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How to avoid advance fee fraud

If you are struggling to access funding, you may need to look for assistance from a financial broker. But, in these difficult times, it is important that you aren't taken advantage of. Fraud is both a dirty word and a serious threat to the commercial finance industry. Here, Adam Tyler, Chief Executive of the National Association of Commercial Finance Brokers (NACFB), looks at common scams so you can recognise and avoid them.

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If you are struggling to access funding, you may need to look for assistance from a financial broker. But, in these difficult times, it is important that you aren't taken advantage of. Fraud is both a dirty word and a serious threat to the commercial finance industry. Here, Adam Tyler, Chief Executive of the National Association of Commercial Finance Brokers (NACFB), looks at common scams so you can recognise and avoid them. Direct customer promises This involves high-profile campaigning by a 'broker', often in the national press, promising unobtainable terms (at least in the current market) and very low rates. This appeals to clients desperate for finance, who in the past would have obtained it from the 'sub-prime' sector of the market. The initial appraisal fee is usually acceptable and at a level recognised by the NACFB, but instead of indicating that there is little chance of the deal proceeding, a further fee is requested so that further information can be gained. This fee now runs into thousands of pounds but a customer, who now feels they have had some degree of success, may pay up. Finally, terms are offered that are too good to be true and a further request for money is made before the offer letter can be produced. Even if the customer does pay up the promised offer never materialises as the final conditions are impossible to meet. Lender up front fees In this case, a 'lender' offers available funds at good rates to brokers. The terms are appealing and in a market where cases are hard to place, any interest in lending is encouraging to the broker. If the customer feels heartened by the broker's response, the request to the customer through the broker for a large up front fee could be many thousands of pounds. Both the broker and customer are made to feel buoyant and the fee is paid, only to be followed by a sequence of letters that gradually reduce the possibility of funding by further requests for information. In the end, all the up front fee elicits from the 'lender' is a succession of letters and never a formal offer. In this instance the innocent broker is left with an irate customer. Broker to broker fees This works in exactly the same way as the lender up front fees, but instead of going to the lengths of registering as a lender, the fraudster sets up as a broker with "sole" access to a new funding line. This broker then behaves in exactly the same way as the lender above, but of course the up front fee never leaves his account for that of the "lender". The conditions become more and more restrictive over the period until such time the innocent broker has to admit his customer cannot meet the criteria and the fees are lost. Name on a letterhead In this lazy but effective scam, a broker seeks out customers with the promise of great deals. They supply credible testimonials along with an impressive list of directors and consultants. They look incredibly plausible, therefore a business looking for funding will quite happily send in the requested documentation and fee. No broking takes place and after a few weeks a standard letter is sent out declining the case and keeping the fee. In this case the number of dissatisfied customers will grow and the broker will usually close down, only to open up again under a new name and operate in the same way. 'Broker' and 'lender' working together The 'brokerage' firm deals with the client and goes through the usual broking procedure, charging the usual fees along the way. But instead of taking the fees and declining the case, the same firm then becomes the 'lender' and starts to produce offer letters under the name of an assumed lending source. The professional offer letters then continue to extort fees and the customer believes he has sourced funds. But the "lender" changes criteria, apologies all round from the broker/lender, and returns no fees for the "work" carried out. What to do if you believe you have been the victim of fraud If the broker in question is a member of the NACFB, you can complain to the NACFB about these practices and they can take action under their own Code of Practice. Outside of the Association you should consult the Office of Fair Trading and the Consumer Credit Act. About the author Adam Tyler is Chief Executive of the NACFB, the UK trade body for commercial finance brokers. They represent members from across the whole commercial finance market and all NACFB members comply with their Code of Practice. The NACFB is dedicated to combating advance fee fraud and exist to ensure that a business looking for finance can deal with a broker that can be trusted.

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