When the Economy Cools Down, Financial Scams Heat up

The economy may be slow, but for thieves prowling for victims, business is always brisk.

"Crooks are taking advantage of the difficult economy, including tighter credit and higher unemployment, to trick people into accepting fraudulent and deceptive offers that seem beneficial on the surface but actually could cost a lot of money or result in identity theft," said Michael Benardo, manager of the FDIC's Financial Crimes Section.

Here are some common schemes being reported, followed by tips for protecting yourself:

Mortgage rescue schemes:

Con artists are preying on hard-pressed homeowners in the current depressed housing market. David M. Nelson, a fraud examiner in the Financial Crimes Section, said that companies posing as foreclosure specialists "promise miracles," such as falsely claiming they can save a home from foreclosure by lowering the loan balance, interest rate and monthly payments, and "all for a large upfront fee."

Instead, distressed homeowners should contact their mortgage loan servicer to request a modification of their loan at no cost (see When Payments Are a Problem). "It's very important for qualified borrowers to understand that the industry best practice is loan modifications free-of-charge," said FDIC Chairman Sheila C. Bair. "They do not need to spend thousand of dollars to get help."

Before contacting your lender or loan servicer, though, think about getting help from a trained, reputable housing counselor who can help you for no charge or a small fee. Find one through groups such as NeighborWorks America (www.nw.org) or by calling 1-888-995-HOPE (4673). Or, for a referral to a counseling agency certified by the U.S. Department of Housing and Urban Development (HUD), visit www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm or call 1-800-569-4287.

To see a Federal Trade Commission warning about foreclosure rescue scams, go to www.ftc.gov/bcp/edu/pubs/consumer/credit/cre42.shtm.


Other credit-related scams involving upfront fees:

Several of these have been circulating since problems emerged in mortgage and other credit markets. In some cases, con artists claim they can "guarantee" loan approvals to people with credit problems — in exchange for a big upfront fee. Of course, after collecting the nonrefundable fee, the loan falls through.

"No legitimate lender can promise a loan without looking at a borrower's financial condition," explained Michael L. Jackson, an Associate Director of the FDIC's Division of Supervision and Consumer Protection. "And in most cases, loan fees are typically collected at the end of the lending process, not at the beginning."

For guidance about avoiding scams involving credit counseling for people behind on their bills, see When a Debt Collector Calls.


Work-at-home scams:

Thieves prey on people who have lost their jobs or need extra cash by sending unsolicited e-mails and running advertisements on the Internet and in newspapers. The ads offer flexible, easy part-time jobs working at home and involve a lot of pay for doing very little, such as processing payments or shipping items. These offers may seem especially attractive if you've just lost your job. What can go wrong? Here are two common scenarios.

Your "employer" may steal your identity and commit fraud by obtaining your bank account and Social Security numbers, perhaps as part of a fake job application. Or, you could face major losses if your new boss requests that you deposit a check or electronic transfer into your bank account and wire funds out of your account (after deducting your "commission"), and later your bank tells you that the original deposit was bogus and you're responsible for the money.

According to Nelson, "If the check or electronic deposit is fraudulent, you will likely lose the money wired out of your account, plus you may have difficulty opening a new bank account until your name is cleared from any suspicion that you were a willing partner in any fraud."

For more information about work-at-home scams and a complaint form, go to www.IC3.gov, a Web site established by the U.S. Department of Justice and the National White Collar Crime Center.


"Mystery shopper" scams:

 It's common for businesses and consulting firms to pay consumers to visit and shop at their retail locations or dine at their restaurant and then submit confidential reports about the experience. These part-time workers are known as "mystery shoppers" and "secret shoppers." But fraud artists are cashing in by setting up fake mystery-shopping programs that look very real, including job applications (requesting Social Security numbers) and professional-looking Web sites, and then convincing new recruits to wire money using funds from their own checking account.

Here's a typical scenario. Your first assignment as mystery shopper is to deposit a $2,000 cashier's check into your bank account — supposedly to cover a $1,900 purchase you're about to make for your new part-time "job," plus a $100 advance payment for your services. You're then instructed to withdraw $1,900 in cash from your bank account, take it to a particular store to have the funds wired to a person (a "colleague" of your new employer) in Canada. Later, you'll go home and fill out an evaluation of the store's money-transfer service. But eventually, perhaps a couple of weeks later, the cashier's check you deposited will be returned as counterfeit, and you will be responsible for the money you withdrew from your account.

"Part of what makes this swindle successful is that the criminals stress that the entire assignment must be 'confidential,' from ordering the money transfer at the store to filling out the evaluation form," explained Millie Spencer, a financial crime specialist with the FDIC.

Fraudulent e-mails, calls and faxes related to bank failures, mergers or other current events: Crooks are pretending to be from a financial institution in the news (perhaps one that has acquired a failed institution) or a government agency (such as the FDIC) asking for consumers to supply personal information, such as account and Social Security numbers or passwords. Don't fall for this trick.

"For example, your bank, credit card issuer and any other reputable business you deal with won't call or e-mail you to confirm account numbers or passwords because it will already have that information," said Nelson.


False or misleading sales of certificates of deposit (CDs):

 Bank CDs issued by FDIC-insured institutions have long been considered to be among the safest financial investments available because of the deposit insurance protection. However, with the slow economy resulting in relatively low interest rates on insured CDs, savers looking for high yields may be tempted by Internet or newspaper advertisements offering unusually high returns. While most advertising for CDs is accurate and legitimate, beware that some may be misleading or even untrue.

"Look very closely at the fine print in those eye-catching ads," said Richard M. Schwartz, an FDIC attorney who specializes in consumer issues. "Some high-yielding accounts have strings attached, like a requirement that you buy insurance or annuities you may not want. Other accounts may be deceptively advertised as FDIC-insured accounts but they're not, and that's a violation of federal law."


In general, how can you protect yourself from financial scams and rip-offs?

•Be wary of requests to "update" or "confirm" personal information — such as your Social Security numbers and bank account and credit card numbers (including security codes) — in response to an advertisement or an unsolicited call, text message or e-mail. Be extremely skeptical of any unsolicited offer that requires you to send a payment or provide bank account or other personal information before receiving anything in return.

•Take the time to thoroughly research the people or organizations offering a job, loan, deposit, investment or other "opportunity" involving your money or personal information.

•Walk away from any offer from a stranger that would involve a large deposit into your account and instructions to wire any of that money back, perhaps to someone in another country.

•In general, assume that any offer that sounds unrealistic or otherwise "too good to be true" — especially one from a stranger or an unfamiliar company — is probably a fraud.

To learn more about common financial frauds and how to protect yourself, see back issues of FDIC Consumer News (online at www.fdic.gov/consumernews) and our multimedia presentation "Don't Be an Online Victim" (at www.fdic.gov/consumers/consumer/guard).

Also visit www.mymoney.gov/, the scams and frauds section of the U.S. government's Web site dedicated to financial education.