Beware 'clone loan' scams, FCA say

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The Financial Conduct Authority (FCA) has issued five warnings about 'clone loan' scams in the past week.

Criminals involved in these scams often contact consumers out of the blue by phone or email and, in some of the cases we've seen this week, even set up payday like loan brokerage sites to lure in and defraud their victims.

SOURCE: Choose.net screenshot from the legitimate site of Start Up loans 19/5/14.

After making contact, they persuade consumers to part with money to set up their loan, using an authorised financial services company's information, like their FCA number, company registration number or even their legitimate website, to assuage any doubts.

Then, with the money in hand, they disappear, leaving the legitimate firms they cloned to field calls from angry victims.

Clone scams on the rise

The FCA warned that clone scams were becoming increasingly prevalent late last year. In October, there were 33 cases reported to the regulator.

However, those cases were of investment fraud, that is, people claiming to be selling shares or other high return products who disappear after receiving a lump sum.

What we're seeing now, loan fraud, is different.

These fraudsters are using the promise of a loan to solicit cash, often from consumers struggling to borrow because they have poor credit.

In a case of this kind of clone loan fraud we saw in January, for example, consumers were asked to pay insurance premiums upfront in order to release their loan.

Consumers may also be asked to pay a brokerage fee for arranging a loan, give money as a 'security deposit' or to make their first payment upfront.

In most cases, after that payment is made the criminals disappear. But even if the loan is provided, borrowers with firms not authorised by the FCA are placing themselves at risk.

They have no recourse to the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS) if anything goes wrong.

Spotting a scam

Because these fraudsters are using a combination of real details and fake information they can be extremely hard to spot.

Criminals might use the name of a real firm, their registered address, an interim permission reference number or Office of Fair Trading licence number (CCL) or even emails which include the names of real people that work for the cloned firm.

Consumers can still catch a clone by double checking their details, however.

The FCA guidance on finding out whether a firm is authorised recommends asking anyone offering a loan for their firm reference number and then cross referencing that with the FCA register, for example.

A firm registered with the FCA will have a listed address as well as a phone number and possibly other contact details like a website or main email address.

Consumers concerned that the company they're dealing with could be a clone, could use these registered contact details to call back, rather than using another number given by a sales rep.

They could also check whether the registry information matches the firm's address or website url.

Most importantly, perhaps, consumers should always be highly suspicious of deals that seem to drop from the sky: few legitimate loan firms find business by cold calling.

Frauds made possible by payday?

Clone scams started in the investments market, where many, often very small or unknown firms, compete to offer products that are appealing despite consumers knowing that they are likely to be high risk.

In payday loans, we now have a similar market.

Consumers looking for alternative loans are used to websites that don't look entirely kosher and even to paying upfront for credit brokers to place them with a lender.

In researching this story, we had trouble telling one cloned credit brokerage firm apart from the criminals using their details. Both sites used looked troubling for potential borrowers.

Last Friday, the FCA raised concerns about credit advertising.

During a sweep of the market, the regulator found 108 adverts that didn't comply with the rules on advertising borrowing.

38 of those misleading adverts were from payday lenders, whose advertising has long been controversial, while another 19 were from other lenders and credit brokers, a category of firms that seems extremely similar to payday from a consumer perspective.

Clone firms are often really hard for the FCA to shut down because they tend to operate from abroad, which means the FCA has to rely on regulators overseas taking action against them.

Yet real FCA registered payday and brokerage firms should be much easier to keep in line.

The failure to clean up the payday and brokerage market has surely contributed to a market in which clone scams can easily flourish.