In this May 24, 2018 file photo, Rosa Franco, director of loans for the Neighborhood Trust Federal Credit Union, exits the bank to the offices of one of their financial partners in New York City.
Julie Jacobson | PA
If you didn’t already know, lenders and fraudulent loans are on the rise, fueled by the economic fallout from the Covid-19 crisis. Bad lenders have been around for a long time, however, and while the tactics they employ may change over time, with a keen eye and a little common sense, you should still be able to spot them fairly easily. The proliferation in recent years of online lenders has also created a renewed emphasis on finding the online presence of lenders and complaints. Here are some key red flags and how to spot them.
Where to start
If a business offers you a loan that you haven’t yet thoroughly verified, the easiest way to get started is to do it online. A simple search query should generate enough to get you started – take a look at their online footprint, associated customer reviews, or signs of negative news. Next, it is reasonable to search for a lender by name with the Better Business Bureau (BBB) and the Consumer Finance Protection Bureau (CFPB). The BBB can provide a plethora of information, including customer reviews and complaints, and an A to F rating for a lender’s reputation and business relationships.
Mark Schlipman, founder and CEO of Schlipman Wealth Advisors, suggests that contacting the BBB is the best way to start your verification process.
“Legitimate lenders should register with state agencies before applying for or granting loans. Contacting the Better Business Bureau is one way to determine if the lender is trustworthy and to see reviews posted.”
The CFPB allows you to track all disciplinary actions taken against a lender or individual, allowing you to locate a history of problematic business transactions. Finally, you can consult the attorney general of your state; their offices are repositories of information on the value of all businesses operating in your state, agrees Schlipman.
“It is also recommended that you contact your state attorney general. “
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Another layer of protection against predatory loans is learning to recognize some of the most common warning behaviors employed by fraudulent businesses. According to the BBB, these can include:
- Tell you to indicate on your loan application that your income is higher than it actually is.
- Pressure yourself to apply for a loan or to ask for more money than you need.
- Pressure yourself to sign documents you haven’t read.
- Promise one set of conditions when you apply and later give yourself another set of conditions to sign, with no legitimate explanation for the change.
- By telling you to sign blank forms and saying they will fill them out for you later.
- Say you can’t have copies of the documents you’ve signed.
In general, when it comes to borrowing, it is safer to borrow from a financial institution with which you already have an existing relationship, such as a bank or a credit union. This is because they have already proven their reliability, but also because you have also earned theirs: by building a relationship over time with a financial institution, you are more likely to profit from interest rates or lower fees and better customer service.
While shopping around for lower rates can be helpful, it shouldn’t come at the expense of greater risk exposure.
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