Beware of Financial Scams at Christmas, FCA Warns

Industry regulator the Financial Conduct Authority (FCA) has launched a checklist to help protect consumers from loan fee fraud and other financial scams over the festive season.

With many households facing a squeeze on their finances at this time of year, research by the FCA has revealed that many UK adults are looking to borrow money, leaving them vulnerable to exploitation from scammers.

According to a report from the FCA, 40% of UK adults are concerned about being able to afford Christmas spending this year, with around 47% feeling pressured to spend above their means.

Figures are even more pronounced for parents of young children, with more than half (52%) of UK adults with children under 18 worried about how they will pay for Christmas, and almost two-thirds (64%) feeling pressure to spend more than they can afford.

This increased financial pressure has led to over a quarter (29%) of parents borrowing money, or intending to, to help fund this Christmas, according to the FCA’s report.

The average amount borrowed is £412, an increase of more than a third since 2022 when the average Christmas borrowing was £305.

With financial pressure building and more people looking to borrow, the FCA is concerned that stretched households could be susceptible to loan fee fraud.

Loan fee fraud – where a consumer pays a fee for a loan they never receive – typically results, on average, in a £255 loss, says the FCA.

As a result, the regulator is raising awareness and urging consumers looking for a loan to undertake a three-point check to help protect themselves from scams.

The FCA’s Three-Step Check to combat the risk of loan fee fraud is:

  • If you are cold-called or emailed, it could be a scam.
  • If you’re asked to pay an upfront fee, it could be a scam.
  • If you’re asked to pay quickly or unusually, it could be a scam. 

The financial regulator is also encouraging any consumers who are unsure whether someone offering a loan is properly regulated to search the name of the lender on its Financial Services Register before applying for a loan. This will help identify any firms that are actively trying to scam consumers.

Therese Chambers, executive director of Enforcement and Market Oversight, said: “Fraudsters will take advantage even of parents’ desire to give their children a good Christmas. Don’t let them.

“Remember the three-step check and protect yourself and your loved ones from loan fee fraud.”

Matt Dronfield, managing director of Debt Free Advice, said: “As Christmas approaches, families across the country face mounting pressure to keep up with societal expectations, often leading to increased debt and financial strain.

“Many of our clients are already burdened by the weight of utility bill debt, imposed by the ongoing cost of living crisis. Holiday-induced debt can have far-reaching consequences, affecting families’ financial stability, mental health, and overall wellbeing.”

If a consumer deals with an unauthorised or unregulated firm, they will not be covered by the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS) if things go wrong.

For more information about loan fee fraud and advice on how to protect yourself, click here.

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