When Floyd Girouard needed a loan recently, he went to the bank where he’d been a longtime customer. But this trucker from Abbotsford, British Columbia says because he didn’t own his house, or any other collateral, the bank turned him down.  

So Girouard turned to the Internet, and found a “loan company” willing to loan him $30,000 – with one hitch. The company told Girouard his credit history was poor, so he had to give them a 10 per cent deposit before they’d release the loan. Girouard reluctantly wired them $3,000, and never heard from the company again.

Turns out, the company was a scam. It’s illegal to ask for an upfront payment for a loan. And that company is just one of hundreds that have exploded on the Internet, cashing in on vulnerable people applying for loans in these tough economic times. Last year, such scammers bilked Canadians out of an estimated $60 million.

Trouble is, the scammers know all the tricks of the trade, so people easily get sucked in. They run professional-looking websites with catchy graphics and simple instructions for loan applications. They give addresses — usually in the United States, but they’re sometimes based in Canada. When we checked out some of those addresses in high-rise office buildings, the suites had been empty for months, and that’s if they even existed. They use 1-800 numbers that are hard to trace, and were likely purchased online using phony identification. Their websites are often hosted on servers in other countries, which makes shutting them down time-consuming.

And by the time police investigate, these rip-off loan companies have shut down and re-opened under another name.

Just east of Toronto, Durham Police recently busted an online loan scam they claim had ripped people off to the tune of $2 million. Inside houses and apartments they found computers, cellphones, paper shredders and phony loan documents – everything needed to sucker innocent people desperate for a loan.
 
So, what do you watch out for if you’re looking for a loan online?  Never trust a “loan company” that guarantees a loan even if you have bad credit.  Stay away from a “loan company” that asks for an upfront payment (like a security deposit, premium, or insurance).  And definitely run if the “loan company” asks for a payment to be wired via Western Union or a similar service. 

Floyd Girouard wishes it didn’t cost him $3,000 to learn a lesson. “I haven’t had the best of luck on finances my entire life,” he says.  “And I just…sat back in my chair and cried.”
 

How to spot a phony loan company

In these tough economic times, getting any kind of loan is becoming more and more difficult – especially if you have bad credit. The temptation to turn to a lender that promises to arrange a loan, even if you have poor credit, is stronger than ever. But beware: you could be setting yourself up for more financial hardship, or worse, fall into a scam.

The most common scam is called "advance fee fraud," when a scam company asks for money up front before giving you a loan – a practice that is illegal in both Canada and the U.S. These companies advertise in newspapers and lure people in using legitimate-looking web sites.

Here are signs you can use to spot a phony loan company:

• The company asks for an upfront payment. This payment can be disguised as a premium, insurance, collateral payments or a security deposit.
• The company asks for the payment to be wired via Western Union or Money Gram to locations in Canada, even if the company claims to be located in the U.S.
• The company asks for last-minute additional payments because of your credit history, or because the bank or private lender requests it.

Still unsure? Here are some more tips:

• Don’t give out your personal or financial information over the phone or the Internet unless you’re familiar with the company. This includes bank account information, SIN, date of birth, etc.
• Be savvy when checking out companies on the Internet. Type the name of the company into a search engine along with the word scam. The results may reveal a history you didn’t expect.
• Scammers often operate under names similar to reputable companies. Make sure that the company you’re searching for does the same kind of business and has the exact name and address as the one you are dealing with.
• If you do fall prey to a loan scam, report it right away. It’s a criminal matter. You can contact Phonebusters Canada at 1-888-495-8501 or the Competition Bureau at 1-800-348-5358.