Consumer fraud occurs when a person suffers from a financial or personal loss. The fraud can involve the use of deceptive, unfair, misleading, or false business practices. Fraudsters typically target senior citizens and college students, but all consumers are at risk of fraud.
The Consumer Financial Protection Bureau (CFPB) is a government agency that protects consumers from financial fraud and scams by making sure banks and financial companies treat consumers fairly. "Scammers are constantly finding new ways to steal your money. You can protect yourself by knowing what to look out for," according to the CFPB.
Here are some of the most common frauds that victimize consumers and tips on how to protect yourself from becoming affected.
- Consumer fraud occurs when a person suffers from a financial loss involving the use of deceptive, unfair, or false business practices.
- With identity theft, thieves steal your personal information, assume your identity, open credit cards and bank accounts, and charge purchases.
- Mortgage scams are aimed at distressed homeowners to get money from them.
- Credit and debit card fraud is when someone takes your information off the card and makes purchases or offers to lower your credit card interest rate.
- Fake charities and lotteries prey on people's sympathy or greed.
- Debt collection fraud tries to collect on unpaid bills whether they are yours or not.
The goal of the thieves is to use your personal information to assume your identity to access your bank account and drain funds, open and use credit cards in your name, take out loans, use your health insurance to pay medical bills, and file a tax return to collect your refund.
Signs of Identity Theft
You may be a victim of identity theft if one or more of the following occurs:
- Unexpected withdrawals are made from your bank accounts.
- Bills and financial statements you normally receive in the mail stop coming—a sign criminals changed your address so they can open financial products in your name.
- You receive calls from debt collectors about unfamiliar credit cards and debts.
- You notice unfamiliar accounts on your credit report.
- You receive bills from medical providers for treatments you didn't have.
- The IRS notifies you that more than one tax return was filed in your name.
- You receive notices or hear news about a data breach at a company where you do business.
What You Can Do
If you believe you are a victim of identity theft, start by going to IdentityTheft.gov, a website administered by the Federal Trade Commission (FTC). The site provides directions on how to help you recover your identity and repair any damage you have experienced. In addition, the FTC urges you to:
- Call companies where you expect fraud occurred to report the fraud, close or freeze accounts, and change login passwords and PINs.
- Place a free fraud alert with credit bureaus and obtain free credit reports.
- Report the identity theft to the FTC using the IdentityTheft.gov link above.
- Report the theft to local police for local monitoring.
The FBI deals with thousands of mortgage fraud cases each year. Today's mortgage scams are often aimed at distressed homeowners, according to the FBI's Financial Institution Fraud Unit. These scams include foreclosure rescue schemes, loan modification schemes, and equity skimming, among others. They are often carried out by real estate and mortgage professionals who misuse their specialized knowledge and authority.
Signs of Mortgage Fraud
The National Crime Prevention Council advises that you may be a victim of mortgage fraud if one or more of the following are true:
- You were promised a loan modification or that foreclosure would not happen.
- Payment of fees was required in advance of services provided.
- You were offered a money-back guarantee, advised to stop making mortgage payments, told not to contact your mortgage servicer, or instructed to begin making payments to someone other than your servicer.
- The process to buy the home seemed much slower than normal.
- Your questions were not answered or were answered incompletely.
- You were asked to sign papers you did not have a chance to read or did not fully understand.
The amount consumers lost to fraud in 2021; an increase of 70% from 2020.
What You Can Do
The FBI recommends that consumers protect themselves against mortgage fraud by doing the following:
- Seek referrals and avoid unsolicited contacts related to any real estate deal.
- Ask for and check the license of anyone with whom you are doing business.
- Walk away from any high-pressure or "seems too good to be true" transaction.
- Don't sign any paperwork you do not fully understand.
- Seek the advice of a qualified credit counselor or attorney.
Credit and Debit Card Fraud
Credit or debit card fraud can occur when someone steals or finds your card or manages to obtain the information from the card to purchase goods, withdraw cash, or otherwise use your card in a fraudulent manner. You should know that the Fair Credit Billing Act limits your liability to $50, and oftentimes, there's no cost at all depending on the bank or credit card issuer.
