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Identifying Illegal Online Lenders

By December 6th, 2023No Comments
A woman sitting on a chair looking at an illustration with "scam alert" written in the middle

Online lending has become increasingly popular in recent years as more people turn to the internet to access financial services. While there are many reputable online lenders, there are also illegal lenders that engage in fraudulent practices and prey on vulnerable individuals. These illegal lenders may offer loans with extremely high-interest rates, hidden fees, and other predatory practices that can trap borrowers in a cycle of debt.

Identifying illegal online lenders can be challenging, as they often use sophisticated marketing tactics and may operate under the guise of a legitimate company. However, there are several warning signs that borrowers can look for to avoid falling victim to these predatory lenders.

Warning Signs of Illegal Online Lenders

Illegal online lenders are lenders that operate outside of the bounds of legal regulations and engage in fraudulent or predatory lending practices. These lenders often target vulnerable individuals, such as those with poor credit or financial difficulties, and may offer loans with high-interest rates, hidden fees, and unfavourable terms.

Characteristics of illegal online lenders may include:

  • Not registered with the Australian Securities and Investments Commission (ASIC): ASIC is the government agency that regulates financial services in Australia. If a lender is not registered with ASIC, it is not a legitimate lender and you should not take out a loan from them. You can check a lender’s registration status on ASIC’s website.
  • Unrealistic loan terms: Illegal lenders may offer loans with unrealistic repayment terms, such as excessively high-interest rates, short repayment periods, or large balloon payments. These terms can make it difficult or impossible for borrowers to repay the loan, trapping them in a cycle of debt. Avoid falling into these type of debt traps by making sure that you always review the contract before signing. 1
  • No credit check or employment verification: Most lenders will request bank statements to verify income and expenses and require borrowers to undergo a credit check and provide proof of employment or income. Illegal lenders may offer loans without any such requirements, making it easier for them to target vulnerable individuals.1
  • Use of aggressive or deceptive marketing tactics: Illegal lenders may use aggressive or deceptive marketing tactics to attract borrowers, such as offering “guaranteed” loans or using misleading advertising.
  • Requests for upfront fees: Legitimate online lenders may sometimes charge for upfront fees, but only after the loan has been approved. So if a lender asks you for upfront fees before your loan is approved it is highly likely that you are dealing with an illegal lender.2
  • Poor online presence and absence of legitimate contact information: Illegal lenders may have a poor online presence or no legitimate contact information. Legitimate lenders typically have a professional website and provide contact information that includes a physical address and phone number.
  • Charges excessive interest rates or fees. The maximum interest rate that a lender can charge on a personal loan in Australia is 48% per annum, including other fees. If a lender is charging more than this, it is likely that they are an illegal lender. You can check the maximum interest rate on the ASIC website.

Borrowers should be aware of these warning signs and take steps to protect themselves from illegal lending practices when seeking out online lenders. This includes researching lenders before borrowing, reading loan agreements carefully, and reporting any suspected illegal lending activities to the appropriate authorities.

Common types of illegal lending practices

  • Predatory Lending: This refers to lending practices that take advantage of vulnerable borrowers giving them high-interest rates, hidden fees, and unfavourable terms. This type of lending may involve the use of deceptive marketing tactics and may trap borrowers in a cycle of debt.
  • Loan Flipping: This is a practice where lenders encourage borrowers to refinance their loans repeatedly, charging fees and interest each time. This can result in borrowers paying much more in interest and fees than the original loan amount.
  • Payday Loan Abuse: Payday loans are short-term, high-interest loans that are typically due on the borrower’s next payday. Predatory lenders may take advantage of borrowers who are unable to repay the loan on time, charging excessive fees and interest and rolling over the loan repeatedly.
  • Unauthorised Lending: This refers to lending practices where lenders make loans without the borrower’s consent or knowledge. This may involve identity theft or other fraudulent activities.
  • Unfair Debt Collection Practices: This includes practices such as harassing borrowers with repeated phone calls, threatening legal action, or disclosing personal information to third parties.

