The Financial Conduct Authority has warned about the growing threat of loan fee scams targeting borrowers.
Last year more than £3.5m was lost to loan fee fraud and reports to the FCA's consumer helpline increased by 44 per cent.
In 2017 there were more than 4,700 reports of loan fee scams made to Action Fraud and it has now overtaken investment fraud as the most common scam reported to the regulator.
Victims of loan fee fraud are often targeted while searching for loans online and are then contacted by fraudsters offering a loan.
The scammer tells the victim they have to pay an upfront fee for the loan, which they ultimately never receive.
Once the first payment is made victims are often persuaded to make multiple payments – last year the average loss was £740.
Mark Steward, executive director of enforcement and market oversight at the FCA, said: "We are seeing an increasing number of cases of loan fee fraud reported to us. Fraudsters target people making online loan applications and who think they’re being contacted by a legitimate loan provider, when they are not at all.
"Scammers take advantage of the excitement people feel when they are offered or accepted for a loan and make the loan conditional of an upfront fee, which can increase to hundreds of pounds. Of course, no loan ever materialises."
He said consumers should always check who they were dealing with before applying for a loan, be sceptical and make sure the loan provider is authorised by the FCA.
The FCA said there were legitimate loan brokers who charge fees before providing their services and were authorised by the FCA but being asked to pay a fee before receiving a loan can be a warning sign of this type of scam.
damian.fantato@ft.com
