Tight credit market opens up new territory for scam loans

Online scammers are taking advantage of the tight credit market by preying on those who are being turned away for loans by traditional banks, a CBC Marketplace investigation has found.

Online scammers are taking advantage of the tight credit market by preying on those who are being turned away for loans by traditional banks, a CBC Marketplace investigation has found.

Phony online loan companies are preying on unsuspecting customers by requesting a "security deposit" before providing the loan, claiming the deposit is required because of the client's supposed bad credit. The loan money is never received.

In Canada, it is illegal to ask for any kind of deposit for a personal loan.

Durham police Det. James Lamothe says advance-fee loan scams are increasing as conventional lenders tighten credit. ((CBC))

Det. James Lamothe, who works with the fraud unit of the Durham Regional Police Service east of Toronto, said there's been an increase of reported loan scams in recent months.

"People are desperate.… [For] a lot of people, this is their last chance at securing a loan somewhere," Lamothe said. "So they will rely on the internet and that, in conjunction with the fact that scammers make this so believable. People think they’re doing the right thing."

 How to protect yourself
Never send money to get money. It’s illegal in Canada to ask for upfront payment to secure a loan.

Do an internet search for the company you are dealing with and the words "scam" or "fraud." If others have been caught, they might have written about it online.

If in doubt, call the anti-fraud call centre PhoneBusters or the Better Business Bureau to ask whether they’ve had any complaints about the company.

The detective was part of a months-long investigation that in July unearthed what is alleged to have been a fraud loan network operating in Ontario's Durham region. Sixteen people were arrested.

The people accused in the scam were working out of ordinary-looking houses and apartments and claiming to be more that 20 different companies located in the U.S.

Lamothe estimated the operation had already taken $2 million before police busted it. The case is still before the courts.

PhoneBusters, an anti-fraud call centre, estimates Canadians lost $60 million in advance-fee loan scams in 2008.

Floyd Girouard, from Abbotsford, B.C., lost $3,000 when Cadex National asked for a 'security deposit' to obtain a loan. Such fees are illegal in Canada. ((CBC))

Floyd Girouard, a truck driver from Abbotsford, B.C., fell prey to one of the scams in October.

He needed a loan for $30,000 to clear up some family debts, and though he's been dealing with the same bank for more than a decade and has never defaulted on past loans, the bank turned him down, he said.

"I don’t own my own house, and so without any collateral, they didn’t even want to look at me," Girouard said.

The bank said economic conditions were too unstable for him to qualify for a loan, Girouard told CBC, so he turned to the internet. There, he found Cadex National, a company claiming to be based in Toronto’s financial district.

There was one catch: The company told Girouard that because he had bad credit and was a risk, he would have to send a $3,000 security deposit to Cadex.

Girouard reluctantly agreed to send the money and told Cadex: "I'm going to send the money, but I said, 'This money has, was supposed to go on bills.... I’m not, I’m not rich, or else I wouldn’t be even talking to you.' "

He was told to wire the deposit through MoneyGram International or Western Union and the loan would be transferred into his bank account within 24 hours. Once he'd sent the money, Girouard said, Cadex stopped returning his calls and he never got the loan.

When CBC Marketplace visited Cadex's address, no one in the building had heard of the company, and the floor it was supposed to be on had been empty and locked for years, according to building staff.

Fake person approved for $10,000 'loan'

As a test, the CBC’s investigative consumer show applied for loans on nine websites with the hallmarks of fraudulent companies: promises to loan money to people with bad credit and minimum loan amounts people can apply for. By the end of the investigation, seven of the sites were no longer online.

The Marketplace applications for a $5,000 loan were made with a false identity, one without a credit rating — Jennifer Macs. One company, Edison Financial, responded and approved Macs for a loan of $10,000.

Canadians lost $60 million to advance-fee loan scams in 2008, according to PhoneBusters, an anti-fraud call centre. Scammers use false names and locations when setting up a website, and are difficult to catch. ((CBC))

Edison requested that a security deposit of $1,475 be wired through MoneyGram or Western Union to secure the loan.

The Edison representative instructed Macs when wiring the money to refrain from stating that it was for a loan, otherwise a "loan tax fee" would be charged. Money transfer services are educated in how to spot a scam and to warn clients.

"If they ask you what your purpose of business is, you might want to say 'personal' or um 'sending to a family member or friend,' because if they charge you the loan tax, there’s an extra thousand dollars, OK?" said the Edison employee, who called himself Chris Stephens.

MoneyGram and Western Union both said there is no such "loan tax" to send money.

Queried why a potential borrower's red flags wouldn’t go up when they're asked for a deposit, Det. Lamothe said the scammers are very good at looking legitimate.

"If they make it seem real by providing you with legitimate looking documentation, you will buy into the fact that it’s a real financial institution. You’ll send money to get money," Lamothe said in an interview.

While investigators like Lamothe can contact a site's internet service providers and attempt to shut it down, there’s no guarantee it won’t go up again under another name.

Because scammers can use fake ID and stolen credit cards, and never have to truly identify themselves to get a website or a 1-800 number, it’s hard to trace who they really are, Lamothe said.

"Not everything can be investigated, unfortunately," he said.

Marketplace airs on the main CBC network Fridays at 8:30 p.m. local time, 9 p.m. in Newfoundland.