Loan Scams: Advance Fee Loans are Illegal in Canada

How to Protect Yourself from Advance Fee Loan Fraud

In today’s challenging economy, scammers are taking advantage of unsuspecting individuals who are in need of loans. These fraudsters disguise themselves as money lenders and reach out to consumers directly with enticing loan offers. However, these offers come with a catch – a fee that must be paid upfront. Unfortunately, once the fee is sent, the scammer disappears, leaving the victim without the promised loan. This type of scam, known as an advance fee loan scam, is illegal in Canada. In this article, we will explore what advance fee loans are, how these scams work, and most importantly, how you can protect yourself from becoming a victim.

Understanding Advance Fee Loans

An advance fee loan is a type of loan scam that has been circulating throughout Canada, including in Ontario, Alberta, and East Kootenay. These scams target individuals who have bad credit or limited options for obtaining a traditional loan. The scam begins when a fraudulent lender contacts the victim over the phone or through an online advertisement, offering a loan with favorable terms and quick approval. However, to secure the loan, the victim is required to pay an upfront fee. This fee is often justified as covering processing costs, loan insurance, or guaranteeing approval. Once the fee is paid, the victim never receives the promised loan.

How Advance Fee Loan Scams Work

Scammers employ various tactics to deceive their victims and make it difficult to trace their activities. They may request payment through wire transfers, prepaid debit cards, or even gift cards, which are not easily traceable. By using these untraceable payment methods, scammers can evade detection and disappear without a trace. It is important to note that legitimate lenders may charge origination or processing fees, but these fees are typically deducted from the loan amount itself. In Canada, it is illegal for a company to request an upfront fee before providing the actual loan.

Signs of an Advance Fee Loan Scam

Spotting an advance fee loan scam can be challenging, as scammers often employ sophisticated tactics to appear legitimate. However, there are several red flags to watch out for:


Payment Upfront: Legitimate lenders do not require payment before granting a loan.

Gift Cards as Payment: Scammers often ask for payment in the form of gift cards, which is a clear indication of a scam.

Unsolicited Offers: If you receive an unsolicited call, email, or text message offering an easy loan, be cautious as it may be a scam.

Unregistered Lenders: Check if the lender is registered and licensed with the appropriate regulatory authority in your province. Scammers are often unregistered and operate outside the law.

Missing Website: Legitimate lenders have a professional online presence. If you cannot find the lender’s website or it appears suspicious, it could be a scam.

Lack of Accreditation: Legitimate lenders are often accredited with organizations like the Better Business Bureau. If the lender is not accredited, proceed with caution.

Unclear Physical Address: Scammers may provide vague or nonexistent physical addresses. If you cannot confirm the location of the lender, it is likely a scam.

Quick Expiry Date: Scammers often pressure victims by setting a quick expiry date for the loan offer. Legitimate lenders provide reasonable timeframes.

No Credit Check: If a lender claims to offer loans without performing a credit check, it is a clear warning sign of a scam.

Guaranteed Approval: Legitimate lenders cannot guarantee loan approval, especially without reviewing your financial information.


Remember, if an offer sounds too good to be true, it probably is. Stay vigilant and trust your instincts when evaluating loan offers.

Protecting Yourself from Advance Fee Loan Scams

To protect yourself from falling victim to an advance fee loan scam, follow these guidelines:


Verify Lender Registration: Check if the lender is registered and licensed with the appropriate regulatory authority in your province. Visit the Financial Services Regulatory Authority of Ontario (FSRA) website or the respective regulatory websites in your province for a list of registered lenders.

Research the Lender: Conduct a thorough online search to gather information about the lender. Check for reviews, ratings, and any complaints filed against them.

Check Accreditation: Verify if the lender is accredited with trusted organizations like the Better Business Bureau. Accreditation indicates that the lender has met certain standards of business practices.

Contact the Lender: Reach out to the lender directly to verify their legitimacy. Ask for their physical address, contact information, and any additional details about their loan offerings.

Avoid Upfront Fees: Never pay an upfront fee to a lender for a loan. Legitimate lenders deduct any applicable fees from the loan amount itself.

Secure Payment Methods: Use secure payment methods, such as bank transfers or credit cards, when making payments. Avoid using untraceable methods like wire transfers or gift cards.

Seek Professional Advice: If you are unsure about a lender or loan offer, consult with a financial advisor or a trusted professional who can provide guidance and assist you in making informed decisions.

Report Scams: If you encounter an advance fee loan scam or suspect fraudulent activity, report it to your local law enforcement and the Canadian Anti-Fraud Centre at 1-888-495-8501. Reporting scams helps protect others from falling victim to similar schemes.


Remember, there are legitimate options available for individuals facing financial difficulties. If you need a loan or financial assistance, consider reaching out to your bank, credit card company, or a reputable credit counseling organization. These entities can provide guidance and explore suitable solutions for your financial needs.

By staying informed and cautious, you can protect yourself from falling victim to advance fee loan scams and safeguard your financial well-being.

Find Your Personal Debt Relief Solution

Licensed Insolvency Trustees are here to help. Get a free assessment of your options.

Discuss options to get out of debt with a trained & licensed debt relief professional.