Regulators Caution Consumers About National Loan Insurance Scam
By Lindsay Frankel
A nationwide loan scam has claimed at least four victims so far, including a Johnson City, Tennessee man who lost $18,000 to fraudsters. The scam targets consumers seeking privately-funded home, auto, or even construction loans. The Tennessee Department of Commerce and Insurance, along with other state regulators, is warning consumers to beware of a lender who requires that borrowers purchase a “Loan Payment Protection Insurance” policy.
Credit insurance is designed to protect the loan by covering monthly bills in the event that the borrower becomes disabled or unemployed. While this type of insurance can be advertised to you, lenders can’t generally require that you purchase it. In this scam, the perpetrators insisted that the victims purchase the policy as a condition of receiving the loan.
The scammers stole the first victim’s identity and used it to commit further fraud. As a result, the first victim, a California resident, told CBS13 that at least a dozen other possible victims contacted him through LinkedIn.
The scammers are allegedly reaching out to customers who have searched for a loan online. In order to feign legitimacy, the perpetrators have impersonated the California Department of Insurance, providing borrowers with a certificate of insurance. The borrower’s name appears on the certificate, along with a policy number. It is signed by “Authorized Signatory California Department of Insurance” and contains the Great Seal of California.
But the California Department of Insurance doesn’t issue loan insurance policies or certificates. It instead regulates the insurance industry.
Sources inside the department have said this elaborate scheme may trick even savvy borrowers. Insurance is not an uncommon product marketed to borrowers, so it may not seem suspicious to the victims. But if a scammer asks you to wire money, that should raise a red flag. Other warning signs include:
- The lender guarantees your approval, regardless of your credit history.
- The lender is not registered to do business in your state. To find out if the lender is registered, contact your state’s attorney general’s office.
- The lender doesn’t list a physical address on its website or documentation
- The lender doesn’t have a secure website
- The lender contacts you instead of the reverse
- The lender requires upfront payment before you are approved
- The lender pressures you to pay quickly
An insurance policy on a loan is usually optional, according to the Federal Trade Commission. The agency suggests finding another lender if the one you are working with puts pressure on you to purchase a policy. It’s also illegal for a lender to include an insurance policy in your loan without your permission.
So far, victims have lost almost $100,000 to the scam. If you believe you’ve been a victim or have any information regarding the scam, contact the California Department of Insurance at 800-927-4357.