Consumer Protection
en Español

How to Protect Yourself: Advance Fee Loans
Source: The Florida Attorney General's Office

Generally, consumers seek loans from banks, credit unions and other financial institutions. However, if you have bad credit or credit problems, it is unlikely that these institutions will qualify you for a loan. Many companies will advertise they can guarantee their ability to get loans for people with credit problems, but will require advance fees. These loan brokers may seem like a good alternative source of funds, but consumes should be aware that many of these companies are nothing more than scams.

If you are deciding whether to apply for a loan with an advance fee loan broker, please consider the following:

There are no guarantees in the legitimate loan industry.
Legitimate credit grantors will not guarantee that you will qualify for a loan, but illicit advance fee loan companies will either promise or strongly suggest that the loan will be provided in exchange for an up-front fee. Banks and other financial institutions simply will not risk qualifying you for a loan without extensively researching your credit history and likelihood of being able to repay the debt. You should be wary of any loan broker who tells you that the lender can make such a decision by reviewing information you provide over the phone, or that the lender can decide whether you qualify within hours of receiving your faxed credit history.

Question what the fee is for.
When it comes to qualifying for a loan, requiring the consumer to pay a fee before he or she knows he or she will get the loan is an industry-wide practice. Legitimate companies typically charge a fee to process your application and apply the fee to cover the costs of researching your credit worthiness. Advance fee loan schemes claim that payment of the fee will "lock you into the loan" so that you will not lose out to others competing for loans. Such hard sell tactics should be a red flag from doing any further business with the loan broker, especially if the company encourages you to send the money that day and is willing to pay for an overnight mail company pick-up at your home or office.

In Many states these businesses are illegal.
Over the past few years, many states have enacted legislation prohibiting loan brokers from charging an advance fee. In Florida, assessing or collecting such a fee is a felony. There are some businesses such as banks and credit unions which are exempt from this prohibition. In Florida, contact the Office of Financial Regulation to determine if the company you are dealing with is acting legally. In other states, you may want to contact consumer agencies such as the Attorney General's Office and local consumer agencies in the county where the company is located to determine if there are complaints or legal actions pending against the company. Do not rely solely on Chambers of Commerce or other business associations where membership is the based on payment of a fee.