The Worst Financial Scam of the Year

National Consumer Protection Week is a time to take a close look at some of the worst scams. The following fraud was my personal nemesis last year:

In the summer of 2007, a terrible con appeared on the radar. Advanced-fee loan fraud grew rapidly into a silent epidemic. Thousands of people have lost from $200 to $10,000 to this scam. Here's how it works:

1. Scammers contact a consumer posing as a lender and offer a large loan amount. Sometimes, they advertise online or in newspapers. Other times, they contact consumers directly. We're not sure if or how the crooks identify specific consumers in need of a loan, probably through some sort of online spyware.
2. The scam lender assures the consumer of their validity by posting an authentic looking website, sending official looking contracts by email and sometimes even having a BBB file.
3. When the customer agrees to the loan, the scammer tells them that they need to send a "downpayment" or "insurance" payment to get their money.
4. The consumer wires these funds using Western Union, usually to an account in Canada.
5. The consumer never receives any money from the loan scammer. Calls either go unanswered or result in profanity laced diatribes. Sometimes, the lender will ask the consumer to send more money and the cycle repeats.

Over the past year, this type of loan fraud has gone by many names. Here are a few that we've tracked:

• FairView Financial Services of Maine
• Royal Oak Financial
• Variety Financial Services
• Southfield Financial Group
• TransCredit Financial
• Interline Financial
• Prudent Financial Services
• Peach State Financial Services
• Liberty Mutual Financial Services
• Brookfield Lending
• Heritage Lending (here is their fake website)

It appears that the only way to stop this fraud is to educate consumers. Multiple reports to the FTC and various Attorney Generals have not resulted in any legal action against the scammers. Western Union is starting to do more to discourage their customers from wiring money to fraud lenders.

Remember: an authentic lender will NEVER ask you to wire money. No authentic personal loan lenders  require any sort of downpayment, insurance or guarantee payment to fund a loan.

If you are unsure if the lender you are working with is legitimate, there are a few simple tests you can perform. Ask them to mail you the contract instead of sending it by email (they avoid this because it constitutes mail fraud). Question their practices (they often turn rude and aggressive at this point). Take a closer look at the website (usually incomplete, with no posted address and only a short contact form). Google them (odds are that there will a posted warning about the company).

The scam seemed to die down around the end of 2007, but it has made a resurgence these past few weeks.  The current credit crunch is likely making it even easier for scammers to target consumers.  The harder it is to get authentic loans, the more open people will be to the scams.  Just a few days ago, I talked to one consumer who was extremely hesitant to believe me that the loan offer was a scam because he needed the money so badly.

Have you encountered an advanced-fee loan scam? Share your story in the comments section below.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.