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Advance-Fee Loan Scams: ‘Easy’ Cash Offers Teach Hard Lessons

Advance-Fee Loan Scams: ‘Easy’ Cash Offers Teach Hard Lessons

Looking for a loan or credit card but don’t think you’ll qualify? Turned down by a bank because of your poor credit history?

You may be tempted by ads and websites that guarantee loans or credit cards, regardless of your credit history. The catch comes when you apply for the loan or credit card and find out you have to pay a fee in advance. According to the Federal Trade Commission (FTC), the nation’s consumer protection agency, that could be a tip-off to a rip-off. If you’re asked to pay a fee for the promise of a loan or credit card, you can count on the fact that you’re dealing with a scam artist. More than likely, you’ll get an application, or a stored value or debit card, instead of the loan or credit card.

The Signs of an Advance-Fee Loan Scam

The FTC says some red flags can tip you off to scam artists’ tricks. For example:

  • A lender who isn’t interested in your credit history. A lender may offer loans or credit cards for many purposes — for example, so a borrower can start a business or consolidate bill payments. But one who doesn’t care about your credit record should give you cause for concern. Ads that say “Bad credit? No problem” or “We don’t care about your past. You deserve a loan” or “Get money fast” or even “No hassle — guaranteed” often indicate a scam.
  • Banks and other legitimate lenders generally evaluate creditworthiness and confirm the information in an application before they guarantee firm offers of credit — even to creditworthy consumers.
  • Fees that are not disclosed clearly or prominently. Scam lenders may say you’ve been approved for a loan, then call or email demanding a fee before you can get the money. Any up-front fee that the lender wants to collect before granting the loan is a cue to walk away, especially if you’re told it’s for “insurance,” “processing,” or just “paperwork.”

    Legitimate lenders often charge application, appraisal, or credit report fees. The differences? They disclose their fees clearly and prominently; they take their fees from the amount you borrow; and the fees usually are paid to the lender or broker after the loan is approved.

    It’s also a warning sign if a lender says they won’t check your credit history, yet asks for your personal information, such as your Social Security number or bank account number. They may use your information to debit your bank account to pay a fee they’re hiding.

  • A loan that is offered by phone. It is illegal for companies doing business in the U.S. by phone to promise you a loan and ask you to pay for it before they deliver.
  • A lender who uses a copy-cat or wanna-be name. Crooks give their companies names that sound like well-known or respected organizations and create websites that look slick. Some scam artists have pretended to be the Better Business Bureau or another reputable organization, and some even produce forged paperwork or pay people to pretend to be references. Always get a company’s phone number from the phone book or directory assistance, and call to check they are who they say they are. Get a physical address, too: a company that advertises a PO Box as its address is one to check out with the appropriate authorities.
  • A lender who is not registered in your state. Lenders and loan brokers are required to register in the states where they do business. To check registration, call your state Attorney General’s office or your state’s Department of Banking or Financial Regulation. Checking registration does not guarantee that you will be happy with a lender, but it helps weed out the crooks.
    A lender who asks you to wire money or pay an individual. Don’t make a payment for a loan or credit card directly to an individual; legitimate lenders don’t ask anyone to do that. In addition, don’t use a wire transfer service or send money orders for a loan. You have little recourse if there’s a problem with a wire transaction, and legitimate lenders don’t pressure their customers to wire funds.

    Finally, just because you’ve received a slick promotion, seen an ad for a loan in a prominent place in your neighborhood or in your newspaper, on television or on the Internet, or heard one on the radio, don’t assume it’s a good deal — or even legitimate. Scam artists like to operate on the premise of legitimacy by association, so it’s really important to do your homework.

Finding Low-Cost Help for Credit Problems

If you have debt problems, try to solve them with your creditors as soon as you realize you won’t be able to make your payments. If you can’t resolve the problems yourself or need help to do it, you may want to contact a credit counseling service. Nonprofit organizations in every state counsel and educate people and families on debt problems, budgeting, and using credit wisely. Often, these services are low- or no-cost. Universities, military bases, credit unions, and housing authorities also may offer low- or no-cost credit counseling programs.

