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Financial Scams & Schemes
Financial Scams & Schemes Scam • Fraudulent or deceptive schemes
Financial Scams & Schemes Pyramid Scheme • A type of financial fraud in which people pay to join an organization in exchange for the right to sell memberships to other people.
Financial Scams & Schemes Ponzi Scheme • Closely related to a pyramid scheme but the promoter generally has no product to sell and pays no commission to investors who recruit new members.
Financial Scams & Schemes Affinity Fraud • A name for a type of scam that targets members of a specific demographic. Perpetrators may attempt to relate to or exploit characteristics common to the demographic. Targeted groups can include the elderly, ethnic groups, and religions.
Financial Scams & Schemes Predatory Lending Overview • Characteristics and warning signs of predatory lending. • The key targets of predatory lending. • Common abuses and scams. • Nonprofit organizations that can help consumers plagued by predatory lending. 6
Financial Scams & Schemes PREDATORY LENDING In communities across America, people are losing their homes and their investments because of predatory lenders, corrupt appraisers, mortgage brokers, and home improvement contractors who: • • 7 Sell properties for much more than they are worth, using false appraisals. Encourage borrowers to lie about their income, expenses, or cash available for down payments in order to get a loan. Knowingly lend more money than a borrower can afford to repay. And many other scams.
Financial Scams & Schemes IDENTIFYING PREDATORY LENDING Predatory lending is not defined by federal law except to the extent that a loan is a high-cost loan and contains one of a fixed list of terms or conditions. Predatory or abusive lending practices can include: • • • 8 Packaging a loan with single-premium credit insurance products Repeatedly refinancing a loan in a short period of time Charging excessive rates and fees to a borrower who qualifies for lower rates and fees
Financial Scams & Schemes TEN WARNING SIGNS OF PREDATORY MORTGAGES 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 9 Unreasonably high interest rates Multiple refinancing Unnecessary debt consolidation Balloon payment Negative amortization Door-to-door solicitation Back-dating of documents Large loan broker fees Kickbacks between lender and broker Single-premium credit life insurance
Financial Scams & Schemes COMMON SCAMS • • 10 Advance fee schemes The prize that will cost you Online auctions Fraud jobs Moneymaking schemes Bogus charities Scam schools
Financial Scams & Schemes HOW DO THIEVES WORK? • • • Skimming Dumpster Diving Computer Spyware Account Redirection Phishing • • Pharming Wireless Hacking Stealing Shoulder Surfing
Financial Scams & Schemes TOP STRATEGIES TO AVOID SCAMS • • • 12 Don’t become a victim. Investigate strangers who have deals too good to be true. Always stay in charge of your money. Don’t be fooled by appearances. Watch out for salespeople who prey on fears. Monitor your investments. Report fraud or abuse. Do your homework. Be wary of door-to-door solicitations.
Financial Scams & Schemes ADDITIONAL RESOURCES • Department of Housing and Urban Development (HUD) — Office of Consumer and Regulatory Affairs, Interstate Land Sales/RESPA Division. (202) 708 -4560; www. hud. gov/complaints/landsales. cfm. • Federal Deposit Insurance Corporation (FDIC) — Consumer Affairs Division. (877) ASK-FDIC (925 -4618); www. fdic. gov. • Federal Trade Commission (For federal lending violations involving mortgage and consumer finance companies. ) (877) FTC-HELP (3824357); TTY (202) 326 -2502; www. ftc. gov. • Federal Reserve Board of Governors of the Federal Reserve System — Division of Consumer Affairs. (202) 452 -3693; www. federalreserve. gov/pubs/complaints. 13