Thieves are Looting the Universal Credit System by Touting Payday Loans

Fraudsters, posing as payday loan companies, are duping unsuspecting victims out of thousands of pounds. The payday loan scam was reported by the short-term lender Simple Payday Loans this week. As part of the scam, victims are duped into believing that the fraudster is a loan broker and arranging a loan on their behalf. In actual fact, the crooks steal the victim's identity and use the details to open a claim for Universal Credit, then subsequently apply for an advance from the first payment. The victim is wholly in the dark about this and only finds out after confirmation is sent to them about their claim for Universal Credit by the Department of Work and Pensions (DWP), often weeks later.

The victim believing that they have been arranged a loan, pay the agent a 'fee' usually running into hundreds of pounds.

It has been estimated that the scam has cost the UK taxpayer over £20 million so far in lost revenue, with the figure rising steadily as officials are said to be 'pulling their hair out' from the amount of blatant fraud they are seeing up and down the country.

What is UC?

Universal Credit (UC) is an amalgamation of the six core UK benefits into one, these include; jobseeker's allowance, income support, working tax credits, child tax credit, housing benefit and employment support allowance. The system was introduced in 2013 in an attempt to

streamline the UK's benefit system and cut down on fraud. It was claimed at the time that the introduction of the Universal Credit system would save over a billion pounds on fraud alone.

Defrauding the system

An integral part of the Universal Credit benefit is the help afforded to those at the start of the claim. New claimants are entitled to a cash advance on their future payments. This is then deducted from any future payments made to the claimant. This advance was not available in the previous system and was introduced as a direct result of the waiting period for new claims being set at 6-weeks. Meaning that from initial contact to the first payment being made, claimants are left waiting a set 6-week period.

Criminals exploited this loophole by making fake claims in the names of victims and then applying for loans on their claims.

The majority of victims were approached online. Either through social media websites or through other websites such as job boards. They reply to an advert either offering a Government grant, a job or a small cash loan. This is when the scam begins with millions said to be leaving the coffers of the Department for Work and Pensions monthly.

Job centres are seeing large numbers of fraudulent claims. Some reports putting the figure as 1/3^rd of all applications for Universal Credit last month being false.

Jess's Story

Jess, 29, from Ludlow, is a stay-at-home Mum to her 2-boys aged 6 and 10. Jess was approached by someone offering her a loan through Facebook. "Because I have a poor credit rating I didn't think I could get a loan, in fact I had been applying with no luck previously."

Jess says the fraudster reassured her she'd have the money on the same day and after disclosing bank information, a copy of her passport and a passport photo, the cash was in her account that afternoon. "I was relived as I had fallen behind with rent and bills."

She says she found the 'arrangement fee' part strange but didn't argue as she simply needed the money.

"I was paid £1500 and had to pay him £800 from that, leaving me with £700. He hadn't mentioned repayment at this stage, which I found very odd."

A claim for Universal Credit had been made in her name and a loan on the first payment requested. Jess says that she was totally unaware of this until over a month later when her family tax-credits started to have deductions and she started to fall into debt.

The scam dissected

• The scammer contacts the victim online offering a free Government grant or a short-term loan.
• Identification documents are handed over at the insistence of the scammer. A claim for Universal Credit is opened in the victim's name.
• Scammers apply for a cash advance from the first payment of the claim.
• As soon as the cash hits the victims account, the scammer demands the 'arrangement' fee and promptly vanishes.
• Left owing hundreds of pounds to the Department of Works and Pensions, the victim now has no choice but to repay the loan, often falling into debt in the process.

Don't fall for it

Almost all cases have the same hallmarks. A loan or grant is arranged and a fee paid from that amount. This fee can be as high as £1000 in some cases. The details given to DWP are likely to be completely fictitious, with reports of made-up children's names and outlandish application claims given.

Caught up in the scam are students, the elderly and even workers abroad. Workers in Ibiza recently reporting that they have been contacted with offers of 'free government grants.'

With officials estimating the size of the scam at over £20 million, some believe this to be conservative and that the UK treasury are realistically looking at over £100 million lost through the scam alone.

An insider at the Department of Work and Pensions said this:

"We've been seeing this scam taking place for months. The same people come in day-in-day-out, often with different victims. Of course, we know what's going on, but our hands are tied by bureaucracy, this really needs to be looked at and urgently."