The foreclosure rescue expert advertising his services on late night TV ("Save your home for pennies of what you owe!") knows that times are tough. So does the real estate mogul who promises in daily e-mails to teach you how to make millions from home by simply following the instructions in his new DVD. Foreclosures are up. Employment is down. Credit is tight. But in a recession, these self-appointed saviors see opportunity: The economic downturn has made Americans ripe for a rip-off.
"Scams work by taking advantage of people's vulnerability," says Alison Southwick of the Better Business Bureau. "In a recession, there are a lot more vulnerable people."
America's financial freefall has spawned a wave of scams in which con artists prey on unsuspecting victims, many of whom act against their better judgment in hopes of saving their home, climbing out of debt or finding a job.
Here are 10 of the most common recession-era scams -- listed in no particular order -- and tips for avoiding them.
According to the U.S. Bureau of Labor Statistics, in October 2011, 9.1 percent of Americans were unemployed [source: Bureau of Labor Statistics]. That means a lot of people were looking for jobs. The previous February, the Federal Trade Commission launched "Operation Bottom Dollar," a crackdown on staffing scams that prey on job seekers, promising to find them work in exchange for an upfront fee. The FTC warns that these scammers often misrepresent their services or promote outdated or fictitious job offerings. Once they get their hands on large application fees and personal banking information (for "payroll" purposes), the scammers -- and the jobs -- disappear.
From government careers to modeling and movie extra gigs and even Gulf oil-spill cleanup work, bogus jobs are often listed on legitimate career Web sites and in newspaper classifieds. Schemers are even dipping their toes into international affairs. Under the guise of official sounding names like, "U.S. Committee for U.N.," "United Nations Center for Development Initiative" and "United Nations Global Military Intelligence," a new scam reels in unwitting job seekers with the promise of a career with the United Nations. These organizations aren't affiliated with the United Nations and have no means of landing people jobs [source: United Nations].
As in many scams, an upfront fee is a tipoff of likely fraud. The U.S. Federal Trade Commission advises that job seekers should "be skeptical of any employment-service firm that charges first, even if it guarantees refunds" and "reject any company that promises to get you a job [source: FTC]."
Desperate times call for desperate measures. The Better Business Bureau's Allison Southwick says the housing market's instability is a boon for scammers looking to take advantage of people frantic to save their homes. "The growing number of people facing foreclosure creates a big pond for scammers to fish in," she said.
Enter the foreclosure rescue scam: A "loan modification" company offers to act as middleman in renegotiating a homeowner's monthly loan payment with his or her bank. The company charges an upfront fee of up to $5,000. While some loan mod outfits are legitimate, many others take the advance money before even analyzing whether the new client is likely to be eligible for a change in his or her loan. "The usual outcome is that they take your money, provide little or no service, and then refuse to refund the fee," warns the Better Business Bureau [source: BBB].
Donation scams are nothing new, but for those duped by swindlers posing as the Little Sisters of the Poor or a similar fictitious organization, the ripoff stings even more during a recession.
Spammers often perpetrate the hoax via e-mail or phone, claiming that their sham organization provides aid to a laundry list of beneficiaries from battered women to returning military troops. Sometimes they direct people to an apparently legitimate Web site that either references or sounds similar to well-known charitable organizations and states where donations can be made to the cause du jour.
The strongest weapon in combating charity fraud is research. Before giving, donors should obtain the charity's full name, address and phone number, as well as written information about how the money raised will be used. Charities are required to register in most states and officials often track the percentage of donations that actually go to the needy rather than organizational overhead and fundraising. The National Association of State Charity Officials provides contact information for officials that regulate charitable organizations and charitable solicitations in each state on its Web site, nasconet.org.
Work from Home
You know it as the ol' "earn $1,000 a day working from the comfort of your living room" routine. In a typical work-from-home scam, a company advertises a DVD or CD that it claims can teach you how to make lots of money by working for yourself. As if this wasn't already too good to be true, the company also offers a free 30-day trial. All the customer has to do is pay shipping costs. And provide credit card information just in case they want to keep the product.
The CD or DVD, Allison Southwick of the Better Business Bureau says, is usually worthless. But that doesn't stop scammers from continuing to bill their victims, even after the merchandise has been returned. "Victims start getting billed $80 a month and they can't stop it."
The work from home swindle not only drains bank accounts; it can also land its target behind bars. A popular work from home scam is a "reshipping" job, which drafts unwitting victims to ship illegal goods out of the country.
