Predatory Lending

Predatory Lending Schemes Affecting Small Business

Anyone can be a victim of predatory lending. The schemes often target the most vulnerable including seniors, borrowers facing foreclosure, and businesses in desperate need of funds. They work because the perpetrators are believable and the victims want and need to believe that help is on the way. Small business is vulnerable because of the need for financing that is not available from banks. The perpetrators promise the money you need then stretch the time by making excuses. Somewhere through the process they receive payment from the victim.

Advance Payment Schemes

In over thirty years of observing financing which required payment of any fees in advance has convinced us that these types of financings are almost always a fraud. There is no reason payment cannot be made from the financing in a honest transaction.

There are at least four reasons these schemes continue to work:

  • There is no other source of financing. You are almost desperate. You want to believe. You need to believe.
  • There is someone in the chain of finders who you know. That person is convinced the person at the top of the chain will perform.
  • There is something exotic about the financing making it hard to debunk. For example, the mythical bank in Europe is wiring funds from Amsterdam, based on a letter of credit drawn on a Philippine bank.
  • You are urged to believe the “expert money broker” rather than your “inexperienced” local attorney or accountant.

There is usually one easy method of exposing the scheme: ask for references that have been financed in a similar manner. You will get objections, excuses, and badgering but no references.

One common mistake predatory lenders make is having poor documentation. Ask for sample forms of the deal. They do not use reputable law firms so the documents will look home-made to your lawyer. Ask to negotiate the deal with their law firm.

Ask to close with a reputable escrow agent. Your front money will be transferred when the loan proceeds are deposited and have cleared. Watch out for a foreign cashiers check that can take several weeks to bounce. Have the right to a refund of your front money from the escrow agent in a short time frame.

If you chase one of these deals, expect the deception to continue for years. The con-criminals will never admit the financing is a fraud.


Advance Fee Loan Scams

Letter from Sandra L. Thompson

Director Division of Supervision and Consumer Protection

Fraudulent loan offers that may claim to be from federally insured financial institutions are being widely distributed by unsolicited e-mail over the Internet.

The Federal Deposit Insurance Corporation (FDIC) is reminding consumers and financial institutions to be aware of advance fee loan scams. The FDIC has observed a significant increase in the number of unsolicited e-mails (“spam”) advertising mortgage refinancing, debt consolidation and elimination, small business loans, and special loan programs for veterans and minorities. While some of these e-mails may advertise legitimate loan programs and lenders, advance fee loan scams are becoming more prevalent.

Advance fee loan scams prey on consumers who may be under financial duress and may be seeking quick and easy loan approval and funding. The scam typically involves the lender making false promises to arrange for a loan in return for fees paid upfront by the loan applicant. Scam artists may even design Web sites and online loan applications giving the appearance that the company is legitimate.

Fraudulent logos and letterhead of legitimate financial institutions or government agencies may also appear on documents that are faxed to the loan applicant. Potential borrowers may be asked to provide information through a Web site or be contacted by phone or e-mail by a “representative” who guarantees loan approval as soon as the borrower pays a required fee. The loan applicant may be told that the fees will be used to pay a third party for loan insurance or application processing, or to make the first month’s loan payment. The loan applicant may also be told to send or wire transfer money to an individual overseas before receiving the loan proceeds.

In some cases, the loan applicant has been falsely directed to a legitimate financial institution with no knowledge of the transaction. In other cases, the loan applicant is told that the loan request was declined and is asked to forward additional money to qualify for a different loan program.

The following are warning signs that may indicate a loan offer is not legitimate:

  • The loan approval is “guaranteed.” Lenders do not typically guarantee loans before analyzing the applicant’s financial condition, credit history and ability to repay.
  • The loan applicant is required to pay upfront fees to a third party or individual. Loan fees are normally paid to a business after the loan has been approved.
  • The lender or loan processor may be located outside of the United States.
  • Fees are requested using a retail wire transfer system. A password is sometimes used by the overseas receiver to pick up the funds in an attempt to hide the true identity of the criminals and make funds more difficult to trace.

Victims of online advance loan fee scams should report the crimes to the Internet Crime Complaint Center at More information about fraudulent advance loan fee scams can be found at

For your reference, FDIC Special Alerts may be accessed from the FDIC’s Web site at To learn how to automatically receive FDIC Special Alerts through e-mail, please visit


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