The Financial and Consumer Services Commission (FCNB) is urging New Brunswickers to use caution if approached by someone offering to help them secure a loan to pay off debt by falsifying an application for a home renovation loan.
FCNB has become aware of individuals in the province acting as credit brokers, and arranging, for a fee or commission, loans with financial institutions based on false information.
These individuals are counselling homeowners to lie on their loan applications about the purpose of the loan by coaxing them to state the money will be used for various home renovations, like the purchase and installation of heat pumps.
In many cases, they have a pre-existing relationship with the homeowner and know the homeowner to be in financial hardship. They use this information to target the homeowner and exploit their trust to persuade them into signing the fraudulent documents.
These individuals may misrepresent to the financial institution how the loan proceeds will be used, inflate building material prices thus increasing the loan amount, and charge high fees and commissions for which the borrower may not be made aware.
For example, the loan application might state that the money will be used for buying heat pumps, but in reality, the funds are needed for another purpose, such as paying off credit card debt. The scammer may inflate the cost of the heat pumps and support the loan application with fake invoices for building materials. The scammer then submits the fraudulent application and profits by pocketing the excess value of the loan and/or collecting fees or commissions.
Many of those affected by this scheme are older adults on a fixed income who are left responsible to repay the full loan amount, including thousands of dollars in fees and/or commission, with interest over several years.
“The individuals orchestrating this scheme are very skilled in influencing the borrowers,” said Alaina Nicholson, FCNB’s Director of Consumer Affairs. “In many cases, they convince the homeowner to sign fraudulent documents saying it is common practice, and the borrower may not fully understand what they are agreeing to.”
The Cost of Credit Disclosure and Payday Loans Act protects consumers by ensuring that the true cost of borrowing as well as their rights and responsibilities are accurately disclosed to them in their credit contracts. In New Brunswick, individuals must be registered with FCNB if they are helping people secure loans and are charging a fee or commission for the service, also known as brokering credit. FCNB also notes it can be a criminal offence to misrepresent on a loan application the purpose for which the loan will be used.
“It’s important to always be honest on a loan application,” said Nicholson. “Providing false information on a loan application is lender fraud. Once you sign for a loan, you have entered into a legally binding agreement and are responsible for the repayment of that money plus interest.”
FCNB provides the following tips to help New Brunswickers avoid becoming involved in lender fraud:
- Contact FCNB to verify that the broker is registered to operate in New Brunswick.
- Never provide false information on a loan application or sign a loan application that includes misleading information.
- Do not sign for a loan if you do not fully understand the agreement.
- Get an independent, professional second opinion: Take some time to consult with a third party, such as a lawyer or financial institution.
- Finally, don't let embarrassment or fear keep you from reporting fraud.
If you have been approached or suspect you’re a victim of lender fraud, complete the FCNB Submit a Complaint form and contact your local police agency.
Audio Files of Alaina Nicholson, FCNB’s Director of Consumer Affairs: