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How Internet Loan Scams Work

Consumer Alert: Loan Scams

April 12, 2010 - Please note: We will be updating this article in the next few weeks to include updated scams, tactics, and resources. Please bookmark this page and return soon.

The Federal Bureau of Investigations (FBI) has been publishing reports revealing a rise of mortgage and loan frauds for several years now. Fraud is a practice so common nowadays that the Federal Trade Commission (FTC) is always updating the list of scams that everyday find new victims whether online or via phone calls.

Since 2005, people trading in their old cars, but owing money on them, are victimized by supposed dealers offering to obtain a payment figure to pay off their loans towards applying that money to a new car purchase. However, such "dealers" did not pay and people suddenly found that they still owed the money and the new car was just an illusion to take their money and run.

The FTC also published a full report about advance-fee loan scams, which is another popular model to rip-off people. Scammers that often impersonate legitimate lenders that people can associate their names with legit operations to perform this scam.

Advance-fee loans scams are promoted on the Internet, but also through newspapers and magazines in the classified sections, as well as by direct mail, phone calls, radio, and infomercials on cable TV, because the media always states that they have no endorsement or guarantee of the legitimacy of those offers. For more information, visit the FTC website at

The Federal Trade Commission recommends a simple formula to detect and avoid this scam: if they ask you to pay up-front fees for helping your credit, then it is more likely a fraud because legitimate offers do not require such advance payment.

Just starting 2007, a woman in North Carolina sent to a "reputable" company almost $3,000 to obtain a $20,000 loan. Stories like this usually end up among the thousands of complaints that the Federal Trade Commission, the National Association of Attorneys General, the Federal Bureau of Investigations, and the Better Business Bureau receive every year.

Consumer alerts are aimed to create awareness among the general public because they are hurting real estate professionals, lending institutions, and ripping off thousands of victims nationwide.

Homeowners are in the top of preferred victims, because any business related with home or real estate properties involve significant amounts of money, but the small borrower can also be fooled by credit repair offers, or other misleading strategies to drain his or her money.

When it comes to credit repair, the artist of scam will approach the victim offering to erase his or her bad credit, clean up a damaged credit history, or create a new credit identity for the victim, a thing that is not possible.

In September 2006, the Credit Repair Organization Act was passed by Congress and now enforced by the Federal Trade Commission and state attorneys general avoiding legitimate lending companies from taking money from consumers before any loan or credit services are fully performed.