Special Reports

Advance-Fee Loan Scams On The Rise

(CBS) Times are tight for a lot of consumers and that's encouraging the return of a rip-off. Advance-fee loans are an old scam offering money to help make ends meet, but borrowers are told they have to send hundreds even thousands of dollars up front.

Watchdog groups are warning: don't fall into the trap.

Cheri Lewis is doing her best to stay on top of her bills, but recently she needed help. "We've been behind on things. We were not able to get a loan through the bank because of credit reasons," Lewis said.

Then she found an offer online that promised her money despite her credit history. She contacted the company and quickly received a letter telling her she qualified, but she had to send the lender some money first. She wired more than $1,000 to an account in Canada, but grew suspicious when the company called asking for more.

"So we decided that we didn't want to do it anymore and asked for our money back," Lewis said.

But the refund never came. The Better Business Bureau says this type of advance-fee loan is becoming more common.

"In 2007, we've seen a 73% increase over 2006. This is a direct result of the credit crunch," said Sheila Adkins, associate director of the Better Business Bureau.

So, how do you know if you're applying for a legitimate loan or falling for a scam?

Steven Baker with the Federal Trade Commission said, "Anytime you're talking to people – you're not meeting in person – over the telephone about a loan and they want any money before you get loan proceeds; that is against the law."

And the Federal Trade Commission says these deals are typically sealed using a 1-800 or 1-900 number.

Tip-off number two: "You want to ignore ads in local newspapers or magazines, on the Internet, infomercials, that promise you a guaranteed loan regardless of your credit history. Legitimate companies always ask for your credit history," Adkins said.

And legitimate firms will take any fees directly out of the loan proceeds.

Finally, your warning alarm should always go off "if they ask you to wire the money through Western Union or a MoneyGram. Run, run, run, because you're going to get robbed if go along with it," Baker said.

Adkins said she wants to make sure others don't get robbed they way she did. "I'm just trying to get the word out so nobody else has to go through what I'm going through."

The Federal Trade Commission says many of these bogus offers come from Canada and it's working with the Canadian government to stop them.

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