One of the consumer scams that is most well-known and most hated by fraud experts is the Advance Fee Loan scam. The scam is exactly what it sounds like: You want a loan, and someone offers you a loan but asks for a hefty fee prior to giving you the loan. And we're not talking a small application fee that a bank sometimes requires. We're talking about significant money up front before you ever see a dime. And the "loan" never happens.
One WalletPop reader has been taken for $39,000 with this type of scam. Here's her story with her name changed to protect her identity...
In late 2007, Angie began looking for funding for her small family-owned business. She was in financial trouble and was striking out with banks. She started looking for funding in the private sector, and her research brought her to Global Funding Network.
Angie began the process of applying for a loan with GFN, via their "gatekeeper" International Business Consulting. The gatekeeper is the supposed middleman who helps arrange the financing for a fee. Angie thought she received approval for a loan, as she was asked to pay a $25,000 "retainer" quickly, so as not to risk losing her financing.
Documents from the company make this fee sound legitimate by saying it is "...100% deducted from placement fees at closing" and that is their standard fee for any loan they make between $500,000 and $25 million. A "term sheet" was also provided by the company, making it appear as though financing has been secured. Angie was suspicious of the fee, but was assured by company personnel that it was standard and was used to ensure that only legitimate and viable projects came to them for financing. After wiring a total of $25,000 to the company, Angie submitted a business plan and other required documentation.
Shortly thereafter, she thought she was still on track to receive a loan, but was asked to submit another $15,000 fee, this time to a company called Joint Capital Assistance. Angie wanted to go forward with the financing she thought was secured on her behalf, and paid $14,000 of this second fee. Of course, no funding was ever really secured for Angie.
She began looking for information on the companies involved in this scheme, and was told that Global Funding Network and International Business Consulting are "known fee scammers." An industry expert advised Angie that these advance fees are not legitimate, and only a small application fee is usually requested from a legitimate lender. Also, companies that say they are "intermediaries" who arrange things between the actual lender and the consumer, are often scams.
A complaint related to this scam was posted at Rip-off Report, with a number of messages that appear to be from the men involved with Angie's situation. International Business Consulting denies any wrongdoing, and says the paperwork was clear from the beginning, stating that the $25,000 was paid as a fee for them introducing her to lenders. (Several other complaints involving International Business Consulting were also found.)
While this may be true, there is no denying that the paperwork and emails were misleading. They clearly stated that Angie had to act quickly or lose the financing they had secured for her. One email stated: "GFN and its gatekeeping-underwriting services did exactly what you asked and got exactly the type of financing that you need. And it has been a few days and we have not heard from you. You [sic] funding expires when your bank closes Friday."
After further information was presented, it appears that GFN is not a fee scammer. The company is out of business after severing all ties with International Business Consulting. The principal of GFN has continued to search for funding for clients even though he has not received any money for his services and is not obligated to do so.
This case offers several warning signs that consumers should be on the lookout for:
- As mentioned to Angie by industry experts, the large upfront fee is suspicious.
- Emails urged Angie to contact them by phone rather than email. Were they trying to minimize the paper trail?
- Angie was pressured to submit the fees or risk losing the funding. High pressure tactics are always suspicious.
- Multiple complaints about these companies should be carefully considered
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.