PERSONAL FINANCE FINANCIAL FRAUD

The Most Common Types of Consumer

Fraud
Don't become a victim of common consumer scams
By AMY FONTINELLE Updated March 20, 2024
Reviewed by MARGARET JAMES
Fact checked by SKYLAR CLARINE

boonchai wedmakawand / Getty Images

Consumer fraud occurs when a person suffers from a financial or personal loss.
Fraud can involve the use of deceptive, unfair, misleading, or false business
practices. Fraudsters typically target senior citizens and college students, but all
consumers are at risk of fraud.

The Consumer Financial Protection Bureau (CFPB) is a government agency that

protects consumers from financial fraud and scams by making sure banks and
financial companies treat consumers fairly. "Scammers are constantly finding
new ways to steal your money. You can protect yourself by knowing what to
look out for," according to the CFPB. [ 1 ]

Here are some of the most common frauds that victimize consumers and tips
on how to protect yourself from becoming affected.

KEY TAKEAWAYS
Consumer fraud occurs when a person suffers from a financial loss
involving the use of deceptive, unfair, or false business practices.
With identity theft, thieves steal your personal information, assume
your identity, open credit cards and bank accounts, and charge
 purchases.
Mortgage scams are aimed at distressed homeowners to get money
from them.
Credit and debit card fraud is when someone takes your information
off the card and makes purchases or offers to lower your credit card
interest rate.
Fake charities and lotteries prey on people's sympathy or greed.
Debt collection fraud tries to collect on unpaid bills whether they are
yours or not.

Identity Theft
Identity theft occurs when someone steals your personal information—which
can include your name, Social Security number (SSN), bank account number,
and credit card information—often through data mining.

The goal of the thieves is to use your personal information to assume your
identity to access your bank account and drain funds, open and use credit cards
in your name, take out loans, use your health insurance to pay medical bills and
file a tax return to collect your refund.

Note
Stolen SSNs are sometimes sold as credit privacy numbers (CPNs),
or an SSN "alternative" that individuals with bad credit scores can
use when applying for a loan or other type of credit; CPN purchasers
are often unaware they're committing fraud.

Signs of Identity Theft

You may be a victim of identity theft if one or more of the following occurs: [ 2 ]

Unexpected withdrawals are made from your bank accounts.

Bills and financial statements you normally receive in the mail stop coming—
a sign that criminals changed your address so they can open financial
products in your name.
You receive calls from debt collectors about unfamiliar credit cards and
debts.
You notice unfamiliar accounts on your credit report.
You receive bills from medical providers for treatments you didn't have.
The IRS notifies you that more than one tax return was filed in your name.
You receive notices or hear news about a data breach at a company where
you do business.

What You Can Do

If you believe you are a victim of identity theft, start by going to
IdentityTheft.gov, a website administered by the Federal Trade Commission
(FTC). The site provides directions on how to help you recover your identity and
repair any damage you have experienced. In addition, the FTC urges you to: [ 3 ]

Call companies where you expect fraud occurred to report the fraud, close or
freeze accounts, and change login passwords and PINs.
Place a free fraud alert with credit bureaus and obtain free credit reports.
 Report the identity theft to the FTC using the IdentityTheft.gov link above.
Report the theft to local police for local monitoring.

Mortgage Fraud
The FBI deals with thousands of mortgage fraud cases each year. Mortgage
scams are often aimed at distressed homeowners. These scams include
foreclosure rescue schemes, loan modification schemes, and equity skimming,
among others. They are often carried out by real estate and mortgage
professionals who misuse their specialized knowledge and authority. [ 4 ]

Signs of Mortgage Fraud

The National Crime Prevention Council advises that you may be a victim of
mortgage fraud if one or more of the following are true: [ 5 ]

You were promised a loan modification or that foreclosure would not

happen.
Payment of fees was required in advance of services provided.
You were offered a money-back guarantee, advised to stop making
mortgage payments, told not to contact your mortgage servicer, or
instructed to begin making payments to someone other than your servicer.
The process to buy the home seemed much slower than normal.
Your questions were not answered or were answered incompletely.
You were asked to sign papers you did not have a chance to read or did not
fully understand.

