Clark Howard's Tips

Advance-fee loans are back with a vengeance

July 15, 2008

Here's an oldie but baddie that dates back some 20 years ago to Clark's first days on the air. According to the FBI, advance-fee loans have roared back into action after years of being off our radars. Business owners and individuals are the typical targets.

Here's the way it works: Businesses are in a cash crunch because so many lenders are reducing or shutting down their lines of credit. That creates a fertile ground for smooth-talking con artists who represent themselves as being industry experts on finding loans. Unwitting victims get taken when they pay them an upfront fee for loan origination -- and never hear from them again.

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The Wall Street Journal reports that some 100 business owners lost untold millions recently in one week because of this practice. But it's not always big-money targets the crooks go after. In one instance, the owner of a daycare was taken for $2,000 in the hopes that she'd get a $20,000 loan. On the other end of the spectrum, another business owner seeking a loan of $250 million wound up paying $260,000 upfront.

The answer to the credit crunch is never paying someone a fee to get loan for you.

There is, however, a related gray area -- and that's selling off credit card receivables. It's a way to generate revenue today on income that will be coming to you down the road. While this practice isn't illegal, it does often come with a massive rate of interest that can be upwards of 60%.

So if you're a small business owner in need of funds, see if you can find another way to keep things going. Selling your credit card receivables may be legal, but you may just dig yourself into a deeper hole.

More Clark Howard Credit and Banking Tips The dangers of home-equity borrowing  ID checks, minimum purchase rules a no-no with credit cards  The Mortgage Lender Implode-O-Meter  Advance-fee loans are back with a vengeance  Wachovia, WaMu say goodbye to option payment loans  Cycling your unused credit cards back into the mix  Banks offer diverging interest rates on savings and CDs  Mortgage bailout proposal to help banks, not homeowners  Credit limits being reduced without your knowledge?!  65 million paying for credit monitoring/fraud alert services  Full list