FTC Cracks Down on Advance-Fee Loans Scam

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The Federal Trade Commission and state Attorneys General are cracking down on telemarketers who charge consumers a fee for "guaranteed" loans or credit cards that never arrive.


"If I had to make a top 10 list [of types of telemarketing fraud], I think advance fee loans would be on it," said Steve Baker, regional director of the FTC's Chicago regional office. "It's a problem, no doubt about it."


Ads promising "money to loan…regardless of credit history" lure consumers into paying fees ranging from $25 to several hundred dollars before receiving the loan or credit card, the FTC said. Often consumers don't receive the promised loans or credit cards, either never hearing from the companies again or learning through third-party "turn down rooms" that they are ineligible for the credit.


The schemes prey on consumers who are unemployed, who have bad credit or who need money for emergencies, according to the FTC. The fraudulent telemarketers snare consumers through ads in newspapers, tabloids, cable television, the Internet and the Yellow Pages.


Under the Telemarketing Sales Rule, a telemarketer who guarantees consumers a loan or other form of credit, or who claims to be able to arrange such credit for consumers, is prohibited from asking them to pay a fee before they receive the loan or credit. The rule empowers state Attorneys General to file actions in federal district court and seek an order that applies nationwide against violators.


The FTC , the state Attorneys General of Illinois and Missouri, and the Idaho Department of Finance cracked down on 37 telemarketing firms and individuals in January, alleging that they engaged in advance fee loan scams.


Canadian law enforcement authorities participated in the sweep by targeting a company and two individuals allegedly marketing from Canada to US residents.


"Part of the problem is fraudulent Canadian telemarketers. That's growing rapidly," Baker said. "A lot of the scam artists are moving to Canada and selling into the US. You don't have to dial an international code to call Canada, and people don't recognize area codes. So a lot of time people think these are callers from the US, but they're not."


US military personnel and their families were among the victims of the alleged scams. In addition to other media, ads for the telemarketers named by the FTC appeared in civilian newspapers circulated on US military bases.


"Military personnel are targeted because they're a mobile population. They tend to be young, and often they don't know how to deal with credit when they are young," said Nadine Samter, an attorney at FTC's Seattle regional office. "Also, with some of the service people, it's financially difficult for them in the beginning. They need loans sometimes to tide them over, and they get snagged. That's sort of what happens in the general population, too."


The FTC said that the telemarketers used a variety of schemes to defraud more than 10,000 consumers nationwide. Several of the companies and individuals named in the sweep do business under a series of assumed names, promising a major credit card with a high credit limit to consumers that pay an advance fee.


In one such case, the FTC and the Illinois Attorney General, filing charges in the US District Court in Chicago, alleged that Darryl Andr‚, Angela Andr‚, Bryan D. Smith and Anthony Q. Roberts deceptively marketed credit cards for an up-front fee.


The defendants, who operated from a Markham, IL, office under a host of aliases, including Premier Card Services, Tower Financial Services, Prime Credit Services, Colonial Financial Services and Consumer Express, sent unsolicited postcards to consumers promising approval for a major credit card with a high credit line. Recipients were told to call toll-free numbers for more information.


Consumers were promised that, for a "processing" fee of $97.50 to be deducted from their checking account, they would receive a Visa or Mastercard credit card. Instead, consumers received a "Consumer Express" charge card that was only good for ordering from a mail-order catalog with high-priced specialty items. Defendants failed to tell consumers that they had to purchase more than $400 worth of merchandise from the catalog before they would "sponsor" the consumers' application for a credit card, according to the FTC.


Those practices violated the Federal Trade Commission Act, the Telemarketing Sales Rule, the Illinois Consumer Fraud and Deceptive Business Practices Act and the Illinois Credit Services Organization Act. The court gained a temporary restraining order freezing the defendants' assets the same day the case was filed.


Following a brief hearing in Chicago, the court entered a preliminary injunction against each of the defendants. The injunction, which is nationwide in scope, prohibits the defendants from violating the law and continues to freeze their assets. The defendants consented to the injunction.


The FTC has launched a consumer education campaign to alert consumers, particularly military personnel, to these scams. The FTC also created a Web site (www.ftc.gov/bcp/conline/edcams/loanshrk) to provide consumers with information about advance fee loan scams.


"There is a simple answer to this," said Baker. "If people are going to offer you a credit card or a loan, say it's pre-approved but want money in advance, then it's illegal. They're crooks. It's that simple."
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