APMacro: PF Scams and Schemes

Millions of credit transactions are completed each day. In the vast majority of cases, both parties to these transactions benefit. But the world is not a perfect place. The credit industry, like any other industry, has a few people who operate on the edge. Some of these people are flat-out thieves. Others operate businesses that, while completely legal, can put people who are already in financial trouble into positions from which they will find it even more difficult to recover. Not all financial scams and schemes involve credit. Some deal with investments. They appeal to your desire to make a bundle of cash overnight. But, if any sales pitch sounds too good to be true, it probably is. Here are some of the more common scams and schemes.

Identity Theft
Scam artists get your name, Social Security number, credit card number, or some other piece of personal information. They use this information to open a new credit card account using your name, date of birth, and Social Security number. When they use the credit card and don’t pay the bills, the failure to pay is reported on your credit report. The scammers also may call your credit card issuer and, pretending to be you, change the mailing address on your credit card account. Then they will make charges on your account. Because your bills are being sent to a new address, you may not realize there’s a problem. Scam artists can do all sorts of other damage. They might open cellular phone service in your name. They might open a checking account in your name and write bad checks.

How do these thieves get your information? They might steal your wallet or mail or even your trash! If you have thrown out and not torn up credit card offers, bills, bank statements, and receipts, thieves may recover what you have dumped and use the information from your trash to open new accounts. Skimming occurs when your debit or credit card numbers are stolen while you are using your card. Phishing is the scam whereby thieves pretending to represent banks or other companies send you printed materials or pop-up messages that ask you for account information. Pretexting occurs when thieves request your information from financial institutions, phone companies or other sources, under false pretenses. Hackers set up free WIFI sites in public places so that they can gain access to your computer while you are on unsecured connections.

Loan Scam
An advertiser runs an ad offering a personal-debt consolidation loan, taking all your credit payments and rolling them into one. Rarely is a company name or street address given. Instead, the “lender” has an 800 or 900 telephone number for consumers to call. When you call, the company representative asks only for minimal information about the loan you want and about your financial history. He or she explains that you will be called back to indicate whether or not the loan has been approved. As part of the scam, all the loans are approved. The consumer is then instructed to send in a fee in return for the promised loan. The loan, of course, never arrives.

Credit Repair Scheme
A company advertises that it can erase your bad credit history or remove bankruptcy from your credit records. The company requests that a fee be paid up-front for which the company promises to “repair” the consumer’s credit report. However, there is little, if anything, such a business can do to “repair” a customer’s poor credit record. There are no quick or easy ways to repair a poor credit history.

College Financial-Aid Scam
A company advertises that millions of dollars in scholarships go unclaimed every year. The company promises that it will do the research needed to find you a scholarship. The company requests that a fee be paid up-front, usually $200-$400. The company promises that if it can’t find a $2,000 scholarship, it will return the fee. What will you get in return if you pay the fee? Probably some scholarship information that is available from public sources at no cost to anyone who wishes to look. Guidance counselors and college financial-aid officers are good sources of reliable scholarship information, available at no charge to you.

Pyramid Scheme
A pyramid scheme comes disguised as a system for selling goods. Participants are recruited by advertisements offering big profits to people who pay a fee for agency rights, that is, rights to sell goods as representatives of the pyramid company. Each recruited agent then recruits others to join, with each new participant also paying a fee. The key to the scheme is that early participants receive commissions on any sales they make, plus payment for recruiting additional members. The problem is that there will not be enough new members to keep the pyramids growing steadily for even a few months. When the flow of new members dries up, the pyramid collapses. Pyramid schemes can take several forms. They can be disguised as games, buying clubs, chain letters, mail-order operations, or multi-level business opportunities.

Payday Loan
A payday loan allows a person to get cash for use until his or her next payday, with no credit background check. It is a legal loan, and it can help some people in an emergency. An applicant for a payday loan typically provides paycheck stubs, savings account numbers, and checking account numbers to the lender. Upon receiving the loan, the applicant also writes a postdated check and gives it to the lender. This check is written for more money than the amount of the loan. It is postdated so that it can be cashed later—generally two weeks after the loan is made. The lender cashes the check after the date on the check. In this way, the lender is repaid for the loan issued, with interest. Typically, the interest rate (APR) is quite high. The APR may be 300 percent or higher. Why would anybody borrow money at an interest rate of 300 percent? Probably because the borrower in question has an urgent need for money. Also, the borrower probably believes that the high interest rate won’t matter much because the loan will be paid off quickly. But it is easy for people in financial trouble to fall behind in paying off a payday loan. They sometimes wind up taking out another payday loan, and then another. Soon the finance and interest payments add up to more than the amount of money they borrowed.

Rent-to-Own Company
Rent-to-own companies rent and sell appliances, furniture, and electronic products to consumers. Typically, a consumer agrees to rent something for a short period. If the consumer rents the product for a specified period of time (often 18 months), she or he will become the owner of the product, either automatically or by making an additional payment. Rent-to-own is a legal business. It affords consumers some advantages, such as returning an appliance or furniture item after a short period of time. How might this business practice become a scheme? Purchasing merchandise from a rent-to-own company usually costs two to five times as much as purchasing the same goods from a department store or appliance store. If the difference in the total payments and a fair price for the product were expressed as an interest rate, the rate would commonly be over 100 percent.



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