Telemarketing Loan Scams: A National Epidemic

Easy Credit
Almost any paper or magazine you pick up these days will have an ad in it like the one below. Or it will have one very close to it that promises quick loans, or credit cards, or other forms of cash or credit. Telemarketing has become big business in the United States. How widespread? The president of the National Council of Better Business Bureaus, James McIlhenny, says guaranteed loan scams are a "national epidemic." It is the largest and fastest growing source of consumer complaints today.

Bad For Us Too
In some cases, the bad publicity rubs off on financial institutions whose names are used, or whose affiliations are inferred-or even, illegally and incorrectly, openly advertised.

Legislators and law enforcement are doing their part to try to stop the telemarketing scam operators who, through their activities, are expected to con billions of dollars out of Americans this year. One government study indicates instant-loan and guaranteed credit card scams and other telemarketing frauds may be costing victims $5 billion a year-that's $5,000,000,000!

We can do our part by understanding how these crooks operate, and educating our customers so they don't fall for phony promises.

Dial 900?
The 900 number operation is becoming a little better known, but is still very profitable to those who are operating just inside the law. In one case the "patsy" may receive a card through the mail offering them congratulations on their approval for credit up to $3000 or some such amount. In order to "activate" the account and get the cash, all the receiver of the card needs to do is "pick up the phone and dial the 900 number below." Sometimes it is even suggested that there is only 36 hours from the time the card is received to make the call or the offer runs out. But there is no date on the card!

$50 Phone Call
There is, of course, a charge by the minute for the call. But it will be in very small print (see above) or announced very quickly to you at the beginning of your call.

In some cases, if you dial the number, the "operator" who answers will take the application for credit over the phone, and then send the application to the caller to sign and forward. The credit card application used may be a standard application to any one of many financial institutions, implying that the financial institution is part of the scam. This leaves the financial institution with the job of explaining its innocence.

And the telephone call to the 900 number, which has been several minutes in length, is now billed to the caller-sometimes as much as $50 or more.

New Law
In March, 1993, the FTC published new requirements for clear and concise disclosure of all costs regarding the 900 numbers before charges can be made. If they are not on the correspondence, or if they are over $2 a minute, then the first thing you hear when you dial the 900 number must identify the arketer and describe the cost of the call. If the caller hangs up within five seconds after hearing that message, there can be no charge for the call.

New Larger Problem
With the door closing on the 900 number con game, the possibility of bad publicity in the case of loan scams for the financial institutions becomes a larger problem.

Many people who are interested in borrowing from our institutions and who are attracted by our low interest rates, are in the unfortunate position of being without a job, and may be ineligible for our loans. Others, such as our senior citizens, may be convinced by some high pressure advice, that they can save money by consolidating their bills and making just "one small, easy payment per month".

These folks are among the easy pickings for the sharp loan huckster who, over the phone, promises a sizable loan with interest rates as low as 6%-no collateral needed- very low monthly payments, and best of all-no credit check.

"Application Fee"
They do, however, charge a very small "application" fee. This fee can range anywhere from $50 to several hundred dollars, depending on the situation and the feedback the con artist has gotten on the telephone on how much his victim can afford.

Results are, of course, "guaranteed." Why not? What's to lose? There's never going to be a loan. The above described "loan officer" is probably operating out of a temporary office or hotel room that has been rented in an assumed name. Telephone equipment has been installed, and the calls are probably reaching "customers" in another state. This is because if all their business is done across state lines, the state in which they are located can't take action against them.

This may soon change. A bill has been introduced in the House of Representatives (H.R. 868) that would allow states to prosecute individuals and companies across state lines if their residents have been a victim of telemarketing fraud.

Mail Drop
But to get back to our "loan officer"-(s)he has probably also rented a mail drop-also in a phony name. Mail stores are springing up all over the country.

These stores can be used by some people for very legitimate reasons. For instance, it can provide a useful service for retirees who may take a motor home and travel for six months. They have their mail forwarded to a post office box that they rent in the mail store. But instead of a "Post Office Box" number, it is called a "Suite" number at the street address of the mail store. If these travelers settle somewhere for a week at a time, they will call the mail store and have their mail forwarded to them. Other people who rent these "Suites" do not have the same purpose in mind. In the case of our "loan officer", this is the address the checks and money orders for the "application fees" from their "customers" are going to be sent.

The other method of obtaining payment carries liability to our financial institutions. In this case the "loan officer" asks the victim for his or her transit and account numbers off the bottom of their check, and then creates a check against that account using their own equipment. This check goes through the work after being deposited and is often paid against the account. If the customer disputes the charge, the customer's bank is often stuck with the check.

Attention-New Accounts People!
This is where we come in. That con artist has to negotiate those checks. And in order to do so, he or she has to open an account with that phony name. And then deposit all those items.

We have the opportunity to ask questions when we are opening an account as to?"What type of business do you run?" "How long have you been in the area?" "What will you be depositing?" Etc. The answers our new accounts people get will quickly alert us to this type of operation.

The account, if opened, will not be in existence very long. The operation is only good until victims start complaining to authorities such as the Better Business Bureau, and an investigation takes place. Once the complaints start, the operation is soon over, and the whole thing is shut down-to be started up again somewhere else under another name.

In early March of this year, 600 FBI agents culminated a three year sting operation called "Operation Disconnect" by shutting down 123 illegal telemarketing operations nationwide, and arresting and charging over 200 of these "operators" and "loan officers."

We're being used by these criminals. It's time for us to fight back. If you're opening an account, or taking these deposits, and you strongly suspect an operation such as this, file a Criminal Referral Form. Then call your local FBI Office and alert them of the situation. Let's get rid of these con artists who are giving us a bad name.

Copyright © 1993 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 3, No. 11, 4/93