Top consumer scams
FRAUDULENT fundraisers take advantage of donors’ goodwill by misrepresenting who they are and what they do with the money they raise. To collect money from sympathetic individuals, solicitors often pick such popular charitable causes as support for police or firefighters and their families, or for veterans or terminally ill children. They also take advantage of such current events as the war in Iraq or the terrorist attacks of Sept. 11, 2001.
Consumers can ensure their donations benefit the people and organizations they want to help by calling the charity to find out if it’s authorized the use of its name and is aware of the solicitation. Also ask what percentage of the donation will be used to support the causes described and what percentage will be used for administrative costs. Contributors should get a receipt that shows the amount of the contribution and states it is tax deductible.
ALLEGED credit-repair services claim the ability to erase bad marks from a consumer’s credit history or to create a new credit identity, which is illegal. Such companies cannot do anything for consumers that consumers cannot do themselves at little or no cost, and they often charge high rates before services have been delivered. Many such companies vanish with consumers’ money without delivering service. The most reliable way to clean up a credit history is to work with counselors in arranging a realistic repayment plan.
DEBT negotiators and debt-settlement companies offer to cut consumers’ bills in half by negotiating lower payoff amounts with customers’ creditors. Often they tell customers to stop paying creditors and to send the money to them instead. The money gets placed in an account until the negotiator decides to make an offer to the credit card company. Meanwhile, the customers’ accounts go unpaid and their credit is trashed.
Creditors often write off debt if no payment has been made for 180 days or six months. A write-off remains on consumers’ credit reports for seven years plus 180 days from the date of the first nonpayment. So even if the negotiator manages to reduce the credit card balance, the consumer is still stuck with bad credit. A write-off may also cause problems with the Internal Revenue Service, because the amount of forgiven debt is viewed as income to the borrower.
Debt negotiators are also known to charge high fees. On top of application fees, they charge processing fees and demand a percentage of the money customers supposedly save when negotiators lower credit-card balances.
Employment and Work-at-Home Schemes
EMPLOYMENT scams usually end up costing people money rather than making them money. Employment ads boast high pay in fast-growing industries for those who want to work at home. Classic employment schemes range from medical billing to envelope stuffing and assembly or craftwork.
These ads don’t disclose that consumers are often required to pay for instruction, equipment and supplies, and work many hours with no pay. Also, “employees” are responsible for selling their products. Promoters of these seams target people searching for family-friendly employment or who have low incomes. Ask yourself: If working at home is so easy and profitable, why isn’t everyone doing it?
THE Federal Trade Commission has named identity theft the fastest-growing white-collar crime today. Also called identity fraud, the crime occurs when thieves steal personal information with the intent to assume–or sell–another person’s identity.
Thieves are after names, addresses, financial account numbers, Social Security numbers, dates and places of birth, tax records, cancelled checks and credit-card statements. They use these stolen identities to obtain credit from banks and retailers, steal money from existing accounts, apply for loans, establish accounts with utility companies, rent apartments, file bankruptcy, obtain jobs or apply for Social Security benefits.
Most identity-theft victims don’t know thieves have made a mess of their good names and credit histories until banks deny them home loans or auto financing. For more information on identity theft, go to www.soldiersmagazine.com for Volume 4, No.2, of Hot Topics.
SOME online marketplaces promise merchandise at cheap prices but fail to deliver the items or send low-quality goods. Consumers should check out retail prices to see if prices are too good to be true, and check out the seller’s reputation. While credit-card purchases can be disputed, be sure purchases made online are done on secure sites.
Investment and Financial Scares
FRAUDULENT investment promoters claim they can offer high returns and no-risk deals. But no financial investment is risk-free, and a high rate of return usually means greater risk.
Investment promoters feign high-level financial connections and pose as stock brokers or portfolio managers. They may create false statistics and offer share, mortgage or real estate investments; high-return schemes; option trading and foreign currency trading.
