The Many Disguises of Consumer Fraud

By Dr. Martie Gillen

Often times, the public is not fully aware of the pervasiveness of fraud, because news media focus primarily on major scams, such as Bernard Madoff’s Ponzi scheme. There are many types of frauds and scams. Below is a discussion of several types of frauds and scams.

Identity theft. Identity theft happens when someone steals your personal information and uses it without your permission. According to the Federal Trade Commission (FTC), identify theft is the most common form of consumer fraud and that holds true for military families. Military personnel and families can learn more about how to protect themselves from identify theft by reviewing the FTC’s publication What to Know, What to Do.

A photograph of a man wearing fake glasses, nose and mustache.
Photo by Jeff Turner

Tax identify theft. The FTC received almost 110,000 complaints about tax identify theft in 2014 accounting from about 33% of the overall complaints about identify theft. Tax identity theft typically happens when a scammer files a fraudulent tax return using a consumer’s Social Security number in order to receive a refund.

IRS impostor scams. This scam has increased drastically from over 2,500 in 2013 to almost 55,000 in 2014 and often consists of an individual contacting a consumer by phone, claiming that they are an IRS agent and that the consumer owes the IRS money. The impostor suggests to the consumer that they should pay immediately by wiring money or loading money on a pre-paid debit card if not, they are threatened with arrest or legal action. The calls may even appear to come from the Washington, D.C. area and impostors may even know the consumer’s full or partial Social Security number.

Phishing. A common cyber-avenue for fraud in which a scammer sends a mass email proposing a sham investment. If even a small percentage of recipients bite, the sender can bring in big dollars. Scammers may use social media such as Facebook and LinkedIn to target potential victims.

Investment fraud. A wide variety of investment frauds all have one thing in common: they sell something – a company, product, or security – that either does not exist or will not live up to the financial return being promised. Common red flags indicating investments may be fraudulent include: if they look too good to be true; offer a very high or “guaranteed” return at “no risk” to the investor; require an urgent response or cash payment; charge a steep upfront fee in return for making more money on an unspecified date; suggest recipients do not tell family members or friends about the offer; lure prospective investors with a “free lunch”; come unsolicited over the Internet, are of unknown origin, or come from overseas; instill fear that a failure to act would be very costly; cannot be questioned, inspected, or checked out further; and are so complex that they are difficult or impossible to understand.

Pump and dump scams. This scam occurs when fraudsters send out inflated and inaccurate information about a company’s stock they already own. Sham reports hyping the company’s profits or business prospects encourage naive investors to rush in and buy stock. When they do, the fraudster sells his shares for a large gain, depressing the price and leaving those who were defrauded with losses on their shares.

Advance fee fraud. Money is paid but the service or product is not delivered. The outcome never varies for the countless advance-fee scams. Debt-settlement scams that purport to help struggling consumers pay off debt become more pervasive during periods of recessions or slow growth. This type of fraud spiked during the recent recession.

Insurance fraud. Insurance fraud against individuals occurs when unscrupulous insurance agents or brokers sell health, auto, home or life insurance and divert premium payments to their personal bank accounts. Fabricated policy documents give victims the impression that the coverage is in effect, so they continue paying their premiums.

Many resources are available to help consumers becoming victims of fraud. A list of resources shared during the recent Predatory Lending Practices & How to Avoid Them webinar are available here.

This post was written by Dr. Martie Gillen, co-PI for the Personal Finance Concentration Area of the MFLN. Connect with her and the rest of the Personal Finance Team on Facebook and Twitter