Chapter 5

Fraud Victims Vulnerable to Severe Stress, Anxiety and Depression

The FINRA Investor Education Foundation issued a new research report, Non-Traditional Costs of Financial Fraud, which found that nearly two thirds of self-reported financial fraud victims experienced at least one non-financial cost of fraud to a serious degree—including severe stress, anxiety, difficulty sleeping and depression. While the Stanford Financial Fraud Research Center estimates that $50 billion is lost to financial fraud every year, the FINRA Foundation’s innovative research examines the broader psychological and emotional impact of financial fraud.

“Fraud’s effects linger and cause distress well after the scam is over. For the first time, we have data on the deep toll that fraud exerts on its victims, and the results are sobering. This new research underscores the importance of the FINRA Foundation’s work with an array of national, state and local partners to help Americans avoid fraud, and assist consumers who have been defrauded,” said FINRA Foundation President Gerri Walsh.

The research report found that:

  • nearly two thirds (65 percent) reported experiencing at least one type of non-financial cost to a serious degree; and
  • most commonly cited non-financial costs of fraud are severe stress (50 percent), anxiety (44 percent), difficulty sleeping (38 percent) and depression (35 percent).
  •  Beyond the psychological and emotional costs, nearly half of fraud victims reported incurring indirect financial costs associated with the fraud, such as late fees, legal fees and bounced checks. Twenty-nine percent of respondents reported incurring more than $1,000 in indirect costs, and 9 percent declared bankruptcy as a result of the fraud.

Additionally, nearly half of victims blame themselves for the fraud—an indication of the far-reaching effects of financial fraud on the lives of its victims.

For more information, click here.

Teaching Suggestions

  • Ask students to list a few suggestions to protect themselves from financial fraud.
  • Explain how FINRA can assist consumers who have been the victims of financial fraud.

Discussion Questions

  1. What are a few indirect financial costs associated with funds?
  2. Why nearly half of victims blame themselves for being victims of financial fraud?
  3. How and where should you report financial fraud?
Categories: Chapter 5, Frauds and Scams | Tags: , , | Leave a comment

The Credit Repair Organizations Act

The Credit Repair Organization Act (CROA) makes it illegal for credit repair companies to lie about what they can do for you, and to charge you before they’ve performed their services.  The CROA is enforced by the Federal Trade Commission and requires credit repair companies to explain:

  • your legal rights in a written contract that also details the services they’ll perform,
  • your three day right to cancel without with any charge,
  • how long will it take to get results,
  • the total cost you will pay, and
  • any guarantees.

What if a credit repair company you hired doesn’t live up to its promises?  You have some options.  You can:

  • sue them in federal court for your actual losses or for what you paid them, whichever is more,
  • seek punitive damages—money to punish the company for violating the law,
  • join other people in a class action lawsuit against the company, and if you win, the company has to pay your attorney’s fees.

For more information, click here.

Teaching Suggestions

  • Ask students to make a list of major provisions of the Credit Repair Organization Act.
  • Ask students if there is a time limit on reporting negative information about criminal convictions.

Discussion Questions

  1. Where and how can you report credit repair frauds?
  2. Can the FTC resolve individual credit disputes? If not, why should you file the complaint with the FTC?
Categories: Chapter 5, Credit Scores | Tags: , | Leave a comment

IRS: Protect Yourself Online

The Internal Revenue Service, the states and the tax industry urge taxpayers to take steps to protect themselves online in the fight against identity theft.  Scammers, hackers and identity thieves are stealing taxpayers’ personal information and ultimately their money.  But, there are simple steps you can take to help protect yourselves, like keeping computer software up-to-date and being cautious about giving out your personal information.

Here are some best practices you can follow to protect your tax and financial information, click here.

  1. Understand and Use Security Software. Security software helps protect computers against the digital threats that are prevalent online.  The operating system will include security software from well-known companies or Internet providers.
  2. Allow Security Software to Update Automatically. Set security software to update automatically.  Malware–malicious software—evolves constantly, and your security software suite updates routinely to keep pace.
  3. Look for the “S.” When shopping or banking online, always ensure that the site uses encryption to protect your information.  Look for “https” at the beginning of the web address.
  4. Use Strong Passwords. Use passwords of eight or more characters, mixing letters, numbers and special characters.  Don’t use your name, birthdate or common words.
  5. Secure Wireless Networks. A wireless network sends a signal through the air that allows it to connect to the Internet.  If your home or business Wi-Fi is unsecure, it also allows any computer within range to access your wireless and potentially steal information from your computer.
  6. Be Cautious When Using Public Wireless Networks. Public Wi-Fi hotspots are convenient but often not secured.
  7. Avoid E-mail Phishing Attempts. Never reply to an emails, text or pop-up messages asking for personal, tax or financial information.  Never click on links even if they seem to be from organizations you trust.  Instead, go directly to the organization’s website.

Teaching Suggestions

  • Ask students which best practices they follow to protect their tax and financial information. Make a list and share it with other students.
  • Ask students to make a list of essential software tools available to them for keeping their financial/tax information secure.