Deal with Debt -Owe Back Taxes? Tax Relief Companies Can Result in More Pain than Gain

Owe Back Taxes? Tax Relief Companies Can Result in More Pain than Gain

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Fact or fiction?

Tax relief companies use the radio, television and the Internet to advertise help for taxpayers in distress. If you pay them an upfront fee, which can be thousands of dollars, these companies claim they can reduce or even eliminate your tax debts and stop back-tax collection by applying for legitimate IRS hardship programs. The truth is that most taxpayers don’t qualify for the programs these fraudsters hawk, their companies don’t settle the tax debt, and in many cases don’t even send the necessary paperwork to the IRS requesting participation in the programs that were mentioned. Adding insult to injury, some of these companies don’t provide refunds, and leave people even further in debt.

Some taxpayers who filed complaints with the Federal Trade Commission (FTC) reported that, after signing up with some of these companies and paying thousands of dollars in upfront fees, the companies took even more of their money by making unauthorized charges to their credit cards or withdrawals from their bank accounts.

If you owe back taxes and don’t know how you’re going to pay the debt, the FTC, the nation’s consumer protection agency, says don’t panic, take a deep breath, and consider your options. If you are having trouble paying bills, it’s often better to try to work out a payment plan with the creditor yourself than to pay someone else to negotiate a plan for you. The same is true when you owe money to the IRS or your state comptroller.

IRS Help for Taxpayers

If you can’t pay your taxes or your payments are late, the IRS charges you penalties and interest. It also has several tax relief programs to help people who owe back taxes:

  • An Installment Agreement is generally available to people who can’t pay their tax debt in full at one time. The program allows people to make smaller monthly payments until the entire debt is satisfied.
  • An Offer in Compromise (OIC) lets taxpayers permanently settle their tax debt for less than the amount they owe. The OIC is an important tool to help taxpayers in limited circumstances; taxpayers are eligible only after other payment options have been exhausted and their ability to pay has been reviewed by the IRS.

In very limited circumstances, the IRS may offer a penalty abatement to people who haven’t paid their taxes because of a special hardship. If the taxpayer meets very narrow criteria, the IRS may agree to forgive the penalties. An interest abatement is even more limited and is rarely provided.

According to the IRS, you can apply for an Installment Agreement, OIC, or a penalty or interest abatement without the help of a third party. If you prefer third-party assistance in negotiating with the IRS, only certain tax professionals — Enrolled Agents (federally-authorized tax practitioners who can represent taxpayers before all administrative levels of the IRS), Certified Public Accountants (CPAs), and attorneys — have the authority to represent you. Their services should involve a face to face meeting where they explain your options and their fee structure.

You can contact the Taxpayer Advocate Service, an independent organization within the IRS that provides free help to people who are experiencing financial difficulties or who need help resolving a problem with the IRS. Call 1-877-777-4778 or visit irs.gov/advocate.

State Tax Relief Programs

The process for tax settlements with the states is very similar to the process with the IRS, although it varies from state to state. In some states, for instance, a taxpayer’s penalties can be waived, but interest can’t. In other states, interest can be waived, but penalties can’t. And in some states, legitimate tax debt can’t be reduced at all. For more information, contact your state comptroller. For a state-by-state listing, visit the National Association of State Auditors, Comptrollers and Treasurers (NASACT) at nasact.org.

Taxpayer Tips

If you owe back taxes and you are having trouble meeting your tax obligation:

  • read your notices from the IRS or your state comptroller. Ask about collection alternatives.
  • save yourself some aggravation by ignoring promises from companies that say you are “qualified” or “eligible” for a tax relief program to resolve your tax debt. Only the IRS or your state comptroller can make that determination.
  • walk away if a company requires a fee in advance for tax relief services. Check them out with the IRS.