When a recession hits, everyone hurts… even the scam artists.

Problem is, during times of economic distress (e.g. a recession or depression) the victim is hurting more than usual and any short term financial hit can put them into a cash flow crunch.  Money can become so tight that a scam victim might be forced to claim personal bankruptcy or maybe even lose their home.

For example, if you recently fell victim to a loan modification scam because your home is currently in foreclosure proceedings, and you pay a someone who takes your last $2500, you might not have a second chance to fight your lender through normal channels.  In this instance, the loan modification scam perpetrator takes your money, gives you a runaround for several months and never calls you again.  In the end, you’re out of a home and $2500.

The real truth that most people can’t grasp is that during an economic downturn, the scam artists come out in force.  Mainly because they can’t make an adequate living for themselves or they know everyone is desperate for a fast solution to their money problems and greed takes over.   Of course, the further the economy sinks into recession the more opportunities present themselves.

Basic Rules to Avoid a Scam

1. Google the company name + “scam”.  When you get a questionable piece of mail, phonecall, or email, Google the company’s name plus the word “scam”.  If they show up on websites like Rip Off Report, The Consumerist, or the Better Business Bureau with a negative rating, cross them off the list and don’t give them a second look.
2. Immediately asking for personal & financial information.  If you hear a quick 2 minute sales pitch, and then someone wants you to quickly hand over your Social Security Number followed by a bank routing number, account number and an address, an immediate red flag should go up.
3. Do not mindlessly follow everyone else.  One of the easiest ways to become a victim of a scam is to follow along with the herd because we come pre-programmed to do just that. Remember, just because everyone is doing it, isn’t a suitable reason for you to follow along like cattle going through a corral.
4. If it’s too good to be true, it probably is.  It’s an old piece of advice, but it still holds true and should be repeated every time you feel tempted.
5. Stay informed and don’t be an easy mark.  The easiest people to rip off are those who simply don’t pay attention to what is going on in the world around them.  Watch the news, read the papers, and learn how to ask questions.  Don’t believe for one second that someone is doing a good deed just for you because you’re a beautiful and unique snowflake.

How to Avoid Recession Specific Scams

1. False promises to save your home from foreclosure.  Loan modification companies make lots of false promises they never intend to keep and quite possibly, have no means of preventing in the first place.  It’s a deceptive advertisement sold to desperate people who have no where else to turn.  Consult a real estate or foreclosure attorney the old fashioned way instead of paying a 4 figure sum up front.
2. Beware of companies pretending to be government organizations.  With the federal government giving out billions of bailout dollars to nearly everyone in sight, it’s easy to convince unsuspecting (potential!) clients they are a governmental organization or managing a federal backed program.
3. Companies that magically repair your credit report.  Truth is, no one can magically repair your credit report overnight without an act of supernatural intervention.  Only thing you can do is pay your bills on time and dispute those charges with the credit rating agencies which takes months to accomplish.
4. Letters stating you qualify for federal assistance or federal grant money.  Many of these programs are not government approved and serve as an enticement only.  The goal is to get you to call back to listen to their sales pitch, steal your identity or loot your bank account.
5. Headhunters/Placement Agencies promising a job for a finders fee. Home based business advertisements (e.g. stuffing envelopes) are generally known to be a scam because they charge an upfront fee, but bogus headhunters and employee placement agencies are actively contacting out of work job seekers offering to find them a job for the same type of upfront fee. Remember, real headhunters and corporate recruiters earn a percentage of your first year annual salary as a commission from the company that hires you, so you don’t have to pay a cent for their services.
   

How to Avoid Money or Investment Scams

1. Never transfer money overseas.  Once the money leaves your country of origin, you’re probably out of luck.  If you live in the U.S., the FBI isn’t going to fly to Nigeria just because you want your money back.  They’ll probably laugh at you for falling for such a stunt, and write down your name on a growing list of Americans who got suckered in by Nigerian scammers.
2. Financial returns so good they blow your mind.  Ask any investor turned victim of the Bernie Madoff hedge fund Ponzi scheme whether their results didn’t seem out of the ordinary.  Everyone has an off year every now and then and Madoff always made money.  Greed has a way of clouding the rational mind, so don’t let the idea of a fatter wallet skew your sound financial judgment.
3. Getting approved for a loan you didn’t apply for.  Most mass mailers (mostly email, some postal mail) of pre-approved loans are easily identified as scams, but occasionally desperate or clueless recipients will try to take them up on their offer.  The victims often have their identity stolen after “verifying their financial information”.
4. No risk, money back guarantee.  Getting your money back no questions asked might be a good ploy, but rarely will you encounter an offer where there are no strings attached.  Read the fine print because there will likely be several restrictions that voids your money back guarantee if not strictly followed.  Late night infomercials or products purchased from TV commercials are notoriously difficult to return for full price.
5. Receiving emails in poorly written or broken English.  Some of the most infamous, but easily identifiable scams are conducted via the internet by non-English speaking persons.  Such instances should rarely occur because they receive so much media coverage, but even Citigroup executives have fallen victim to these types of scams to the total of $27 million.

How to Avoid Email Based Phishing Scams

1. Emails from banks where you don’t have an account.  Scammers frequently send official looking emails by copying a bank’s corporate logo hoping that you actually use that particular bank.  You are then directed to a website that mimics the original website, and then steal your screenname and password.  They store this information to loot your account.
2. Emails that want you to verify your account information.  If you receive an email asking you to verify your personal information, along with your financial information, it’s almost certainly a scam.  A bank will have this information on hand, and will likely call you or send you a letter instead of an email.  Most, if not all, banks will tell you specifically to ignore any email inquiries to access your account.
3. Financial related emails from a different country.  Unless you are a frequent international traveler, you should not receive financial related emails from Russia or Hong Kong advising you of a money transfer.  Check the domain name for a “.ru”, “.hk”, or any other suspicious characters before responding.
4. Beware of the misdirection links in suspicious emails.  One of the easiest ways to trick online bank users is to use faulty links which you believe is sending you to the company website, but it’s actually sending to you somewhere else.  Check the web address which should appear in the bottom of your web browser once you hover over the link.
5. Call customer service.  Instead of following along with the scammer’s tricks, give customer service a call by using the information you know is correct.  Do not use the contact information provided in the email.  Alternatively, you can log into your account by correctly typing in the company web address in your browser or using your own bookmarks.  Make sure you see the secure “s” appear in the “https://” once you enter your login information.

If you have suggestions on more ways to avoid a scam, please leave your tips in the comment section below and I will highlight it for future use.

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Photo by ToastyKen

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