Crackdown on US and Canadian Loan Boiler Rooms; FTC, States Net 13 Scams

Sweep Signals Growing Number of Cross-Border Frauds

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Every year, thousands of consumers respond to enticing classified ads in newspapers that tout “money to loan . . . regardless of credit.” The problem, according to the Federal Trade Commission and 15 state Attorneys General, is that consumers who respond to such ads usually must pay fees in advance to obtain the “guaranteed” loans. The consumers never receive the promised loans and either never hear again from the “loan” companies, or are later told they’re ineligible for the credit. The FTC’s new Telemarketing Sales Rule makes it illegal for any telemarketer who guarantees consumers a loan or other credit to ask for money in advance. Today, the FTC and the state Attorneys General announced the results of this latest federal-state crackdown to enforce the rule. The sweep, which consisted of eight cases filed by states and five cases filed by the FTC, has snared 45 corporations and individuals, including some operating out of Canada.

The crackdown on firms operating out of Canada marks the first time the FTC has sued a foreign telemarketing boiler room and highlights the growing number of fraudulent telemarketers operating out of Canada. Concurrent with the FTC-state crackdown, the Province of British Columbia initiated law enforcement proceedings against the same Canadian loan scam operators.

“Cross-border scams are a growth industry and thousands of Americans lose money every day to scam artists operating outside our borders,” said FTC Chairman Robert Pitofsky. “Many foreign-based fraud artists use mail drops in the United States, Canada and the Caribbean allows direct dialing without long and obviously foreign country codes. The result: it’s more difficult to identify and stop cross-border fraud. By joining state and federal law enforcers here with authorities in Canada, we believe we will be successful in stopping a massive advance-fee loan scheme involving numerous defendants based most recently in British Columbia and Ontario. We intend to continue that approach in the future.”

“Advance-fee loan scams are among the most offensive because they often soud very credible at first and they prey upon the most defenseless,” said New Mexico Attorney General Tom Udall. “These scams are particularly enticing to consumers who are the most vulnerable -- those out of work, those with poor credit ratings, or those who need money right away for emergencies. These are the consumers who most need our help to avoid being victimized by these unscrupulous con artists. These are the consumers we are determined to protect and defend with actions like those we are taking and announcing today.”

In addition to New Mexico, Attorneys General from the states of Arkansas, California, Connecticut, Illinois, Missouri, New Jersey, New York, North Carolina, Ohio, Tennessee, Texas, Vermont, Virginia, and Wisconsin, joined in the crackdown.

Most advance-fee loan telemarketers get consumers to pay the up-front fee by persuading the consumers that they are certain or nearly certain to receive loans. The fees may range from $25 to several hundred dollars. Telemarketers often assure consumers that they will receive a refund in the unlikely event that a loan is not forthcoming. After paying the fee, however, consumers either never hear from the telemarketer again or they get a form letter from a “turndown room” that credit has been denied. Advance-fee loan schemes often are advertised in the classified sections of daily newspapers, including “USA Today,” and other publications such as “The Globe” and “National Examiner,” the FTC said.

Under the FTC’s new Telemarketing Sales Rule, which went into effect on Dec. 31, 1995, a telemarketer who guarantees consumers a loan or other form of credit, or who states that there is a strong chance he or she can arrange such credit for a consumer, is prohibited from asking consumers to pay any money before they receive the loan or credit offer. Put simply, advance-fee loans are illegal. The rule empowers each of the 50 state Attorneys General to go into federal district court and seek an order that applies nationwide against violators. Some of the cases announced today involve rule violations; others allege violations of the FTC Act or state laws that prohibit unfair or deceptive marketing practices. Chairman Pitofsky and five state Attorneys General made the announcement today at a press conference in St. Louis, Missouri.

Among the advance-fee loan fraud cases that were announced (see attached list) is the FTC’s case targeting a group of six Canadian companies and eight individuals, including the operator of their U.S.-based turndown room (the “Ideal Credit” matter). Many of the Canadian scams consumers are complaining about today may have originated in the United States before moving to Canada, the FTC said.

The FTC and the state Attorneys General offered several tips for consumers to keep in mind before responding to ads that promise easy credit, regardless of credit history:

  • Legitimate lenders never “guarantee” or say that you are likely to get a loan or a credit card before you apply, especially if you have bad credit, no credit, or a bankruptcy;
  • If you don’t have the credit offer in hand -- or confirmed in writing -- and a telemarketer asks you to pay for a guaranteed loan, hang up. It’s fraud and it’s against the law.

Officials offered additional tips for avoiding cross-border fraud, including suggesting that consumers check out unfamiliar area codes in their telephone directories to determine whether they are from Canada or the Caribbean. Consumers who have been victims of advance-fee loan fraud or cross-border scams should call the National Fraud Information Center at 1-800-876-7060. Information from that database is downloaded to the FTC and the states daily for use in law-enforcement investigations.

The FTC votes to file the complaints detailing the charges in its five cases were all 5-0. The FTC’s Seattle Regional Office coordinated this project for the FTC.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.

Copies of FTC brochures with the tips for avoiding fraud, the complaints in the FTC cases, and the list of all cases brought as a part of this project, are available from the FTC’s Public Reference Branch, Room 130, 6th St. and Pennsylvania Ave., N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at:



Contact Information

Media Contact:

Bonnie Jansen, FTC
Office of Public Affairs

John Schachter,
National Association of Attorneys General

Staff Contact:
Charles Harwood or Kathryn Decker,
Seattle Regional Office
2896 Federal Building,
915 Second Avenue
Seattle, Washington 98174