Discussion Questions

  1. Why it might be prudent to purchase security software programs from well-known companies or Internet providers?
  2. Where should you keep your passwords list and why?
Categories: Chapter 5, Identity Theft | Tags: | Leave a comment

When Small Charges Can Signal a Big Crime

Counting every penny on your credit and debit card statements can help detect fraud

Most people looking at their bank statements would probably notice if their credit or debit card were used without their approval to purchase a big ticket item, and they would quickly call their bank or card issuer to report the error or fraudulent transaction.  But consumers are less likely to be suspicious of very small charges, including those less than a dollar…which is why criminals like to make them.

“These transactions might be signs that someone has learned your account information and is using it to commit a crime,” said Michael Benardo, manager of the (Federal Deposit Insurance Corporation) FDIC’s Cyber Fraud and Financial Crimes Section.  “That’s why it’s important to be on the lookout for fraudulent transactions, no matter how small.”

He added, “When thieves fraudulently obtain someone else’s credit or debit card information and create counterfeit card, they might test it out with a small transaction—like buying a pack of gum or a soda—to make sure the counterfeit card works before using it to make a big purchase.  If this test goes unnoticed, by the true account holder, thieves will use the card to buy something expensive that they want or that they can easily sell for cash.”

For more information, click here.

Teaching Suggestions

  • Ask students if they know someone who had his/her credit or debit card compromised. If so, how they detected the illegal charge and how the problem was solved.
  • Under what circumstances should you close the compromised account?

Discussion Questions

  1. Why is it important to regularly scrutinize your monthly credit and debit card statements?
  2. What can be consumers do to protect themselves from such frauds? What is the best way to catch this type of fraud?
Categories: Chapter 5, Credit Cards, Debit Cards, Identity Theft | Tags: , , | Leave a comment

Overhauling Debt Collection Market

New Protections Would Limit Collector Contact and Help Ensure the Correct Debt is collected

The Consumer Financial Protection Bureau (CFPB) is considering to overhaul the debt collection market by capping collector contact attempts and by helping to ensure that companies collect the correct debt.  Under the proposals being considered, debt collectors would be required to have more and better information about the debt before they collect.  As they are collecting, companies would be required to limit communications, clearly disclose debt details, and make it easier to dispute the debt.  When responding to disputes, collectors would be prohibited from continuing to pursue debt without sufficient evidence.  These requirements and restrictions would follow the debt if it were sold or transferred.

For more information about the proposals under consideration, click here.

Teaching Suggestions

  • Ask students what federal laws already prohibit debt collectors from harassing, oppressing, or abusing consumers.
  • Ask students if they, their friends or relatives, have ever been harassed by creditors. If so, what were their experiences?

Discussion Questions

  1. Debt collection market generates more complaints to the Consumer Financial Protection Bureau than any other financial product or service. Why?
  2. What might be some common complaints against debt collectors seeking to collect debt from consumers?
Categories: Chapter 5, Debt, Financial Planning | Tags: , | Leave a comment

BAM banned from debt collection

In late July 2016, filed as part of Operation Collection Protection, the Federal Trade Commission (FTC) charged that BAM Financial used lies, threats, intimidation, and other illegal practices to extract payments from consumers.  When obscene language, incessant calls, and harassment of family members didn’t get the results they wanted, the defendants got personal.  For instance, the defendants told the parent of one purported debtor “No wonder your daughter is in such predicament with a mother like you.”  The FTC alleges that they falsely stated to another consumer’s 84-year-old mother that they had a warrant for her daughter’s arrest and later told the consumer they were bounty hunters.

The FTC says BAM’s letters and phone calls were riddled with false threats of litigation.  The complaint also charged that in numerous instances, the defendants didn’t follow up within five days of their initial communications with proper validation notices as the law requires.

The settlement with BAM Financial, Everton Financial, Legal Financial Consulting, Luis O. Carrera, and Robert Llaury bans them for life from debt collection agency industry.

For more information, click here.

Teaching Suggestions

  • Ask students what consumer rights they have when dealing with debt collection agencies.
  • Ask students to list important provisions of the Fair Debt Collection Practices Act.

Discussion Questions

  1. Nearly 30 million Americans have their accounts in collection, and debt collectors make as many as one billion contacts with people every year. Are these contacts legal?
  2. What types of debts are covered under the Fair Debt Collection Practices Act?
  3. How can you stop a debt collector from contacting you?
Categories: Chapter 5, Consumer Complaints, Debt, Frauds and Scams | Tags: , | Leave a comment

Fraudulent Debt Relief Operation

The Federal Trade Commission (FTC) has charged a debt relief company with falsely representing to financially distressed homeowners and student loan borrowers that it would help get their mortgages and student loans modified.  At the FTC’s request, a federal court has temporarily halted the operation.  The FTC seeks to permanently stop the alleged illegal practices and obtain refunds for affected consumers.

