning of the festive shopping period, the FCA had already witnessed a 21% increase in the number of cases being reported in the year to November. And the volume of complaints is likely to have risen since then as loan fee fraud typically peaks during this time of year.

The seasonal uptick in this particular type of fraud is so prominent that last year, the FCA launched the country’s first official anti-fraud jingle on Apple Music and Spotify, “designed to be a lighthearted, engaging way to spread awareness of loan fee fraud advice to consumers this Christmas,” the watchdog said at the time.

What is most concerning about loan fee fraud is that victims are often society’s most vulnerable.

As the FCA has warned, scammers tend to target people with poor credit ratings, using this to justify the upfront fee to those who may not have other credit lines available and are struggling to make ends meet during the holidays.

Moreover, the financial fallout of loan fee fraud can cripple consumers’ holiday budgets. The FCA reports that the average loan fee scam rips victims off to the value of 260 pounds ($315.5), over half the average 444 pounds ($538.8) people expect to spend on Christmas gifts this year.

Commenting on the heightened fraud risk during the holiday season, FCA Executive Director of Enforcement and Market Oversight Mark Steward said, “those who have been hardest hit by the rising cost of living will understandably be anxious about meeting the additional expenses that Christmas brings. Some consumers may be tempted to take out loans to meet these extra costs.”

He cautions, however, that “at a time of heightened stress and pressure, scammers and illegal lenders will rush consumers into bad-decision making. Be aware of red flags — such as being asked for a fee or being asked to pay in an unusual way. And if you are considering taking out a loan, please pause and check the FCA’s Register to make sure you are dealing with a legitimate lender.”

Steward’s advice echoes similar comments made to PYMNTS by Abigail Bishop, head of scam prevention at Amazon, discussing eCommerce fraud. “Any communication, whether text messages or email or phone call, that you’re feeling this sense of false urgency, you need to stop and think about it,” she said.

See more: Amazon Scam Prevention Cautions Consumers About False Urgency, Bogus Postcards

Consumers Warned to be Vigilant Against Email Scams

Besides loan fee fraud, there are other ways criminals are taking advantage of unwitting consumers around the holidays.

One of the very first computer worms, known as the Christmas Tree EXEC, caused havoc in computer systems as far back as December 1987 after it spread into IBM’s VNet email network.

And while the damage caused by the Christmas Tree worm was limited to paralyzing early computer systems, in the years since, the concept of using seemingly innocuous emails to launch attacks has been widely adopted by fraudsters.

Among the “12 scams of Christmas” that HSBC warned its customers to look out for last week (Dec. 16), fake emails were top of the list. For example, delivery scams entail convincing consumers that they have missed a delivery and typically contain a link to a fake website asking them to pay import duties or redelivery fees.

Related: EU Cracks Down on Phone Number Masking to Protect Consumers

And with many Brits turning to eCommerce to source their Christmas gifts, the bank is warning people to be extra vigilant and to never click on links or input their details on scam websites.

Ultimately, many Christmas scams simply put a seasonal twist on techniques fraudsters use all year round.

In its summary of its activity in 2022 published on Wednesday (Dec. 21), the FCA said it has issued over 1,800 warnings about potential scam firms so far in 2022, 400 more than the previous year. Meanwhile, it said that the FCA consumer hub has prevented 7 million pounds ($8.48 million) from being lost to fraudsters.

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