Here’s a pro tip: If a lender is charging an advance fee for a loan then they are breaking the law.
If you pay that fee, then you are getting scammed.
Sounds pretty simple, eh?
But there are a lot of desperate or not-so-smart people falling for this – enough that this scheme ranked number 7 on the Better Business Bureau’s top scams of 2018.
“Another thing that many Canadians do not know is that the rule only applies to business and consumer interactions,” said a news release. “This means that personal arrangements like peer to peer (P2P) lending are not guaranteed or protected by law. Individuals can therefore create and agree to their own terms, no matter how risky.”
The BBB says many “new immigrants and seniors” may find the typical loans process process “extremely arduous, as their status usually finds them being unemployed, underemployed, having bad credit or a lack of credit history. These factors make them unattractive and unlikely candidates for a line of credit or other open credit options.For many people in this situation, P2P lending seems like a godsend.”
That leaves unscrupulous lenders to take advantage of desperate folks with the P2P option.
“However, not all that glitters is gold,” says the BBB. “Since online P2P lending is unregulated in Canada, it means consumers entering P2P transactions are unprotected and have little to no recourse if something goes wrong. This also creates a perfect opportunity for scammers to prey on vulnerable borrowers who are already in urgent need for cash. Going online to borrow money from a stranger, and paying a fee by sending money to someone you do not know is the perfect recipe for disaster.”
How it Works
- A P2P lending website may claim that consumers can get a loan from a lender or investor who is a member on the platform.
- The consumer will be matched to a lender based on the details of the loan request.
- The website connects the consumer directly with the lender.
- Once the connection is made, the P2P lending platform may remove itself from any responsibility concerning the transaction.
- The consumer and the lender will mutually agree on the terms of the loan, which creates concern if it involves sending the lender an advanced payment.
While there are instances where the borrower does receive the loan after paying their advanced fee, there are also several other cases where the money was unwittingly paid as part of a scam, and the borrower is left with no money at all.
In a BBB Scam Tracker report, Kimberly B. shared:
“I registered on a website called Beelend Solutions LLP for a $5,000 peer to peer loan. I was selected by a lender named Joseph Obinna Muogbo with a 15% fee with a guarantor, and I agreed to the terms. The lender preferred a bank wire but I selected Western Union. I sent the $750 but did not get the $5,000. Instead, I was insulted and threatened by the lender with more scams and his refusal to refund my $750. When I emailed Beelend Solutions to inform them that the lender refuses to send the money, they told me they are a third party and are not responsible for what the lender does.”
When BBB tried to investigate the matter, we found that the website for Beelend Solutions was shut down, along with all other communication channels for the business.
BBB is sharing the following tips:
- Why are you paying money to borrow money?Consider the situation you are putting yourself in. If it is illegal for businesses to charge an advanced fee for a loan, why would you pay it to an individual? Legitimate lenders typically deduct fees from your repayment. How is paying money to receive a loan really helping you, if you end up with less money than you had before and the risk of being scammed out of the loan altogether? Plus, there is no added benefit to your credit value by borrowing from a private lender.
- Check legitimate and regulated options for guidance on how you can improve your credit.This will allow you to work on being able to get loans in the long run.
- If you must get a loan, try borrowing from people you know.If you need to borrow money for whatever reason, whether it’s because of bad credit, an emergency, or debt, start close to home.
- Do your research.If you choose to borrow on a P2P lending platform, check BBB to see the platform's Business Profile. Also, read reviews and compare the various rules, loan terms and conditions on the lending sites.
- Confirm how the lenders are selected.Ask if the lending platform verifies the lenders before they allow them to post their availability to provide a loan.
Verify their policy on advanced fees.Does the lending platform offer any security to you if the lender does not provide the loan as promised?