Signs of Credit and Debit Card Fraud
Although credit and debit card fraud is among the most common types of consumer fraud, any of the following signs should set off red flags for you:
- Your statement contains charges you don't recognize.
- You notice several small dollar amount charges from your account—a signal someone could be testing your card in advance of a major purchase.
- You don't recognize the name of the company attached to the charge.
- Charges appear from unfamiliar or distant locations you haven't visited.
- You experience a significant and unexpected drop in your available credit balance.
- You receive phone calls requesting credit or debit card information.
What You Can Do
Fight against credit and debit card fraud by doing the following:
- Check accounts daily and report unusual activity to your bank.
- Complain to the CFPB if the bank's response is not satisfactory.
- Have the card canceled or your account frozen.
- Don't respond to telephone calls with information the caller should already have.
- If you decide to follow up on a call, do so by contacting your bank at a known number.
Deceptive Interest Rate Reduction Robocalls
A relatively new twist on credit card fraud, according to the FTC, comes in the form of robocalls that "guarantee to reduce your credit card interest rate" (for a fee). These types of offers are usually scams and no more effective at getting credit card companies to lower your interest rate than if you called the company yourself for free. In addition to paying a fee for no service, some of these fraudsters ask for personal information which they then use to commit identity theft.
Signs of Deceptive Robocalls
According to the FTC, rate reduction robocall scams typically have one or more of the following in common:
- The call is unsolicited and not from a known or trusted source.
- The message claims to guarantee your credit card (or new card) rate will be zero or very low.
- The caller says the deal is only available for a limited time.
- A claim is made of a special relationship with credit card companies.
- You must pay a fee before any action is taken.
- Personal information such as your Social Security number is requested.
What You Can Do
Here are some ways to protect yourself from this type of scam:
- If you want a lower credit card interest rate, call the customer service number on the back of your card and request it yourself—it's free.
- Do not share credit card, bank account, or Social Security numbers, or other personal information with telemarketers, period.
- Reject any deal that requires an upfront fee. Companies cannot charge a fee before performing a debt relief service.
- Hang up or do not answer unsolicited pre-recorded sales calls.
Fake charities use the same techniques to steal your money that legitimate charities use to raise funds, according to the Federal Trade Commission (FTC). Before you donate, make sure you know where your money is going.
Signs of a Fake Charity
Several telltale warning signs suggest you are dealing with a fake charity:
- You are pressured to give now even to the point a courier will come to your door to collect your contribution.
- The charity only accepts cash, gift cards, or wire transfers.
- You receive a thank you for a donation you didn't make—an attempt to make you think you already support the organization.
- The group goes by a familiar-sounding name that doesn't quite match the organization it reminds you of.
- The caller or solicitor won't (or can't) provide detailed information about the organization.
- You are told you must donate to be included in a sweepstake.
What You Can Do
FTC guidance on not falling victim to a fake charity includes doing the following:
- Get the charity's contact information and check out the organization before you give using one or more of the following: BBB Wise Giving Alliance, Charity Navigator, CharityWatch, GuideStar.
- Ignore high-pressure pitches including pressure to pay now.
- Avoid making cash donations.
- Be careful about donating in the wake of natural disasters. This is when con artists come out of the woodwork.
- Don't provide personal information such as Social Security numbers or bank account information.
- Be proactive and make your annual giving plan ahead of time. Offer to add the charity's name to your list for consideration.
Prize and Lottery Fraud
Prize and lottery fraud come under many names—sweepstakes, drawings, foreign lotteries, and more. This type of fraud often targets aging adults and originates with a phone call or postcard. The FTC receives tens of thousands of complaints about prize and lottery fraud each year. Because many victims don't report being scammed, officials estimate the problem's scope is far greater.
Signs of a Fake Lottery or Sweepstakes
Fake lottery scams, many of which are foreign, exhibit well-known signs that something is wrong:
- You receive notification that you are a "winner" but need to send money to the lottery or sweepstakes office to cover taxes or administrative costs.
- Your winner notification arrives by bulk mail.
- You are required to attend a meeting to collect your prize.
- You don't remember entering the lottery or sweepstakes.
- Any payments you make are followed by more requests for cash or you are contacted by other organizations claiming you won their lottery as well.
