What You Need to Know About Financial Scams

What You Need to Know About Financial Scams
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There are plenty of people in the world who want to take your money, and they will create all sorts of scams to convince you to hand over your life’s savings. It can happen to anyone, including senior citizens and even young adults. Age doesn't matter.

Here's how to recognize a scam and what you can do to protect yourself.

Signs of Common Scams

Financial scam artists follow predictable patterns. These are the clues and warning signs that you can learn to recognize so you can effectively prevent scammers from taking advantage of you.

  • They contacted you:Scammers will contact you either by phone or email and pretend to represent a certain organization. You didn’t initiate the contact yourself, and you weren’t expecting a phone call or a message. If you are being contacted by email, known as spoofing, the message may look legitimate and even contain the logo of the organization they claim to represent. When you initiate contact with a business, you called them, so you know you’re legitimately speaking with the business or organization.
  • They say you’ve got a problem:​ Fraudsters will make up a story to strike fear in your mind. They may pretend that they’re from the IRS, and they are going to seize your bank accounts. Or they may claim that they are a debt collector and that law enforcement is already on the way to your house to make an arrest. None of this is true.
  • They offer you something too good to be true:​ With investment fraud, you'll be offered something too good to be true. With sweepstakes scams, you'll have won the prize in a sweepstake you don't remember entering.
  • They ask for personal information:​ The scammer will ask for your personal information, such as your Social Security number, your bank account number or passwords to your financial accounts. You should never give out any personal information or account numbers to anyone if you can’t absolutely identify the individual and the organization they represent.
  • They pressure you to act immediately:​ The objective of the scammer is to close the deal with you immediately. They will tell you that you must act now or, otherwise, you will not receive the prize or the benefit they are offering.

Types of Scams

These are a few of the more common financial fraud scams and red flags to look out for.

  • IRS or government imposter:​ The caller will pretend they are from the IRS and you owe back taxes. If you don’t pay immediately, they will send the police to come and arrest you and take you to jail. The IRS does not contact anyone by phone; they only communicate with written letters and documents. And you cannot be arrested for not paying your debts.
  • Advance fee scam:​ The scammer tells you that you’ve won a foreign lottery, have been awarded a government grant or that you’re about to receive an inheritance. However, in order to receive your benefit, you must make a payment up front. The typical methods they use to request money are for you to wire transfer the funds directly to an account that they specify, transfer the money online or for you to send them gift cards.
  • Debt elimination fraud:​ Although there are legitimate companies that work with debtors to restructure and pay their debts, the debt elimination scammers offer to remove your debt in exchange for a modest upfront fee. Unfortunately, the scammers simply pocket your money and never produce any results. Even worse, the scammers may gain access to your personal information, which could lead to loss of property, damage to your credit rating and even incur additional illegitimate debt that you will be responsible for.
  • Nigerian bank fraud:​ The Nigerian bank scheme has been around for years but is still used to defraud consumers. With this scheme, the scammers pretend they are government officials and they need your help in transferring millions of dollars out of Nigeria. In exchange for your participation, you will receive a percentage of the funds transferred. All you need to do is provide the scammers with your bank name and account numbers and to send them checks that will be used to pay for bribes or legal fees. After gaining access to your bank account, they will take all the money and could also run up additional debt on your credit cards.
  • Cashier’s check fraud:​ A cashier’s check is generally accepted by most banks for immediate availability. The problem is that scammers use fraudulent cashier’s checks. For example, you receive a letter with a cashier’s check notifying you that you are the beneficiary of a huge inheritance, but you have to pay a processing fee to receive the money. The cashier’s check is intended to cover the fee, and you are instructed to deposit the cashier’s check and wire the fee to a third party in a foreign country. A few weeks later, your bank notifies you that the cashier’s check is fraudulent, and they’re deducting the funds from your account, but, unfortunately, you have already prepaid the fee by wiring the funds, so you’re out the money.
  • Identity theft:​ With several million identities stolen every year, identity theft, also known as phishing, has become a major problem, according to the Federal Trade Commission. Scammers are able to convince people to give out their personal information, such as their full name, Social Security number, credit card and debit card numbers and bank account number. Scammers will then use these account numbers to purchase merchandise, take out new lines of credit and steal money from bank accounts.

Financial scam artists are constantly finding new ways to take your money, and you need to recognize their tactics.

How to Protect Yourself

The first step is to always be suspicious of any offer that seems too good to be true. Here are some rules to follow to protect yourself and your money.

  • Never give out personal or financial information, such as bank account numbers, credit card numbers, Social Security numbers or passwords, over the phone, especially if they called you, and you didn’t call them.
  • Remember that government agencies, specifically the IRS, do not ever call you to ask for payments. You will always receive something in writing from them, not a phone call.
  • Do some research before you take action. Do a Google search to check out the organization and visit their social media sites to validate their legitimacy.
  • Resist the pressure to take immediate action. If the offer is legitimate, you shouldn’t be in a rush to take immediate action, and you should have time to verify the caller and the information.
  • Take the name of the person who called you, their phone number, contact information and their organization. Then you call them back to confirm that they are who they say they are and they represent the organization, such as the financial institution or the IRS.
  • Review your credit card and bank statements regularly and look for any unusual or unexplained transactions and any new lenders and credit card providers.