Lloyds bank scam warning: what is advance fee fraud? How to avoid being scammed amid cost of living crisis

With high UK inflation denting consumer spending power and interest rates squeezing incomes, scammers are trying to exploit people who aren’t financially secure

With the UK in the midst of a major cost of living crisis, many people are in a financially vulnerable position.

High levels of inflation and record interest rates have dented purchasing power across the country over the last 12 months, with more pain set to come in 2023. A potential recession is also likely to add to the economic woe.

Criminals have sought to exploit the situation by concocting scams that aim to part us from our hard-earned money or key personal details. Instances of fraud have rocketed in recent months, with scammers favouring phishing, smishing and all manner of other tactics.

So far in January, we have seen warnings about cold callers offering ‘toxic mould’ checks, fake holiday adverts and online shopping scams. The last of these was highlighted by high street bank Lloyds, which has now issued an urgent alert to consumers about what it calls ‘advance fee’ scams.

But what does this type of crime entail - and how can you avoid becoming a victim of it?

With money tight, fraudsters are ramping up efforts to scam people (image: Adobe)

What is an advance fee scam?

According to Lloyds bank, an advance fee scam is one that sees the victim asked to pay an amount of money upfront to secure a product or a service. The promised product then does not materialise as the criminal makes off with the money.

Typically, this criminal tactic is used by scammers offering fake loans, rental properties, or even employment. It’s become much more common over the past year, Lloyds says, with reported cases soaring 82% against 2021. Those who are less financially secure tend to be the targets.

London saw the highest number of cases in the UK in 2022. But the West Midlands saw the biggest proportion of its population affected, with cases around 20% higher than the national average. Lloyds analysis of its own data and government poverty statistics found more than 70% of the recorded crimes happened in deprived areas of England.

On average, people lose £711 to fraudsters through advance fee scams. This figure is around £450 less than in 2021, which suggests criminals are targeting a higher volume of lower-value crimes.

A related type of scam known as ‘fast loan’ or ‘loan fee’ fraud is also on the rise, with Lloyds seeing reports of it more than double compared to 2021. In this type of fraud, the criminal will place an advert for a fast loan that requires the person seeking it out to pay a fee upfront. Ultimately, the loan never materialises.

“Fraudsters will ruthlessly adapt to any changes in consumer behaviour and, with the increased cost of living putting more pressure on people’s finances, the recent surge in advance fee scams targeting those on low incomes or with a poor credit history is alarming,” said Liz Ziegler, fraud prevention director at Lloyds.

“The abundance of these fake online ads reinforces the importance of the government’s Online Safety Bill to ensure social media sites and search engines stamp out fraudsters operating on their platforms.”

Fraudsters are using loan offers to get money out of people (image: Adobe)

How can you avoid advance fee scams?

Lloyds has said there are several ways to avoid being caught out by an advance fee or loan fee scam.

Its first tip is to ensure you’re dealing with a legitimate company. If the product or service you’re being asked to stump up cash for in advance is being advertised by a financial institution, you can see if they are bona fide by looking them up in regulator the Financial Conduct Authority’s web register.

Another bit of advice it has given is to avoid any companies that say they will approve a loan regardless of your credit rating. Lloyds says reputable lenders will always conduct a full credit check before approving a request to borrow money.

The bank has also advised people to avoid any firms demanding upfront fees. It says any company that does so is likely to be a scam operation.

And finally, it says you should contact your bank in the first instance if you’re enduring any cost of living difficulties. They may be able to help you out, or can at least point you in the direction of reputable organisations.