Common types of fraud and scams

Identity theft

Identity theft is the fraudulent use of another person's name, Social Security number, birth date, financial account number, or other identifying information to create new accounts, apply for credit or commit other types of fraud. Criminals will use an address different than yours to prevent you from finding out about unauthorized accounts. You may not find out you are a victim until a year or more after the crime has been committed. Thieves may capture your information through a number of methods including tricking you into giving it to them through techniques such as phishing (see below); searching through trash for paperwork with personal information on it (also known as dumpster diving); and taking mail such as pre-approved credit card offers, bills, account statements, and checks out of your mailbox.



Phishing

Phishing scams generally come in the form of an E-mail supposedly from a company (such as a financial institution, bill pay provider or shopping service) with which you may or may not do business. The E-mail message is urgent and requests that you update your account information because of system requirements, to avoid your account being closed, or because of possible fraud on your account. These messages appear authentic and usually include the real company's logo, slogan, and what appears to be its Web site, where the E-mail message asks that you enter your information. These sites may even be secure, giving you a false sense of confidence.

So how do you know whether the E-mail is real or phony? Simple - no reputable company would ask customers to verify account information online. Also, these messages are sent in bulk as spam and use the names of large, well-known companies, taking a chance that you are a customer of that company; if you are not, that should be your first clue to delete the message. Another clue is that phishing E-mails often, though not always, contain poor spelling and grammar.

A new similar scam called SMiShing (phishing via SMS or short message service) is sent by text message on mobile phones. In a recent case, the fraudster sends a false text message thanking the recipient for subscribing to a dating service. Potential victims are told that a subscription fee of $2 a day will be automatically charged to their cell phone bills until the subscription is canceled at the online site. If recipients visit the infected site to cancel the subscription, they're redirected to a screen that prompts them to enter their cell phone number, and they're asked whether they want to run a program that supposedly removes their subscription from the dating service. This "program" is actually malware that infects victims' computers and allows hackers remote access.



Vishing

Vishing mimics phishing by trying to trap you into divulging your account numbers. But instead of being phished in an E-mail message, you may receive a telephone call from an automated random dialer, and the voice on the other end of the line may tell you your credit card has been used illegally. You're then asked to dial a fake 1-800 number with another voice that asks you to confirm your account details and credit card number.

All this is possible because of Voice over Internet Protocol (VoIP), the new technology that makes inexpensive and anonymous Internet calling possible. While there are legitimate reasons to disguise a phone number on caller ID, consumers now have a more difficult time determining fraud from valid contact. The most important thing to remember, however, is to never give any personal or financial information over the phone if you didn't initiate contact.



Pharming

Unlike phishing, which uses E-mail spam to deliver fake messages, pharming operates through fake Web sites. It automatically directs computer users from a legitimate Web site to a fraudulent copy of that site with no warning signs. Once a victim is transferred to the fake site and logs in to his/her account, it collects passwords, credit card numbers, and other private information for the purpose of committing identity theft. Phishing requires a response from the victim but pharming does not.

Online users are urged to watch for uncommon log-in processes that don't look the same as on the legitimate site. Some fraudulent sites will ask users for information such as a Social Security number, not normally required.



Lottery scams

You may get a letter in the mail or an E-mail congratulating you on winning a lottery when in all likelihood it's an attempt by con artists to swindle you out of some money. The lotteries claim to be held in Canada, Australia, Europe, Spain, Britain, and even America, but any place is possible. If the announcement comes in the form of a letter, a check will usually accompany it. Recipients are told to contact their "agent" or "claims attorney" within a very short period of time to get the necessary authorization or to activate their account before cashing the check. Further instructions are then given on how to claim their prize money. Those who make the call are typically asked to deposit the check and send the money by wire transfer immediately to the so-called lottery company in order to receive the remainder of their winnings.

While the checks may look legitimate, they prove to be counterfeit - the issuing bank, routing number and/or account number aren't valid. The victims end up having to repay their financial institution the thousands of dollars they withdrew against the bad check. Just because you can withdraw the money from the financial institution does not mean the check is good, even if it is a cashier's check.

This scam may also be done over the phone. In this scenario, the caller reports that a courier in your area is ready to deliver the prize but claims that the laws are different in his/her country and taxes must be paid upfront; you need to wire money in order to claim your prize. However, there is no reason for someone who is giving you money to ask you to wire money back, and if it's a real sweepstakes or lottery, you'll pay taxes directly to the IRS.

Examples:



Nigerian scams

While the scenarios differ, Nigerian scams usually come in the form of a letter or E-mail from someone with millions of dollars to hide. The letter may claim to be from a prince or government official in a foreign country, not necessarily Nigeria (though that's usually where the scam artists are located), who needs to hide the money because his/her country is in turmoil. The letter asks for your trust and offers you a portion of the money for your trouble.

Once you accept to "help," he/she will ask for money, which may be deposited in escrow or taken from your account, to cover the expense of transferring the money, or merely as a "good faith" deposit. If you take the bait, they will continue to ask for more money to overcome various obstacles and may even try to lure you to Nigeria.



Advance-fee loan scams

Advance-fee loans guarantee consumers loans - regardless of credit - for a fee, which must be paid upfront. However, even after paying the fee, the consumer never receives the loan.

These loans are advertised in newspapers and magazines, through the mail, and on TV and radio stations, and often ask you to call a 900 number, which will also cost you money.

According to the FTC, legitimate lenders rarely guarantee credit before evaluating a consumer's creditworthiness. Some may require consumers to pay application, appraisal or credit report fees, but these fees are never required before the lender is identified and the application is completed. Plus, any fees would be paid to the lender, not the broker.



Credit card fraud

While theft of a purse or wallet is a big red flag for credit card fraud, it is important to note that thieves do not need possession of your card in order to use it; they can simply use your card number to make purchases over the phone or online. They can get this information in a variety of ways: looking through trash to find receipts or statements with your credit card number on it (also known as dumpster diving); luring you to give them your credit card information through the mail, over the phone or online; or capturing the information after you've used the card, either at the store or through the credit card processor.



Charity scams

Thieves may use charities as a front to prey on consumers' sympathies and scam them out of money. They may claim to be collecting money due to a recent tragedy (i.e. hurricanes, a tsunami, or terrorist attacks) and may claim to be from an existing or fictional organization or they may claim to be a victim of such recent events.

In Missouri, official organizations must register with the Missouri Attorney General's Office (www.ago.mo.gov) and state how much of their proceeds go to the charitable cause.

Also, E-mails that claim money will go to a specified charity each time the message is forwarded are not true.



Other scams

We've highlighted some of the more common (and harmful) types of fraud and scams above. For more details on these and other scams, follow the links below.