Top 5 Scams and How to Protect Yourself

KEY POINTS

The Federal Trade Commission reported 2,369,527 cases of consumer fraud totaling $8.8 billion, for a median (middle value) loss of $650 for 2022 (FTC Report)
These 5 categories of consumer fraud can bankrupt you and ruin your credit rating: relational, service, investment, technology, and altruistic
We have highlighted 21 schemes and scams that every person must guard against

Scams

How do you defend yourself?

Answer: Education and constant diligence

We have taken 21 of the most common schemes and scams and grouped them into 5 categories. Let’s highlight the groupings and then get into the details.

Relational Scams

These scams prey on your emotions and relationships. The attacks often come when you are at your most vulnerable.

Romance Scams

On-line dating sites have proven to be fertile ground for fraudsters. They will develop a relationship with you over the course of weeks or months. Eventually, they will gain your trust. This is when they will strike.

Some of their more common methods are asking for money to cover medical expenses, family emergencies, travel expenses, educational expenses, and others. They may even impersonate a member of the military as a convenient reason for not meeting in person.

Family Scams

Relatives can exert extreme influence due to their unique trust dynamic and history. Their powers of coercion can lead to feelings of guilt, shame, embarrassment, and isolation from the rest of the family. Requests can vary from simple access to a debit card to signing authority over property and lines of credit.

Grandparent Scams

The elderly demographic is typically more trusting than younger generations. Fraudsters will impersonate grandchildren and request funds from elderly individuals. Such requests are often made over the phone and under the pretense of an emergency. A call placed in the late evening can add to the drama and confusion.

Caregiver Scams

Caregivers typically form a bond of trust with those under their care. The caregiver will leverage this trust to extract funds from their clients. Such can take the form of straightforward theft of physical objects or involve the request and transfer of funds to cover fake financial emergencies.

The scam may not involve the theft of funds or personal objects. Instead, an unqualified individual may pose as a qualified and licensed professional in order to gain illegal employment.

Adoption Scams

These scams can be some of the most heartbreaking of all. Individuals will defraud hopeful couples while promising to provide a child for adoption. The organization and birth mother do not exist.

The organization or fake birth mother will reach out to an individual or couple and offer to provide a baby for adoption. They may even provide fake pregnancy tests.

They will then proceed to request funds to cover medical costs, emotional support, housing, and other expenses.

Sextortion Scams

Sextortion can impact any age group, but primarily targets minors. Predators usually approach these children on-line.

The relationships are often developed while playing video games or connecting on social media websites. The predator develops a degree of trust and then requests sexually explicit photographs of the child. Once received, the predator threatens to disseminate the pictures unless they receive payment.

Manipulation of this age group in this manner has led to mental health issues and, in extreme cases, suicide.

Service Scams

We have highlighted four common service-related scams. The list of all possible scams is too lengthy for this post.

Tech Support Scams

You may receive a phone call, text, pop-up warning on your computer, or email warning you that your computer system is a risk of being infected with a virus.

The fraudster will offer to fix the non-existent problem if you provide payment in advance. Such payment may take the form of a wire, loading a gift card or a prepaid card, cryptocurrency, or other forms. Many of these payments are difficult for you to reverse once you learn of the fraud.

Home Repair Scams

Scammers target homeowners through door-to-door visits, phone calls, emails, texts, and social media. They will solicit you and promise to complete the work as described, on budget, and on time.

Unfortunately, their work will be below expectations while potentially damaging your home and leaving it in worse condition than when they began. They may even take your initial deposit and end the relationship without performing any services at all.

Home Utilities Scams

You may be approached via a phone call, email, or social media for a free home energy assessment. They may also claim the assessment is government mandated. The fraudsters may wear official looking uniforms complete with logos and supported by fraudulent documentation. To secure payment they may threaten disconnection of services or offer enticing rebates.

Tax Preparation Scams

Ghost preparers will offer to prepare your tax return, but not sign the return. This allows them to remain invisible to authorities of their involvement in preparing your tax return. Such preparers may promise a large refund and charge fees based on the size of the refund.

