Understanding Fraudulent Lending to the Public

Written by MISS THANYALAK THONGKHAM

In an era where technology has made fundraising and investing more accessible, online businesses have become an easy choice, just a click away. However, fraudsters have exploited this opportunity to deceive a large number of people, particularly in the form of 'fraudulent lending to the public,' which often relies on the victim's hope, desire for quick returns, or lack of knowledge to deceive them.

In the previous article, we discussed fraud. Now, let's move on to understanding fraudulent lending to the public.

What is Fraudulent Lending to the Public?

Lending is a type of contract involving two parties: one is called the "lender" and the other is called the "borrower."

A loan agreement is a type of contract in which the "borrower" asks for money from another person, known as the "lender." The borrower agrees to repay the money within a specified period. The loan may or may not include an interest rate, and the loan agreement is considered complete once the money has been disbursed to the borrower.

Fraudulent lending to the public refers to loans that are not intended for actual lending purposes but instead are designed to deceive people into investing or lending money. The perpetrators often offer unusually high returns or advertise through media to appear trustworthy, despite knowing that they will not be able to repay the money or provide the promised returns.

The perpetrators often spread advertisements through various channels, such as online media, Line groups, or print media, making it easy to reach a wide audience and difficult to verify. This type of fraud misleads the public into believing false information or omits critical facts to encourage people to make wrong decisions and invest their money.

The returns offered to entice victims may come in the form of cash, assets, or other benefits, such as monthly interest or bonuses for referring others. If the origin of the funds cannot be proven or if there is no actual business operation, the law considers this to be fraud.

Emergency Decree on Borrowings which are Regarded as Public Cheating and Fraud, B.E. 2527 (1984)

This Emergency Decree defines behaviors that may constitute fraud against the public, particularly actions related to borrowing money that often involve advertising to deceive the public. This includes cases where advertisements or transactions are illegal, or situations that appear to be lawful but are still punishable under the Emergency Decree on Borrowings, which are regarded as Public Cheating and Fraud, B.E. 2527 (1984)

1. Fraud through Advertising

According to Section 4 of this Emergency Decree, anyone who borrows money through advertisements or public announcements to inform at least 10 people, including advertising through various media or publications aimed at getting people to invest or lend money under unfair terms, such as offering interest rates higher than those legally permitted and beyond what financial institutions can reasonably pay, is considered to be committing fraud against the public. This is illegal as per Section 4, Paragraph 1, and carries penalties as defined by the Emergency Decree.

2. Fraud through Investment in Foreign Currency Trading

Another situation considered loan fraud against the public is deceiving people into investing in businesses related to foreign currency trading or foreign exchange speculation. This is illegal if the person promoting the investment is not authorized to conduct such business under the law governing foreign exchange control. If found, it is considered fraud under Section 4, Paragraph 2, and the person committing the act will be penalized according to the law.

3. Loans that are considered Fraud Against the Public, Even if Not Directly Deceptive

Even if the person involved does not directly deceive the public, any actions that fall within the scope of the law are considered fraud. If the individual offers returns higher than what financial institutions can legally provide, or fails to cooperate with authorities when inspected, and cannot provide credible evidence that the business has enough income or profit to repay the lender, such actions will be treated as fraud under this Royal Decree. However, an exception may apply if the person can prove there was no intent to deceive, or if the failure to meet the agreed conditions was due to unforeseen economic circumstances or other reasonable explanations as outlined in Section 5.

How to Protect Yourself from Becoming a Victim

Being aware of the characteristics of financial fraud can help protect yourself from becoming a victim. For example, verify information from reliable sources and avoid falling for offers of unrealistically high returns. It’s important to steer clear of investing or lending money in activities where the source of income cannot be verified.

Examples of Business Practices that Fall Under Loan Fraud

Now, let's take a look at some examples of business practices that could fall under loan fraud.

As we all know, fraud comes in many forms, and it most often occurs in businesses related to borrowing money. It usually involves convincing people to believe in unrealistically high returns or investing in businesses that don’t actually operate.

The following examples are business practices that may fall under fraud, and they are often seen in news reports.

1. Ponzi Scheme

This type of business often raises funds from new investors to pay old investors, without generating any actual profit or return from legitimate investments. The money from new investors is used to pay returns to old investors, which is clearly fraudulent. The system collapses when there is no new money coming in.