According to the FTC’s complaint, Good EBusiness LLC deceptively marketed home loan modification services and illegally charged an advance fee of 1,000 to $5,000.  The agency alleges that the company falsely claims that it can lower monthly mortgage payments, reduce mortgage interest rates usually within a few months, and falsely promise full refunds if they fail.  The FTC’s complaint also alleges that Good EBusiness, using the names Student Loan Help Direct and Select Student Loan; Select Student Loan Help LLC; Select Document Preparation Inc.; illegally charged a fee of $500 to $800 for student loan relief services.

For more information, click here.

Teaching Suggestions

  • Ask students to make a list of sources they may rely on for help when they are overburdened with debt problems.
  • What questions should you ask in finding the best credit or debt counselor?

Discussion Questions

  1. Which federal consumer credit law regulates debt collection practices and what are its major provisions?
  2. What options of solving credit and debt problems are available to individuals?
Categories: Chapter 5, Debt, Frauds and Scams | Tags: , | Leave a comment

Protecting Your Privacy and Security When Making Mobile Payments

For most consumers, the biggest benefit of mobile payments is convenience.  No need to pull out your wallet for cash or plastic—especially if you’ve got your phone at hand anyway.  No need to type your payment information to buy online.  But what if your financial and other personal information isn’t safe?

Security is important since you usually carry your mobile device with you, it’s on most of the time, and it may contain sensitive information.  Consumer Federation of America (CFA) offers advice on how to avoid security pitfalls, what features keep your mobile device and your payments safe, and how to prevent others from making mobile payments without your permission.

For more information, click here.

 Teaching Suggestions

  • Ask students to read the privacy policies of the companies whose services they are using to make mobile payments.
  • What are your options if you don’t like a company’s privacy policy?

Discussion Questions

  1. Should you voluntarily provide information that is not necessary to use a product or service or make a payment?
  2. Why is it important to use extreme care when you use free public Wi-Fi?
Categories: Chapter 5, Credit Cards | Tags: , | Leave a comment

Investor Alert: Securities-Backed Lines of Credit (SBLOC)

SBLOCs are loans that are often marketed to investors as an easy and inexpensive way to access extra cash by borrowing against the assets in your investment portfolio without having to liquidate these securities.  They do, however, carry a number of risks, among them potential unintended tax consequences and the possibility that you may, in fact have to sell your holdings, which could have a significant impact on your long-term investment goals.

Set up as a revolving line of credit, an SBLOC allows you to borrow money using securities held in your investment accounts as collateral.  You can continue to trade and buy and sell securities in your pledged accounts.  An SBLOC requires you to make monthly interest-only payments, and the loan remains outstanding until you repay it.  You can repay some (or all) of the outstanding principal at any time, then borrow again later.  Some investors like the flexibility of an SBLOC as compared to a term loan, which has a stated maturity date and a fixed repayment schedule.  In some ways, SBLOC are reminiscent of home equity lines of credit, except of course that, among other things, they involve the use of your securities rather than your home as collateral.

The Financial Industry Regulatory Authority (FINRA) and the SEC’s Office of Investor Education and Advocacy (OIEA) have issued an investor alert to provide information about the basics of SBLOC, how they may be marketed to you, and what risks you should consider before posting your investment portfolio as collateral.  SBLOCs may seem like an attractive way to access extra capital when markets are producing positive returns, but market volatility can magnify you potential losses, placing your financial future at greater risks.

For more information, click here.

Teaching Suggestions

  • Ask students to prepare a list of possible advantages and disadvantages of securities-based loans.
  • How might market volatility magnify potential losses placing your financial future at a greater risk?

Discussion Questions

  1. How are securities-backed lines of credit different from home-equity lines of credit?
  2. Why some investors prefer SBLOC to a traditional short term loan?
Categories: Chapter 5, Debt, Investments, Savings | Tags: , | Leave a comment

Chip Card Scams

Scammers are taking advantage of millions of consumers who haven’t yet received a chip card.  For example, scammers are e-mailing people, posing as their card issuer.  The scammers claim that in order to issue a new chip card, they need to update your account by confirming some personal information or clicking on a link to continue the process.  Information received can be used to commit identify theft.  If they click on the link, they may unknowingly install malware on your device.

How can you tell if the e-mail is from a scammer?

  • There is no reason your card issuer needs to contact you by e-mail or by phone to confirm personal information before sending you a new chip card number.
  • Still not sure if the e-mail is a scam? Contact your card issuers at phone numbers on your cards.
  • Don’t trust links in e-mails. Only provide personal information through a company’s website if you typed in the web address yourself and you see that the site is secure, like a URL that begins https (the “s” stands for secure).

For more information, click here.

Teaching Suggestions

  • Ask students to visit other identify theft websites, such as, consumer.gov/idtheft, to learn what to do if your identity is stolen.
  • Ask students to compile a list of what actions can they take to ensure that their credit/debit cards and other financial information are secure.

Discussion Questions

  1. How do you discover that someone has stolen your identity?
  2. What steps can you take to thwart identity thieves?
Categories: Chapter 5, Frauds and Scams, Identity Theft, Uncategorized | Tags: , , , | Leave a comment

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