Actions of fraudulent prepares may also include requiring payment in cash and not providing a receipt for their services, increase your refund with fake income or deductions, or directing refund balances to their account instead of your account.

Investment Scams

Ponzi Schemes

These schemes promise high returns with low risk. They rely on a constant flow of new investors to invest in the scheme as such new funds are utilized to pay existing investors a return on investment while skimming profits from such cash flows. Eventually the scheme becomes unsustainable and collapses.

Pyramid Schemes

Pyramid schemes are like Ponzi schemes. The key difference is that Ponzi schemes require an investment in cash whereas pyramid schemes require a purchase of product or service to participate. Pyramid schemes can take the form of a multi-level marketing platform (“MLM”); however, not all MLMs are pyramid schemes.

Advance Fee Scams

These schemes involve the victim making an upfront payment based on the promise of receiving a larger sum of money in the future. The fraudsters claim the upfront payment is required in order to unlock the larger sum. The victim receives little, if any, proceeds after they release the upfront payment.

Fake Lottery Scams

Victims are informed that they have won a prize, lottery, or sweepstakes. In order to claim the prize (cash, trip, car, other) the victim must pay money or disclose detailed personal account information. Once the money or information is provided, communication will cease, and the victim will not receive the promised lottery winnings.

Technology Scams

Ransomware

This is a form of malware designed to lock functionality. The malware is placed on a victim’s device with the intention of encrypting specific files. The victim will no longer be able to access the encrypted files or the related system. The victim will then be instructed to pay a ransom (cash, cryptocurrency) in order to restore the device. As with any form of ransom, there is no guarantee your device will be restored after you have made the requisite payment.

Extortion

Extortion is like ransomware; however, extortion focuses on holding data hostage as opposed to locking functionality.

Phishing

Victims will receive an email from what appears to be a very trustworthy source such as their bank, credit card company, internet service provider, utility provider, or other. The fraudster will require the victim to disclose personal account information. They will collate this new information with other information they previously retrieved from other sources. They will utilize this information to access existing accounts or to open new accounts.

Identity Theft

Identity theft is the process of unlawfully accessing an individual’s personal or financial information to commit fraud. Such information may be obtained through internet searches (e.g., social media), phishing emails as described above, illegal access to relevant databases, searching the victim’s trash, and other means. Fraudsters can utilize your data to open new credit cards, lines of credit, mortgages, and more.

Skimming

This fraud involves stealing an individual’s debit or credit card data and related PINs. Such data is extracted utilizing nearly undetectable devices attached to point-of-sale terminals, ATMs, and fuel pumps. Once extracted, the data is utilized to create fake debit cards and credit cards.

Altruistic Scams

Charity Scams

Charity scams take advantage of a person’s emotions, like the relational scams described above. Victims may be approached via phone, email, or live visit to their home. The fraudsters will have professional looking websites, brochures, uniforms, and even donation boxes. They apply pressure to donate now. They extract payment while also gaining personal data that can be used to steal your identity.

Natural Disaster Scams

Natural disasters are a subset of the charity scams noted above. The degree of destruction from these disasters makes worldwide headlines and can rally nations into action. These events are well suited for fraudsters to take advantage of.

How to Protect Yourself

There is no way to guarantee that you will not have a fraud committed against you. However, we highlight the following steps you can take to mitigate your risk:

Do not provide personal or financial information to any individual or company unless you have verified their identity and the reasonableness of such request
Do not provide any information while under pressure
Shred documents containing personal data before disposing of them
Always be skeptical about any request to pay any type of upfront fee
Use strong passwords and protect their secrecy
Install anti-virus software on your devices
Limit the personal data you share on social media
Monitor your accounts daily. Your financial institution may be able reverse fraudulent activity if detected in time.
Check your credit report for suspicious activity (e.g., accounts you did not open)

Bottom Line

Protecting yourself and loved ones from fraud is a constant battle. We highlighted 21 scams that you need to guard against. There are many more. We encourage you to continue your research with the links provided below under Additional Resources.