Example: Company A advertises on social media, inviting the public to invest in an online Thai language course, claiming high profits and guaranteeing an income of 100,000 baht within one month, now available for only 10,000 baht for 10 spots. Mr. B invests 10,000 baht and receives a return from Company A, which is claimed to be the profit from the investment. Later, Mr. C and Mr. D also invest, and Company A uses Mr. C's money to pay Mr. B and Mr. D's money to pay Mr. C.

Observation: This type of activity is clearly fraudulent because there is no actual investment. The system collapses when no new money comes in or when new investors can no longer join.

2.Fraudulent Goods and Services Business via Social Media

Businesses that attempt to deceive consumers by selling goods or services that do not meet advertised quality, or in some cases, do not actually exist. Sometimes, they may sell goods or services at excessively high prices, without the claimed features.

Example: Ms. A advertises 100 shoulder bags for sale on social media, claiming multiple colors and low prices due to direct factory sourcing. However, there is only one bag of each color. Ms. A persuades people to buy and transfer money but fails to deliver the promised bags. Sometimes, she sends a different item or low-quality bags without informing the buyers in advance.

3. Businesses Offering Unregulated Financial Services

Allowing individuals or groups to deposit money with promises of daily or weekly interest rates that are unreasonably high compared to what is available in the market.

Example: Ms. A launches a mobile phone sales scheme targeting students with no capital, claiming they can pay in installments and receive the phone upon completing payments. The plan requires a 1,000 baht down payment and installments up to 15,000 baht. However, when Mr. B completes the payments, he is unable to contact Ms. A to receive the phone. All attempts to contact via text and Line are blocked.

4. Fraudulent Education and Training Businesses

These businesses may offer education or training programs that lack quality or proper accreditation from trusted institutions, often promising job placements or career success after completion, even though these programs cannot deliver the promised results.

Example: Company A advertises a university entrance exam preparation course, guaranteeing entry to top universities and claiming a 100% success rate, with highly experienced teachers. However, Company A is not accredited by any credible institution. Upon completion, students receive a certificate claiming entry to prestigious universities, but they have not studied at those institutions.

5. Fraudulent Business Services and Loans

These businesses often deceive by offering goods or services that cannot be delivered, or by requesting advance payments for services that do not exist, such as transferring money for reservations, only to never receive the promised service.

Example: Company A advertises a loan service to buy homes below market value, with guaranteed low-interest rates and flexible repayment terms, requesting a deposit or fee. After victims transfer the money, they find out that Company A does not own the homes or have the ability to provide loans. Requests for a refund are ignored.

6. Fraudulent Employment Businesses

These businesses deceive job seekers by charging upfront fees or promising non-existent jobs. They offer fake job openings to lure applicants into paying money for participation in schemes that don’t lead to real employment.

Example: Company A advertises on social media for overseas job openings, including sales, management, and online marketing positions, offering high salaries and excellent benefits. They require applicants to pay upfront fees to participate in interviews. After transferring the money, applicants find no actual interviews or job offers, and they cannot get their money back.

All of these actions are forms of fraud related to borrowing money and are considered violations of the law under the Emergency Decree on Borrowings, which are regarded as Public Cheating and Fraud, B.E. 2527 (1984). Those who engage in these types of businesses may face legal action according to this law.

Legal Principles under the Emergency Decree on Borrowings which are Regarded as Public Cheating and Fraud, B.E. 2527 (1984)

A loan refers to the acceptance of money, property, or any other benefits through various forms such as deposits, borrowing, membership, investments, or other similar actions, where the borrower or another party agrees to pay returns or benefits to the lender.

Compensation means money, assets, or other benefits paid or agreed to be paid by the borrower or another party to the lender, whether in the form of interest, dividends, or any other form.

Borrower means a person or legal entity borrowing money. In the case of a legal entity, it also includes the representative who signs the loan agreement on behalf of that entity.

Lender refers to the person or entity providing the loan or receiving benefits or returns from the borrower under the agreement.

The term 'general public' is not limited to any specific group. If an announcement or advertisement is made to the public at large, it is considered a public solicitation, regardless of how many people actually believe or respond to it.

Advertising, announcing, or acting by any means includes disseminating information, contacting, or soliciting — whether through newspapers, radio, television, online media, printed materials, brochures, or leaflets, among others.