With loan fee fraud – where a consumer pays a fee for a loan they never receive – rising, the FCA’s latest research highlights a heightened risk to vulnerable consumers at Christmas.

With nearly two-thirds of consumers unaware of what loan fee fraud is (64%), and just one in five (22%) able to identify all its warning signs, the FCA is launching its latest campaign to arm consumers with the knowledge and tools they need to avoid loan fee fraud this year.

The FCA said that those who are contacted about a loan or asked for an upfront payment to be vigilant and check the information of the Loan Fee Fraud website, including the FCA Register, before accepting.

Typically, the FCA receives an increase in reports of loan fee fraud over the festive period. It has already risen in frequency in the last year, with the number of cases reported rising by 21% compared to the previous year.

However, this Christmas, the cost-of-living crisis, compounded by the war in Ukraine and the Covid pandemic, is putting consumers are under even more financial pressure than usual.

This is likely to leave people more vulnerable to fraudsters’ tactics. Two in five people feel pressured to maintain their usual Christmas spending this year; a third of these are worried about how they will afford it amidst the cost-of-living crisis.

More than one in eight say they plan to take out a loan this year to support their Christmas spending, making them susceptible to loan fee fraud.

Fraudsters pick Christmas for a reason

One frequently used tactic by loan fee fraudsters is to pressurise consumers, seeking fast payment for a non-existent loan.

Making decisions under time pressure is all too familiar to last-minute Christmas shoppers – as are the consequences. Around 87% of Christmas shoppers undertake last minute purchases.

Time limited offers are also highly effective. Nearly half of Christmas shoppers would be more likely to buy a present with a limited time offer, with 32% likely to place a deposit to secure the present.

Despite the effectiveness of these offers, two-thirds (64%) of consumers acknowledge that time pressure leads to making poorer decisions and taking riskier choices, typically reducing the time spent researching choices.

The financial impact of falling prey to scammers and illegal lenders can have a devastating impact on families’ budgets at Christmas. The average loan fee fraud costs consumers £260, more than half the total amount people expect to spend on Christmas presents this year (£444).

Recommended

• UK Gov investing £110m in 5G and 6G research
• Edinburgh’s Green Bioactives LTD gains £2.6m seed funding
• Uber data breach | What you need to know

Mark Steward, Executive Director of Enforcement and Market Oversight, FCA, said: “This Christmas period is going to be tough for many consumers, and those who have been hardest hit by the rising cost of living will understandably be anxious about meeting the additional expenses that Christmas brings. Some consumers may be tempted to take out loans to meet these extra costs. Unfortunately, this is where loan fee fraud scammers and illegal lenders see an opportunity.

“At a time of heightened stress and pressure, scammers and illegal lenders will rush consumers into bad-decision making. Be aware of red flags – such as being asked for a fee or being asked to pay in an unusual way.

“And if you are considering taking out a loan, please pause and check the FCA’s Register to make sure you are dealing with a legitimate lender. Don’t let scammers be the ones enjoying your Christmas this year.”

Get all the latest news from DIGIT direct to your inbox

Our newsletter covers the latest technology and IT news from Scotland and beyond, as well as in-depth features and exclusive interviews with leading figures and rising stars.

To subscribe, click here.