$10+ billion
The amount consumers lost to fraud in 2023; an increase of 14%
from 2022. [ 6 ]

What You Can Do

The FBI recommends that consumers protect themselves against mortgage
fraud by doing the following: [ 7 ]

Seek referrals and avoid unsolicited contacts related to any real estate deal.
Ask for and check the license of anyone with whom you are doing business.
Walk away from any high-pressure or "seems too good to be true"
transaction.
Don't sign any paperwork you do not fully understand.
Seek the advice of a qualified credit counselor or attorney.

Credit and Debit Card Fraud

Credit or debit card fraud can occur when someone steals or finds your card or
manages to obtain the information from the card to purchase goods, withdraw
cash, or otherwise use your card in a fraudulent manner. You should know that
the Fair Credit Billing Act limits your liability to $50, and oftentimes, there's no
cost at all depending on the bank or credit card issuer. [ 8 ]

Signs of Credit and Debit Card Fraud

Although credit and debit card fraud are among the most common types of
consumer fraud, any of the following signs should set off red flags for you: [ 9 ]
[ ]
10

Your statement contains charges you don't recognize.

You notice several small dollar amount charges from your account—a signal
someone could be testing your card in advance of a major purchase.
You don't recognize the name of the company attached to the charge.
Charges appear from unfamiliar or distant locations you haven't visited.
You experience a significant and unexpected drop in your available credit
balance.
You receive phone calls requesting credit or debit card information.

What You Can Do

Fight against credit and debit card fraud by doing the following: [ 9 ] 

Check accounts daily and report unusual activity to your bank.

Complain to the CFPB if the bank's response is not satisfactory.
Have the card canceled or your account frozen.
Don't respond to telephone calls with information the caller should already
have.
If you decide to follow up on a call, do so by contacting your bank at a
known number.

Deceptive Interest Rate Reduction Robocalls

A relatively new twist on credit card fraud, according to the FTC, comes in the
form of robocalls that "guarantee to reduce your credit card interest rate" (for a
fee). These types of offers are usually scams and no more effective at getting
credit card companies to lower your interest rate than if you called the
company yourself for free. In addition to paying a fee for no service, some of
these fraudsters ask for personal information which they then use to commit
identity theft. [ 11 ]

Signs of Deceptive Robocalls

According to the FTC, rate reduction robocall scams typically have one or more
of the following in common: [ 11 ]

The call is unsolicited and not from a known or trusted source.

The message claims to guarantee your credit card (or new card) rate will be
zero or very low.
The caller says the deal is only available for a limited time.
A claim is made of a special relationship with credit card companies.
You must pay a fee before any action is taken.
Personal information such as your Social Security number is requested.

What You Can Do

Here are some ways to protect yourself from this type of scam: [ 12 ]

If you want a lower credit card interest rate, call the customer service
number on the back of your card and request it yourself—it's free.
Do not share credit card, bank account, or Social Security numbers, or other
personal information with telemarketers, period.
Reject any deal that requires an upfront fee. Companies cannot charge a fee
before performing a debt relief service.
 Hang up or do not answer unsolicited pre-recorded sales calls.

Fake Charities
Fake charities use the same techniques to steal your money that legitimate
charities use to raise funds, according to the Federal Trade Commission (FTC).
Before you donate, make sure you know where your money is going. [ 13 ]

Signs of a Fake Charity

Several telltale warning signs suggest you are dealing with a fake charity: [ 14 ]
[ 15 ]

You are pressured to give now even to the point a courier will come to your
door to collect your contribution.
The charity only accepts cash, gift cards, or wire transfers.
You receive a thank you for a donation you didn't make—an attempt to make
you think you already support the organization.
The group goes by a familiar-sounding name that doesn't quite match the
organization it reminds you of.
The caller or solicitor won't (or can't) provide detailed information about the
organization.
You are told you must donate to be included in a sweepstake.

What You Can Do

FTC guidance on not falling victim to a fake charity includes doing the following:
[ ][ ][ ]
14 15 16

Get the charity's contact information and check out the organization before
you give using one or more of the following: BBB Wise Giving Alliance,
Charity Navigator, CharityWatch, GuideStar.
Ignore high-pressure pitches including pressure to pay now.
Avoid making cash donations.
Be careful about donating in the wake of natural disasters. This is when con
artists come out of the woodwork.
Don't provide personal information such as Social Security numbers or bank
account information.
Be proactive and make your annual giving plan ahead of time. Offer to add
the charity's name to your list for consideration.

