Short answer: if anyone asks you to pay before you get a loan, for "insurance", "processing" or "paperwork", walk away. The Federal Trade Commission (FTC) says it is illegal for telemarketers to promise you a loan and ask you to pay for it up front, before they deliver (FTC).
How the scam works
The scammer promises a loan, a credit card or access to credit, or says they will put you in touch with a lender who can almost certainly get it for you. Then comes the catch: a fee first. Once you pay, the loan never arrives (FTC).
Red flags
- Ads that promise credit no matter your history: "Bad credit? No problem" or "guaranteed" approval (FTC).
- A fee requested before you receive any money, under any name: insurance, processing, paperwork, a "first payment".
- Payment requested by gift card, wire transfer, cryptocurrency or a payment app.
- An unexpected call, text or email offering you a loan you did not ask for.
- A company that is not registered with your state attorney general or banking regulator (FTC).
Legitimate lender or scam? A side by side example
| Legitimate lender | Advance-fee scam | |
|---|---|---|
| Fees | Any fees are disclosed in the loan agreement and usually taken from the loan or repaid with it. | A fee is due before any money is sent. |
| Approval | Depends on your application; the lender may say no. | "Guaranteed", whatever your credit. |
| Cost disclosure | The APR is shown before you sign (CFPB). | Vague or no written terms. |
| Licence | Can be checked with your state regulator or NMLS Consumer Access. | Cannot be found, or the name keeps changing. |
| Payment method | Loan paid into your bank account. | Asks you to pay by gift card, wire or crypto. |
Already paid? What to do now
Act fast and contact the company you used to pay. The FTC's advice (FTC):
| You paid with | What to do |
|---|---|
| Credit or debit card | Call the card issuer or your bank, report the charge and ask for a refund. |
| Bank transfer or wire | Call your bank or the wire service (for example Western Union), say you were scammed and ask them to reverse the payment. |
| Gift card | Contact the gift card company, say a scammer got the card number and PIN, ask for a refund, and keep the card and receipt. |
| Payment app | Report it in the app and ask for the payment to be reversed. |
Where to report
- The FTC: ReportFraud.ftc.gov. Reports help law enforcement stop scammers.
- Your state attorney general's consumer protection office.
- If a real lender or loan service treated you unfairly: the CFPB complaint portal.
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Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.