The good news is, you've won! The bad news is, the prize is an opportunity to be scammed. Sweepstakes scams prey on fixed and low income individuals -- often the elderly -- luring them in with promises of big money. More often than not, the sweepstakes "winner" ends up spending money and never sees a dime in return. According to the FTC, "scam artists use the promise of a valuable prize or award to entice consumers to send money, buy overpriced products or services, or contribute to bogus charities" [source: FTC].
Even the feds get used to set up new victims. In a new scam, someone who claims to work for the FTC calls to inform a victim that he's won a lottery. To receive the prize, all the "winner" has to do is pay taxes and insurance on the winnings. The winner is directed to wire money or send a check for up to $10,000, a small percentage of the supposed jackpot. The prize money, however, never materializes.
With jobs and money hard to come by, it's easy to get wrapped up in the allure of big winnings. It's important not to lose your head. As the old saying goes, "If it sounds too good to be true, it probably is."
Credit Card Debt Reduction
Similar to the foreclosure rescue scam, "debt settlement" companies claim that they can arrange for a credit-card holder's debt to be paid off for up to 70 percent less than the balance. The catch is that customers must pay an upfront fee, which is non-refundable in the event that the company fails to lower the debt. Scammers often enlist customers without analyzing whether the customer is likely to be eligible for debt reduction and sometimes advise that the customer stop paying the monthly bill, which only creates more debt.
The FTC advises you avoid doing business with any company that guarantees it can make unsecured debt go away or tells customers to stop communicating with creditors. The Commission recently put a stop to deceptive phone calls marketing debt reduction services, but Allison Southwick of the Better Business Bureau expects that the scams will continue. "The people running these scams will just become more creative in how they get to people."
Pre-paid Legal Plans
In tight times, more and more people are turning to pre-paid legal plans (PLPs), a relatively new and increasingly popular form of insurance. A standard PLP offer members access to a range of legal services in exchange for a monthly fee of anywhere from $10 to $150. Many plan members enroll and pay into the plan for months, even years, before actually using it. When they do, some are surprised to find that the legal services they need are not covered under the plan.
Pre-Paid Legal Services Inc., the largest PLP provider in the United States and the only publicly held pre-paid legal service company, has been on both the winning and losing sides of fraud lawsuits alleging that the company overstates the coverage available under its plans. The company was also recently under investigation by both the FTC and SEC. Despite this legal wrangling, the PLP business is booming: Pre-Paid Legal Services signed up a record 125,417 new members from April to June 2010 and posted record earnings per share for the 1st quarter of that year [source: PR Newswire].
While a PLP can be a valuable investment for certain people -- like some small-business owners seeking very basic services without a hefty retainer fee -- potential plan members should be careful to read the fine print and understand the extent of coverage offered before enrolling in a plan.
It was all the way back in 1985 when British rockers Dire Straits took aim at people who expect "money for nothing." Now scammers are following their lead.
In fake-check scams, swindlers reel in victims with phony mystery-shopper jobs or the aforementioned sweepstakes routine. They usually mail a realistic-looking check -- expenses for the mystery-shopper gig or supposed lottery winnings -- to the target and request that he or she deposit it and wire a portion of the proceeds back to the scammer. The bank eventually realizes that the check is a fake and removes the amount from the victim's account, likely after the scammer has received his funds.
Allison Southwick of the Better Business Bureau says that people can avoid fake-check scams by following one simple rule: "Never wire money to someone you don't know."
If there's a silver lining to the financial crisis that hit the United States in the early part of the 21st century, it's that Americans started getting serious about paying off debt. The Federal Reserve Bank of New York reported in August 2010 that households were paying off more debt and taking on fewer loans [source: Federal Reserve Bank of New York]. Yet the sins of our free-spending past continue to haunt many a newly converted penny-pincher, generally in the form of sagging credit scores. Bad credit doesn't just mean an unsightly score; it can prevent people from getting a new or refinanced mortgage under the strict standards imposed following the housing bubble burst.
One result of all this scrimping, saving and score watching is that it has spawned a new scam for con artists looking to make a quick buck off America's newfound thriftiness. Credit-repair scammers promise clients that they can boost credit scores dramatically and quickly, usually without explaining their methods. In September, the FTC settled a lawsuit against credit repair schemers in Miami who promised to make records of late payments, collection accounts and bankruptcies simply disappear from credit reports [Source: FTC]. While a credit-repair company may be able to assist in getting erroneous information removed from a client's credit report, the truth is that facts about debts, missed payments and the like will remain on your credit report for roughly seven years.
Allison Southwick of the Better Business Bureau urges people seeking credit help to contact a credit-counseling agency. Many states require these agencies to obtain a license before providing credit-counseling services. Additionally, organizations like the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies require member agencies to meet strict accreditation standards.