What You Can Do
There are a number of steps you can take to protect yourself:
- Never pay money to collect on a lottery or sweepstakes. Legitimate taxes can be taken out of your winnings.
- Don't share your credit card or bank account numbers or send money even if the organization sends you a check—which is probably bogus.
- If you think the prize might be real, research the name of the company or organization and contact it at a known phone number.
- Report all suspected scams to the FTC.
Debt Collection Fraud
Some scammers, posing as collection agencies, call consumers demanding payment of bogus outstanding debts. These are not legitimate debt collectors. If you have actual unpaid debt, subject to collection, you have rights there, as well. These rights are spelled out in the Fair Debt Collection Practices Act (FDCPA).
Signs of Debt Collection Fraud
When it comes to discerning between a legitimate debt collector and a scam, here are some signs to look for:
- A scammer will withhold information from you including the exact amount of the so-called debt, the name of the creditor, that you have a right to dispute the debt, or information that lets you check on the legitimacy of the debt collector.
- They will pressure you to pay with cash, by money transfer, or with a prepaid debit card.
- They might threaten you with jail time or even suggest they are a government official.
- Sometimes scammers threaten to tell family members, employers, and others that you are a deadbeat.
- They will try to get your personal information, such as account numbers or your Social Security number.
- Some scammers call early or late (before 8 a.m. or after 9 p.m.) which is forbidden by the FDCPA.
What You Can Do
If you suspect you have been targeted by a debt collection fraudster, here's a list of actions you can take:
- Don't give any personal information to anyone over the phone or via email.
- Ask for a callback number as well as the caller's name, company name, and street address.
- If the debt collector mentions the name of the creditor, call them and ask for details including the nature of your debt and the name of the company contracted to collect the debt.
- Check your credit reports for free every 12 months to look for any reported debts. (Not all creditors report, so this isn't a failsafe way to identify all possible legitimate debt.)
- Know your rights under the FDCPA (see above).
- File a complaint with the FTC or your state Attorney General's Office if you believe you have been scammed.
The coronavirus pandemic—and the resulting quickly passed government legislation—has created opportunities for scammers to enter the scene and use both fear and financial need to take advantage of people.
Signs of COVID-19 Scams
Fortunately, the FTC has been tracking COVID-19 scams and scammers alike and provides a list of signs that an offer is actually fraud:
- You receive a phone call, email, or text telling you about a brand new cure, vaccine, or treatment for COVID-19 available only from this provider.
- A robocall offers financial assistance or to speed up the receipt of your unemployment or stimulus checks for a fee.
- You are contacted about obtaining a new inexpensive home test kit or contact tracing kit.
- Someone may call claiming to represent the World Health Organization (WHO) or Centers for Disease Control (CDC) to offer to sell access to special information, services, or medicine.
What You Can Do
Don't act hastily when it comes to the coronavirus but do take appropriate action if you feel you have been scammed:
- Do not respond to calls, texts, or emails from unknown contacts.
- Never share personal information via email, texts, or over the phone.
- Do not pay until you have investigated the source.
- Watch for spoof numbers or contacts. Government agencies will never call to ask for personal information or money.
- Do not click links in text messages or email.
- Know that legitimate contact tracers need health information, not money or bank account numbers.
Do Banks Have to Fund Unauthorized Transactions?
Banks allow customers to dispute fraudulent charges and give them a certain number of days to do so, usually 120. After a fraudulent claim is made, a bank has a set number of days to investigate the claim. If they find that the charge was indeed fraudulent, then they will reimburse the customer.
What Are the Causes of Fraud?
There are many causes of fraud but the primary causes boil down to pressure or opportunity. To note, scammers utilize perceived pressure or perceived opportunity to scam consumers with promises of wealth, missed opportunities, and demanding that action be taken on the spot. People can be "bullied" into making a decision that results in being scammed.
What Agencies Prevent Fraud?
The agencies that help prevent consumer fraud include the Federal Trade Commission (FTC), a state attorney's general office, and the Consumer Protection Agency (CPA).
The Bottom Line
There are plenty of scammers out there ready to take advantage of people, particularly those in vulnerable situations. If a scenario seems too good to be true or raises some suspicion, it's probably bad news. Avoid any situations that you did not seek out yourself and when in doubt, report your experience to the authorities.