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Consumer Fraud

Although consumers are protected by a number of consumer protection laws, including the Consumer Credit Protection Act, there are still many opportunities for people to be taken advantage of by unethical professionals and corporations. Consumer laws seek to protect consumers from financial fraud, harassment and abuse.

The Truth in Lending Act and the Consumer Credit Protection Act are federal regulations designed to protect consumer financial rights in regard to credit reporting and loan processing practices.

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Financial and Consumer Fraud

Consumer FraudThe rights of citizens and residents can be breached and damaged by businesses or people promoting fraudulent services, products, investments, and opportunities. These unlawful activities can be classified as consumer and financial fraud. Unfortunately, there are many ways that businesses or individuals can commit consumer fraud. In some cases, the fraud may be committed by a family member or friend, as in the case of financial elder abuse.

Stock, Investment and Insurance Fraud

Stock, investment and insurance fraud occurs when stocks, securities, investments or insurance policies are sold to a consumer under false pretenses. This can include the financial advisor/insurance agent not disclosing important information about the stocks or policies, or the advisor/agent misrepresenting the terms of the stocks or policies. Fraud may also have occurred where a consumer is sold a stock or policy that is unsuitable for her.

Business Opportunities Fraud

Business opportunities fraud occurs when consumers are encouraged to buy into a business—often something that promises working from home or "being your own boss." However, these business opportunities are frequently not legitimate, and the consumer loses any money she has paid to get into the business. Such scams often include medical billing opportunities or coupon scams. In most cases, the victim is not told that, in addition to money paid into the business, she will spend many hours working without pay and will have to spend additional money for advertising, supplies for the business or tutorial software. Victims of business opportunities fraud can lose thousands of dollars.

Home Refinancing Scams

Consumer FraudPeople who borrow money against the equity in their home could be putting their most valuable asset at risk, if they are not careful about how they proceed. There are many scams involved in home refinancing or home equity loans. In some cases, the lender may advise the consumer to "pad" the income on a refinancing application to ensure the loan goes through—even if the consumer's income is not enough to keep up with monthly payments.

Other lenders will offer to refinance a mortgage and lower the monthly payments down to interest only, but may require a balloon payment at the end of the loan term (balloon payments are when the entire amount borrowed is due in one lump sum). In still other cases, a "contractor" offers a home improvement loan. After work is begun, the contractor then demands the consumer fill out paperwork. That paperwork is actually for a home equity loan, the interest rates and fees are high and work being done on the home is not completed.

Identify Theft

Identity theft occurs when a person gains access to someone else's personally identifying information—such as name, social security number or credit card number—and uses that information to commit fraud or other crimes. Although some identity theft can be solved quickly, some theft can be very costly and time-consuming to resolve. Victims may not only lose their money but may find their credit rating is negatively affected by identity theft.

Credit Reporting Fraud

Credit reporting fraud is a scam that involves the perpetrator sending victims an email offering free credit reporting. The victim then provides personal information, including name, address, and social security information. The scammers then have the information they need to commit identity theft. The victim is told that the report will be mailed and has no idea that she is now open to identity theft.

Unfair Business Practices

Unfair BusinessUnfair business practices include those that are harmful to the consumer. They can include contract violations, false advertising, misrepresentation of a good or service, fraud, scams or hoaxes. When corporations act in bad faith, they are committing unfair business practices.

Negative option marketing plans assume that the consumer has agreed to a purchase without the merchant having to sell the product or service. An example of negative option marketing is when a company offers a free trial of a service but automatically begins charging the customer for that service at the end of the trial period, unless the customer opts out of that service prior to the end of the trial period. The idea of negative option marketing is that the consumer must opt out of the purchase or he will be charged for it.

Internet and Email Fraud

Internet and email fraud include scams that are perpetrated online. They can include websites promoting fraudulent goods or services or emails sent to consumers with the intent of scamming them of their money or obtaining personal information to commit fraud.

Consumer FraudAn example of Internet fraud includes third-party marketing scams, where the consumer is encouraged via a pop-up on a company's website to fill out their personal information to receive a thank you gift from the company. However, the fine print on these pop-ups states that by filling out their information, consumers are really agreeing to join a loyalty program, one that could charge the customer's credit card a monthly fee.

The Federal Trade Commission (FTC) says the top internet and email scams include: Online Auctions, Credit Card Theft/Fraud, Internet Access Services scams, International Modem Dialing, Travel and Vacation offers, Health and Diet products, Pyramid Schemes, Business Opportunities, and Investment services or programs. Read tips from the FTC on fraud prevention and protection.

The U.S. Securities and Exchange Commission (SEC) has also released some guidelines against Internet Fraud and Internet Investment Scams.

Financial Elder Abuse

Financial elder abuse occurs when a person or company takes advantage of an elderly person's physical or mental handicaps to gain access to the senior's finances. Financial elder abuse can be committed by a family member, friend, housekeeper, caregiver, or people with no previous relationship with the senior. Financial elder abuse financial losses can range from a few hundred dollars up to hundreds of thousands of dollars.

Quick Money Scams

Financial Fraud Quick money scams, mortgage scams and get out of debt quickly scams all sound too good to be true, and that's because they are. Some companies offer consumers fast mortgages (no money down, credit history not important), get out of debt now solutions or other forms of fast money. The problem is that some of them are entirely fraudulent. According to MSN Money (moneycentral.msn.com), the customer pays a hefty fee—as high as $3,000—and is given a certificate to take to the bank that the customer is told will erase the obligation to repay the mortgage, credit cards or any other debt. Of course, the certificate is entirely fake and could reportedly result in the customer facing fraud charges.

Furthermore, because the customer believes she does not have to pay her mortgage, her next payment due is not made on time, often affecting her credit score and causing her interest rates to increase. Eventually, her mortgage can be sent to collections and the whole time, she has no idea that the certificate she purchased was fake.

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Updated on Apr-23-10

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