Prize and Lottery Fraud

Prize and lottery fraud come under many names—sweepstakes, drawings,
foreign lotteries, and more. This type of fraud often targets aging adults and
originates with a phone call or postcard. The FTC receives tens of thousands of
complaints about prize and lottery fraud each year. Because many victims don't
report being scammed, officials estimate the problem's scope is far greater.

Signs of a Fake Lottery or Sweepstakes

Fake lottery scams, many of which are foreign, exhibit well-known signs that
something is wrong: [ 17 ]

You receive notification that you are a "winner" but need to send money to
the lottery or sweepstakes office to cover taxes or administrative costs.
Your winner notification arrives by bulk mail.
 You are required to attend a meeting to collect your prize.
You don't remember entering the lottery or sweepstakes.
Any payments you make are followed by more requests for cash or you are
contacted by other organizations claiming you won their lottery as well.

What You Can Do

There are many steps you can take to protect yourself: [ 17 ]

Never pay money to collect on a lottery or sweepstakes. Legitimate taxes can

be taken out of your winnings.
Don't share your credit card or bank account numbers or send money even if
the organization sends you a check—which is probably bogus.
If you think the prize might be real, research the name of the company or
organization and contact it at a known phone number.
Report all suspected scams to the FTC.

Important: The FDIC insures bank accounts up to $250,000. [ 18 ]

Debt Collection Fraud

Some scammers, posing as collection agencies, call consumers demanding
payment of bogus outstanding debts. These are not legitimate debt collectors.
If you have actual unpaid debt, subject to collection, you have rights there, as
well. These rights are spelled out in the Fair Debt Collection Practices Act
(FDCPA). [ 19 ]

Signs of Debt Collection Fraud

When it comes to discerning between a legitimate debt collector and a scam,
here are some signs to look for: [ 20 ]

A scammer will withhold information from you including the exact amount
of the so-called debt, the name of the creditor, that you have a right to
dispute the debt, or information that lets you check on the legitimacy of the
debt collector.
They will pressure you to pay with cash, by money transfer, or with a prepaid
debit card.
They might threaten you with jail time or even suggest they are a
government official.
Sometimes scammers threaten to tell family members, employers, and
others that you are a deadbeat.
They will try to get your personal information, such as account numbers or
your Social Security number.
Some scammers call early or late (before 8 a.m. or after 9 p.m.) which is
forbidden by the FDCPA.

What You Can Do

If you suspect you have been targeted by a debt collection fraudster, here's a list
of actions you can take: [ 20 ]

Don't give any personal information to anyone over the phone or via email.
Ask for a callback number as well as the caller's name, company name, and
street address.
 If the debt collector mentions the name of the creditor, call them and ask for
details including the nature of your debt and the name of the company
contracted to collect the debt.
Check your credit reports for free every 12 months to look for any reported
debts. (Not all creditors report, so this isn't a failsafe way to identify all
possible legitimate debt.)
Know your rights under the FDCPA (see above).
File a complaint with the FTC or your state Attorney General's Office if you
believe you have been scammed.

Do Banks Have to Fund Unauthorized Transactions?

Banks allow customers to dispute fraudulent charges and give them a certain
number of days to do so, usually 120. After a fraudulent claim is made, a bank
has a set number of days to investigate the claim. If they find that the charge
was indeed fraudulent, then they will reimburse the customer. [ 21 ]

What Are the Causes of Fraud?

There are many causes of fraud but the primary causes boil down to pressure or
opportunity. To note, scammers utilize perceived pressure or perceived
opportunity to scam consumers with promises of wealth, missed opportunities,
and demanding that action be taken on the spot. People can be "bullied" into
making a decision that results in being scammed.

What Agencies Prevent Fraud?

The agencies that help prevent consumer fraud include the Federal Trade
Commission (FTC), a state attorney's general office, and the Consumer
Protection Agency (CPA).

The Bottom Line

There are plenty of scammers out there ready to take advantage of people,
particularly those in vulnerable situations. If a scenario seems too good to be
true or raises some suspicion, it's probably bad news. Avoid any situations that
you did not seek out yourself and when in doubt, report your experience to the
authorities.

ARTICLE SOURCES

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