Consequences of Dealing with Illegal Online Lenders

Dealing with illegal online lenders can have a number of serious consequences, including:

  • Financial hardship. Illegal lenders often charge high-interest rates and fees, which can make it difficult to repay the loan. This can lead to financial hardship, such as debt collection, bankruptcy, and even homelessness.
  • Harassment and intimidation. Illegal lenders may use harassment and intimidation tactics to collect payments, such as making threatening phone calls, sending threatening letters, or even showing up at your home or workplace.
  • Identity theft. Illegal lenders may steal your personal information, such as your name, and address to commit identity theft. This can lead to a number of problems, such as opening new accounts in your name, ruining your credit score, and even getting arrested.

Researching and Verifying Lenders

Conducting thorough research before engaging with online lenders is crucial to protect oneself from illegal lending practices.

Here are some important steps that borrowers can take to research and verify lenders:

  • Checking for regulatory compliance and accreditation: Borrowers should check if the lender they are considering has the required license or registration and if they comply with relevant laws and regulations. Additionally, some lenders may have professional accreditations or affiliations that indicate their legitimacy.
  • Reading customer reviews and testimonials: Reading customer reviews and testimonials can provide insight into the lender’s reputation and level of customer service. Borrowers should check multiple sources for reviews to get a comprehensive view of the lender’s reputation.
  • Verifying contact information and professional affiliations: Borrowers should verify the lender’s contact information, such as their physical address and phone number, to ensure they have a legitimate and professional presence. Additionally, borrowers can check if the lender is affiliated with professional organisations or associations, which can indicate their legitimacy.

Reporting Illegal Online Lenders

If you suspect or encounter an illegal online lender, it’s important to take action and report the incident to the relevant authorities and consumer protection agencies.

Here are some steps you can take:

  • Document the incident: Keep records of all communication with the lender, including emails, messages, and phone calls. Take screenshots and save any documents related to the loan.
  • Check for legal violations: Review your loan agreement to see if there are any violations of consumer protection laws. Look for any illegal practices, such as charging excessive interest rates or fees.
  • Contact the lender: If you suspect illegal activity, try contacting the lender to ask questions or clarify any concerns you may have.
  • Report the incident: If you’re not satisfied with the lender’s response or believe that the lender is engaging in illegal practices, report the incident to relevant authorities and consumer protection agencies. You can report to the Australian Securities and Investments Commission (ASIC), the Australian Competition and Consumer Commission (ACCC), and the Australian Financial Complaints Authority (AFCA). Provide as much detail as possible about the incident, including any evidence you have.
  • Seek legal advice: If you believe you have been a victim of illegal lending practices, seek legal advice from a qualified attorney who specializes in consumer protection law.

Reporting illegal online lenders is important not only for your protection but also to prevent others from falling victim to these scams.

Protecting Yourself from Illegal Lending Practices

Here are some tips for safeguarding personal and financial information online and utilising secure online lending platforms:

  • Protect personal information: Be cautious about sharing personal information online, especially with lenders that you don’t know or trust. Only provide information that is necessary to complete a loan application.
  • Verify the lender’s credentials: Check if the lender is licensed or registered with regulatory authorities and if they comply with relevant laws and regulations. Additionally, check the lender’s reputation by reading customer reviews and testimonials.
  • Utilise secure and reputable online lending platforms: Use secure and reputable online lending platforms that have established their reputation and offer secure data encryption and other safety measures to protect borrowers’ personal and financial information.
  • Seek advice from financial professionals or credit counselling organisations: Doing so can help you understand the terms and conditions of the loan and avoid falling prey to predatory lending practices.
  • Read loan agreements carefully: Make sure you understand the terms and conditions, including the interest rates, fees, and repayment schedule.
  • Be aware of scams: Be wary of unsolicited loan offers or requests for upfront fees or personal information. These may be signs of loan scams or fraudulent activity.


Illegal online lending can have serious consequences, including high-interest rates, hidden fees, and potential identity theft. It’s important for borrowers to be aware of warning signs and to conduct thorough research before engaging with any online lender.

Using secure and reputable online lending platforms, seeking advice from financial professionals, and reporting any suspicious activity to regulatory authorities will help borrowers safeguard themselves against predatory lending practices and protect their personal and financial information.

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