Business/Scholarship Opportunity Schemes
In its annual "Top Ten Scams" report, The National Consumers League noted a sharp rise in business/scholarship opportunity schemes in 2009. These scams are also perpetrated via the vaunted upfront fee [source: NCL press release].
In a typical business-opportunity scam, a victim shells out large upfront fees -- masked as "investments," usually in some sort of Internet-based business -- in return for "can't miss" profits that are never realized. By the time the victim gets hip to the scam, his business partner is long gone.
Similarly, scholarship scams guarantee that they can help students land money for school, so long as the student pays for the service up front. According to the Better Business Bureau, the assistance provided is usually worth little or nothing. "Fraudulent scholarship search services will promise to help you maximize your eligibility for financial aid at a cost of several hundred to several thousand dollars. Some services take your money and never look for anything on your behalf; others provide a list of scholarships for which your child is not eligible [source: BBB]."
For more on scams and related topics, take a look at the links on the next page.
Telemarketers are making tons of illegal robocalls using falsified caller IDs. Learn more about the scam in this article at HowStuffWorks.
More Great Links
- Better Business Bureau. "FTC - 'Net Based Business Opportunities: Are Some Flop-portunities?" June 1, 2002. (Oct. 24, 2011) http://www.bbb.org/us/article/ftc---net-based-business-opportunities-are-some-flop-portunities-4578
- Better Business Bureau. "Scholarship Services - Are they all Scams? May 19, 2003. (Oct. 24, 2011) http://www.bbb.org/us/article/scholarship-services---are-they-all-scams-314
- Better Business Bureau. "Warning: Stay Away From Work-At-Home Scams." March 31, 2010. (Oct. 24, 2011) http://www.bbb.org/us/post/warning-stay-away-from-work-at-home-scams---search-profit-system-money-mastery--2142
- Federal Reserve Bank of New York. " New York Fed Q3 Report on Household Debt and Credit Shows Continued Decline in Consumer Debt." Nov. 8, 2010. (Oct. 24, 2011) http://www.newyorkfed.org/newsevents/news/regional_outreach/2010/an101108.html
- Federal Trade Commission. "At FTC's Request, Court Stops Deceptive Telemarketing Calls Pitching Credit Card Interest Rate Reduction." May 20, 2010. (Oct. 24, 2011) http://www.ftc.gov/opa/2010/05/ams.shtm
- Federal Trade Commission. "Avoid Charity Fraud." Sept. 21, 2010. (Oct. 24, 2011) http://www.ftc.gov/charityfraud
- Federal Trade Commission. "Charities and Fundraising Fraud." (Oct. 24, 2011) http://www.ftc.gov/bcp/edu/microsites/phonefraud/publicsafety.shtml
- Federal Trade Commission. "FTC Cracks Down on Con Artists Who Target Jobless Americans." Feb. 17, 2010. (Oct. 24, 2011) http://ftc.gov/opa/2010/02/bottomdollar.shtm
- Federal Trade Commission. "FTC Obtains Court Order Requiring Credit Repair Operation To Stop False Claims; Family-Run Scam Surrenders Cars, Houses and Real Estate in Florida and South America." Sept. 1, 2010. (Oct. 24, 2011) http://www.ftc.gov/opa/2010/09/cleancredit.shtm
- Federal Trade Commission. "Job-Hunting/Job Scams." (Oct. 24, 2011) http://ftc.gov/jobscams
- Federal Trade Commission. "Sweepstakes & Lotteries Scams." (Oct. 24, 2011) http://www.ftc.gov/bcp/edu/microsites/phonefraud/sweepstakes.shtml
- Federal Trade Commission. "Tips on Avoiding Employment Scams." (Oct. 24, 2011) http://www.ftc.gov/bcp/edu/pubs/articles/naps40.pdf
- National Association of State Charity Officials. "U.S. Charity Offices." (Oct. 24, 2011) http://www.nasconet.org/documents/u-s-charity-offices/
- PR Newswire. "Pre-Paid Legal Announces 2010 Third Quarter Results." Oct. 25, 2010. (Oct. 24, 2011) http://www.prnewswire.com/news-releases/pre-paid-legal-announces-2010-third-quarter-results-105668333.html
- National Consumers League. " NCL's Fraud Center: recession-linked scams on the rise in 2009." Feb. 16, 2010. (Oct. 24, 2011) http://www.nclnet.org/newsroom/press-releases/363-ncls-fraud-center-recession-linked-scams-on-the-rise-in-2009
- Southwick, Alison. Better Business Bureau Media Relations Manager. Personal interview. Nov. 1, 2010.
- U.S. Bureau of Labor Statistics. "Employment Situation Summary." Oct. 7, 2011. (Oct. 24, 2011) http://www.bls.gov