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Christmas jingle to warn customers over loan fraud

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Selfridges' Christmas decorations on Oxford Street in London, England. Photo: Reuters
Selfridges' Christmas decorations on Oxford Street in London, England. Photo: Reuters

The UK’s financial watchdog has launched an official anti-fraud jingle in the hopes it will protect customers from loan fee fraud over the holiday season.

The Financial Conduct Authority (FCA) said that loan scams occur when consumers are asked to pay an upfront fee for a loan or credit that they then never receive.

The FCA typically receives more reports of loan fee fraud during the festive period than at any other time of the year – one in 20 calls received between November 2020 and January 2021 were about loan fee fraud.

This comes as many people increased their spending to buy presents and celebrate with friends and family, making them more likely to seek credit from loan providers.

In the last year, the FCA registered 1,456 instances of reported loan fee fraud, with victims reporting an average loss of £274 ($362) per fraud. 

FCA Financial Lives research also found that 27.7 million adults in the UK have characteristics of ‘vulnerability’, making them more susceptible to scams of this type.

In partnership with behavioural scientists and a music production company, the FCA hopes to impart its guidance against such fraud “in a way that is simpler, more memorable and more shareable for consumers than ever.”

The song explains the risks of loan fee fraud as Christmas approaches, how to spot a potential fraud and know to check FCA guidance online in the event they are contacted by somebody offering a loan.

“Our FCA jingle is here to engage consumers on the subject of loan fee fraud in a more accessible and memorable way, which we hope will encourage increased vigilance to better protect them and their festive celebrations," said Mark Steward, executive director of enforcement and market oversight, FCA.

"Scammers can target anyone, so my message is simple: if you are contacted, by text, call or email, with the offer of a loan. Stop. Think. And go to the FCA’s register to check the firm’s details and make sure it is authorised to provide credit, before taking out a loan."

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Steve Martin, faculty director of behavioural science at Columbia Business School said: “We’ve known for a long time how persuasive music and rhyme can be.

"Songs and sonnets aren’t just effective attention grabbers. Studies show people find their messages more memorable and even rate them as more believable, than the same words spoken.”

Warning signs of loan fee fraud include being contacted out of the blue and offered a loan after making several loan applications online .

Customers could be asked to make an upfront payment into a bank account, or transfer money via an unusual method, for example Western Union or iTunes vouchers.

Scammers may claim that the fee is refundable or put customers under pressure to pay the fee quickly.

Once the first payment has been made, the scammer might contact customers again to ask for more payments.

"Christmas stretches all our finances, and millions of people end up borrowing money over the festive period, either through credit cards, buy-now-pay-later services or by dipping into their overdraft," said Sarah Coles, senior personal finance analyst, Hargreaves Lansdown.

She said loan fee fraud is "a horrible crime, designed to hit people at their most desperate. It leaves borrowers with even worse debt problems than when they started."

"A simple rule of thumb is that if you’re borrowing money, in the vast majority of cases you shouldn’t need to pay a fee up-front. There are exceptions, so you’ll usually pay a fee for things like mortgages, equity release, and some balance transfer credit cards. There are also credit brokers, who charge to find you credit, but most people shouldn’t need to use their services."

She added that for those who are struggling, it’s worth talking to a debt charity like StepChange or National Debtline.

“Loan fee fraud, where fraudsters reach out to the victim and offer them a loan but demand an upfront fee for the money that the victim ultimately never receive, tends to spike during the festive period, leaving victims facing a higher mountain to climb to get out of debt," said Myron Jobson, personal finance campaigner at interactive investor.

"With the exception of some financial products like mortgages and equity release loans, borrowers are not required to pay an upfront fee to take out a loan in the vast majority of cases."

Watch: Why your bank statements might say buy-now-pay-later without you realising

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