Loan Schemes Cost U.S. Consumers

Using the international boundary as an invisible shield, dozens of Canadian telemarketers have cheated credit-starved U.S. consumers out of millions of dollars in fees for loans that were never made, according to Canadian authorities investigating the firms.

A single company, Ideal Credit Referral Services Ltd., allegedly defrauded about 3,200 Americans of $1 million in just five months last year, an estimate based on records seized in a police raid in Vancouver, British Columbia, said Cpl. Joseph W. Loran of the commercial crime section of the Royal Canadian Mounted Police.

“It’s a major problem, and the companies are relying on [the border] to protect them,” Loran said.

The advance-fee operators run ads in U.S. publications offering loans to people with credit problems. Callers to an 800 number are interviewed by service representatives who state they are taking a loan application over the phone. Alleged victims said that after being told their loans had been approved, they mailed processing fees as instructed, but did not get loans or their money back.

Babette Sanderberg of North Hollywood said she fell for the scam last fall, when she was between jobs and facing a huge car repair and in desperate need of money. Sanderberg not only did not get the loan she said was promised, but got deeper in debt because a friend loaned the $295 fee she sent to Ideal.

“It was devastating,” Sanderberg said. “I’m a single parent and it really hurt me.”

Tarzana resident Phyllis E. Taylor said she lost $595 last fall after being told Ideal had arranged a $30,000 debt consolidation loan.

“I did something really foolish,” Taylor said. “If I could do anything to put these people out of business, I would.”

Canadian authorities have the same objective, but are finding the task next to impossible. One obstacle is the operators’ habit of closing down when complaints pile up and then reopening under new names. Another is the high cost of bringing alleged victims from the U.S. to testify, which has a chilling effect on prosecutions.

“Frankly, we don’t have the resources at this present time to be pursuing all these companies, . . . so we’re looking for a solution,” Loran said.

He said the Federal Trade Commission is investigating the matter, but FTC officials declined comment.

At a March 6 hearing on telemarketing fraud, Charles L. Owens, chief of the FBI’s financial crimes section, told the Senate Committee on Aging that the agency is “seeing a number of telemarketing operations that are involved in cross-border frauds. . . . We have teamed up with our Canadian law enforcement counterparts to attack the growing Canadian telemarketing fraud problem,” Owens said.

But FBI officials Friday would not say if agents are investigating Ideal or other Canadian advance-fee operations. “We don’t confirm or deny ongoing investigations,” said spokeswoman Jennifer Spencer, but “when something like this is brought to our attention, we take the appropriate action.”

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Canadian authorities suffered a key setback in January, when a British Columbia judge refused to grant an order restraining Ideal and its officials from “deceptive or unconscionable practices.” The basis for the decision was that British Columbia’s trade practices act only regulates transactions within the province.

Ideal officials prevailed by filing an “affidavit in which they stated that they do not publish the advertisement in Canada--that their target audience is only in the U.S.,” said David M. Morris, a solicitor with British Columbia’s office of attorney general. He said the ruling is under appeal.

In a telephone interview, an Ideal spokesman who identified himself as Chris Carter called that victory a sign of things to come. “I’m sure at the end of it, Ideal Credit will be vindicated,” he said.

Authorities said the emergence of new advance-fee operations after police raided Ideal last October shows the resilience and portability of the scheme. Ideal has been closed since the raid, in which police seized records and arrested seven Ideal employees. None have been charged, and the criminal probe continues.

But key figures of Ideal quickly resurfaced at new credit referral businesses in the Vancouver area, police said.

“It’s exactly the same mechanics--it’s just a different name,” Loran said, adding that he’s already “getting complaints from victims” of the new firms.

One of the new concerns, Elite Credit Referral Service, was running ads last week in USA Today offering “Money to Loan.”

In a court affidavit filed in December, an RCMP investigator alleged Elite Credit to be an “advance-fee scheme,” and described a visit to Elite Credit’s office in a Vancouver suburb. There, he found the former president of Ideal, Dion Lockhart, “in a small office by himself with one desk, a phone, and a fax machine,” the affidavit said.

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But on Friday, Elite Credit sales staff answering their 800 number drew a blank when a reporter called to ask for Dion Lockhart. A man identifying himself as Elite manager Trevor Richey said Elite was not affiliated with Ideal, and that no Dion Lockhart worked there. If the affidavit said otherwise, “unfortunately that’s incorrect,” Richey said.

Canadian authorities said British Columbia emerged as a stronghold last year, following an attempted crackdown in Ontario, the prime base of most of the firms.

Inspired by a growing outcry about advance-fee schemes, the Ontario legislature passed a law making it a crime to take a fee before providing a loan. After the law took effect in December 1994, some of the firms relocated to British Columbia or other provinces.

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Others, such as Ideal, split their operations, maintaining a telephone boiler room in Ontario to take the 800 calls, but instructing clients to mail processing fees to addresses in Vancouver, authorities said.

The Ideal operation was even more geographically dispersed. Authorities said that when the firm got the fees, it would forward applications to a loan broker in Prescott, Ariz., who would then issue clients a letter of denial, or offer to help them for an additional fee.

“It’s a good scam” because of the multiple jurisdictions, said Sgt. Jerome Malysh of the RCMP. “To try to coordinate 14 different” federal, provincial and state agencies “is very difficult,” Malysh said.

It shows “we’re still not prepared for the global economy.”

Carter said that contrary to assertions by law enforcement officers and alleged victims, Ideal never promised loans, but only offered to help customers find a lender. “No one was ever confused [about Ideal’s services], I can assure you of that,” Carter said.

He said forwarding applications to the Arizona broker was an attempt to get that help. In fact, Carter claimed, many customers “were granted credit of some sort,” although he provided no support for the statement.

Advance-fee operations are not limited to Canada.

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As The Times reported last month, U.S. postal inspectors are investigating Gold Star Group, a firm that operated in Reseda from October until February. Customers in at least six states complained that they paid Gold Star a $269 processing fee but did not get loans they were promised.

In December, FBI agents and state authorities conducted a massive sweep of allegedly fraudulent telemarketing operations in the U.S., arresting more than 400 people in 15 states. The focus of the sweep was not advance-fee operations, but other suspected schemes targeting the elderly.