The Better Business Bureau suggests consumers take the following precautions when approached by anyone selling an investment opportunity:
* Take your time before investing money. Don’t be pressured into buying. Be wary if you are urged to “buy now or forever lose your opportunity to profit.”
* Research the investment opportunity. It’s unlikely you will make money in a business deal you can’t understand or verify.
* Before investing in stocks, bonds or mutual funds, get written financial information such as a prospectus or manual report, and inquire about fees for services.
* Learn about the company’s reputation. Verify the data with impartial, outside sources. Is the company licensed in your state? Has it had run-ins with regulators or received serious complaints from investors? Contact the Better Business Bureau for a reliability report on the company.
* Invest only in offers you know something about.
* Ask about fees for establishing, changing and servicing your account. Also ask how the investment adviser is being paid–at an hourly rate, flat fee or commission that depends on your investments.
* Be skeptical and cautious about unsolicited phone calls concerning investments.
* Don’t believe everything you read or assume it is legitimate.
* Don’t send money by overnight delivery or wire transfer, or authorize a credit-card payment or automatic debit from your bank account by anyone you don’t know.
* Talk to the previous owners of an asset or business you’re acquiring to determine its value history.
* Discuss all investment ideas and plans with an accountant or an adviser you know and trust.
LIFE-insurance fraud ranges from the sale of nonexistent or overpriced insurance to the sale of policies incorporating restrictive clauses that limit payment.
Individuals selling life insurance to soldiers must follow Department of Defense Directive 1344.7, “Personal Commercial Solicitation on DOD Installations,” and Army Regulation 210-7, “Commercial Solicitation on Army Installations.” Prohibited practices include attempting to sell insurance to soldiers without appointments or during duty, and claiming DOD sponsorship or endorsement.
Soldiers should seek third-party review for life-insurance policies through local legal-assistance offices or other qualified individuals. They should also compare policies from various companies.
Many financial planners do not recommend soldiers invest in nonmilitary insurance since service members have access to government-sponsored Service Members’ Group Life Insurance for about $12 a month.
THE variety of consumer loans makes it important for consumers to understand the terms and conditions before applying for loans.
Consumers who have trouble getting credit may be lured by advertisements for advance-fee loans. Companies advertising these services pretend to offer loans without considering the consumer’s credit history, then ask for an up-front fee and never deliver the loan. Legitimate lenders usually do not require processing fees, although they may require appraisal and credit-report fees after applications are completed or approved.
According to the Federal Trade Commission’s Telemarketing Sales Rule, it’s against the law for any person or company to ask for or accept payment for arranging a loan or other form of credit before the consumer receives the loan or credit.
Payday loans are somewhat similar to advance-fee loans, and are among the most expensive ways of borrowing money. Also known as cash-advance loans, check-advance loans, post-dated check loans or deferred-deposit check loans, such loans offer borrowers a certain amount of money in exchange for personal checks written for the borrowed amount in addition to high borrowing fees. The lenders agree to not cash the checks until the borrower’s next payday.
On a typical payday loan, a person might write a personal check for $115 to borrow $100 until payday. The annual percentage rate in this case is 390 percent. These loans are illegal in some states.
Rather than using advance-fee or payday loans, soldiers should consider applying for a small loan at the local credit union or a small-loan company. The important thing is to find a loan with the lowest cost of borrowing.
ONE of the most expensive seams aimed at service members is the military-pension seam, through which veterans are offered lump-sum cash payments in return for several years’ worth of veterans’ pension or disability payments. These deals cost veterans tens of thousands of dollars. They work like high-interest loans and are usually worth only 30 or 40 percent of veterans’ actual benefits.
Federal law makes it illegal for veterans’ benefits to be transferred from the beneficiary to another person. But companies circumvent the law by setting up a joint account in which the veteran receives benefit payments and the company can make monthly withdrawals. They also circumvent the Federal Truth in Lending Act by referring to them as something other than “loans.”
