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Con artists prey on stressed-out debtors

With many Americans out of work and 401(k)s emaciated, over-extended and stressed consumers are looking for a credit fix. They need not look far to find offers of instant loans or credit cards. But are they legitimate? Not usually.

One wildly popular scam, called an advance-fee scam, offers the consumer an instant loan or credit card to ease their credit problems. It's one of the nation's top telemarketing scams, and con artists rake in millions of dollars each year from unsuspecting students, the elderly, the unemployed, the working poor or people in need of fast money for emergencies.

"Advance-fee loan scams are especially appalling because they prey on the most vulnerable consumers who are in need of credit or a loan," says Jodie Bernstein, director of the Federal Trade Commission's Bureau of Consumer Protection.

The ploy
In this scam, con artists call the would-be victims using "sucker lists" -- names and phone numbers of potential victims -- or they lure victims with ads on the Internet, television or newspapers, promising loans for people with bad or no credit. They use legitimate-sounding company names and offer credit cards, loans or debt relief, but at a price -- anywhere from $45 to several hundreds of dollars. Victims are told they are paying for processing fees or credit checks.

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What do the victims get in return for these fees?

"In these cases nobody ever gets a credit card," says Steven Baker, Midwest Regional director of the FTC. "They get lists of names or cards that are good only for that company's items. They give no credit whatsoever."

Same show, bigger audience
The advance-fee scam is not new -- but it's growing rapidly.

"We are really having an explosion of problems with it now," says Baker. "A lot of these companies are based in Canada, but they may use a different address, then move the money."

Sneaky entrance
California college student Veronica Washington thought she was paying her credit card debt and rebuilding her troubled credit. Instead she became a victim.

"A company called Total Benefits called my cell phone. I was caught off guard. She (the caller) was going so fast. She kept saying 'We're helping people rebuild their credit status with Visa.' I had a Visa. I said, 'Which one?' She rattled off a list of banks. One of them was the one I had a credit card with in the past. I thought, "I do need to pay that one off."

Believing she was paying her debts, Washington cooperated with the caller.

"I was led to believe this was an agency calling on behalf of one of the companies I had an account with," says Washington.

She said she was told that her credit with Visa would be rebuilt and she would get a new credit card. Five days later, $198 was charged to her bank account. A few days later, she received her only written correspondence from Total Benefits -- a one-page list of banks that offer credit cards, with a few names of credit counseling services at the bottom.

"I called the company to try and get my money back," says Washington. "The guy on the phone said 'Well you haven't been turned down for a credit card by those banks, have you?' I told him this was illegal. He said it wasn't."

But according to the FTC, it is illegal.

Jackie Wong, a supervisor in Total Benefits' customer service department, gave only a brief comment.

"We assist people to get credit cards," said Wong. "If they have problems we give them their money back."

Crooks in Canada
"The law prohibits charging people in advance prior to providing a credit card. People who call offering you credit who want money in advance -- they are crooks," says Baker.

When Washington called Total Benefits to ask for their address, she was given an address in Barbados. She asked for the Canadian address.

"How do you know about the Canadian address?" said Frank Nickel, a man who identified himself as a manager at Total Benefits. He told her the only address he would give her was the one in Barbados. He also told her that Total Benefits got her name off a list of people who had recently been denied credit.

But where did this list come from?

"That's a good question," says Baker. "There's an industry of people who sell this information. Sometimes it's hard to track. As far as (Washington's case), either they lied about having a list, or not. Who knows? There are list brokers out there. I'm sure it would be a violation of privacy laws."

Washington's case was peculiar, because the telemarketer who called her wasn't just offering a credit card. She allegedly represented herself as working specifically with a bank with which Washington had debt.

"As far as calling your mobile and saying you have debt with them, that's a new one to me," said Baker.

Squeaky wheel
Washington's bank has refunded her $198 while they investigate and, though she was embarrassed about her situation, Washington reported her case to the FTC.

"You have to complain," says Baker. "Call 1-877-FTC-HELP or file a complaint online. This is not a couple of guys in a hotel room. These are multi-million dollar operations."

"This is something they should not be doing," says Washington. "They are preying on people. I'm thoroughly offended that there are people out there like this."

Don't talk to cons
To avoid becoming a victim of the advance loan scheme, hang up on anyone who calls offering you a credit card, loan or offers to repair your credit. The FTC says to beware of lenders who guarantee or say you are likely to get a credit card or loan before you apply.

If you don't have the credit offer confirmed in writing or if you are asked to pay before receiving a credit card or loan, hang up. And never give your bank account, credit card, or Social Security number to anyone but a company you are positive is legitimate and has good reason to request this information.

-- Updated: April 12, 2004

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