“Nigerian Letter” Seams
THESE letters are usually marked “urgent” or “confidential” and are sent by persons claiming to be officials of a foreign company or government ministry. The senders request assistance transferring millions of dollars of excess money out of their native countries. Con artists request the intended victim’s bank account number and the name, address, phone and fax numbers of the bank, then inadvertently take money out of the person’s account. Or they may charge transfer fees, taxes and travel expenses.
Recipients of these letters should label them “No financial loss for your database” and fax them to the U.S. Secret Service Task Force handling Nigerian scam cases at (202) 406-6930.
PYRAMID schemes are also called multilevel or network marketing plans. These schemes offer commissions to members who recruit new distributors to sell goods or services. Members typically spend money upfront on inventory and sales literature, then must recruit others to join in order to earn commissions.
Most product sales–if there are any–are made to other distributors, not outside consumers. The goods and services serve only to make the scheme appear legitimate, though some multilevel marketing plans may be legitimate. Local Better Business Bureaus can help consumers determine whether a specific plan is legal.
THE Internal Revenue Service warns consumers that tax seams occur even outside of the federal tax-filing season. A recent tax scam targeted potential recipients of the Advance Child Tax Credit. Scam artists promised to speed up the payment if the taxpayer agreed to a $39 credit-card charge. No organization or person can speed up the payment of tax benefits.
Scam artists also prey on black Americans by offering to file for tax credits or refunds related to reparations for slavery, then require clients to pay up front fees for claim preparations. Tax laws do not allow for credits or refunds related to slavery reparations.
Some taxpayers have received e-mails from a non-IRS source indicating the taxpayer is under audit. The recipient is asked for such confidential information as Social Security and bank account numbers. IRS does not conduct audits through e-mail.
Telemarketing Recovery Scares
SOME scare artists buy and sell “sucker lists” with the names, addresses and phone numbers of people who have lost money in fraudulent promotions. Businesses that buy these lists contact the consumers and promise to recover the lost money–for a fee. Under the Telemarketing Sales Rule, it is illegal to request payment until seven business days after the recovered money is returned to the consumer.
PHONE companies may switch consumers’ phone service by telling the local phone company that consumers have authorized a change in service providers. Phone companies may also charge consumers for miscellaneous services they never requested, such as voice mail, paging, Internet access or personal 800 numbers.
The providers of pay telephones in such public places as hotels, airports and stores can use any long-distance provider they choose. Even when using a prepaid calling card, you can still be charged rates as high as $3 to $5 a minute.
Calls to 1-900 and 1-999 numbers for “information” are very expensive. Calling these numbers “authorizes” the business to charge a large fee to your telephone bill. Charges can be $3 per minute to $25 per minute. Some seams have consumers call a toll free number first, then transfer callers to the charge line after the first 10 to 15 seconds.
TRAVEL and vacation seams are most common in spring and summer. Scam artists may tell consumers they’ve won a free vacation package or that they must “act now” before the offer expires. Consumers usually end up paying a high price for some part of the package, like hotel or airfare, or end up with accommodations and services of lower quality than advertised.
WEIGHT-loss promotions may guarantee consumers will shed unwanted pounds in a week–or even overnight–without cutting back on calories or exercising. Medical science has not yet discovered a secret for easy weight loss. Consumers should check out products with the Food and Drug Administration and remember that testimonials do not serve as scientific proof of a product’s effectiveness.
USED cars may seem like an attractive purchase to consumers who are low on cash, but purchasers must do some research to avoid fraud.
Consumers lose billions of dollars each year to odometer fraud, according to the National Highway Traffic Safety Administration. A seller may roll back the odometer reading to help increase the car’s value (thus increasing the consumer’s repair costs). Buyers can obtain a vehicle history report by getting the 17-digit vehicle identification number and searching the Web to find companies that offer vehicle-history reports.
Buyers should also watch out for state-issued salvage titles or rebuilt-car titles. Salvage titles are often issued when an insurance agency takes possession of a car due to a claim. Rebuilt tiTLes are issued when a car has sustained major damage and then been reconstructed.
COPYRIGHT 2003 Soldiers Magazine
COPYRIGHT 2003 Gale Group