How to stay safe from financial scams

financial scams

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Credit Sesame discusses the growth of financial scams and a commonsense approach to keeping your financial information safe.

A handful of government reports last week focused on the same problem: financial fraud. Fraud is a true growth industry based on the number of attempts and victims and the variety and sophistication of financial scams.

Creative crooks are constantly dreaming up new ways to separate you from your money, so you may not always recognize a scam. It’s good to have some common sense principles to help you avoid becoming a victim.

Scams by numbers

Scams were up in 2023. The Federal Trade Commission (FTC) fielded 2.6 million fraud reports and $10 billion worth of losses. Nearly 50% of financial fraud is through investment scams, with $4.6 billion lost in 2023. This has increased from 21% in 2022.

Imposter fraud was the second most common source of losses, milking $2.7 billion from victims last year. Even the FTC itself is not immune to being impersonated by fraudsters. There are growing incidents of fraud involving people pretending to be FTC representatives. Individual victims lost a median of $7,000 to these impersonation scams, up from a median of $3,000 back in 2019.

Fraudsters use various methods to steal people’s money. One common method is to trick victims into making bank transfers or payments through electronic money transfer services. In 2023, a total of $1.8 billion was stolen this way. Cryptocurrencies have become a leading method of payment, resulting in $1.4 billion worth of losses last year.

How fraud is evolving

The means of contact scammers use to reach out to potential victims is changing with the times. The telephone is still the most common method for imposter scams, but it is losing some of its popularity. According to FTC figures, just a few years ago the telephone was the means of contact for 67% of reported impersonation fraud attempts. Last year, this was down to 32%.

Increasingly, telephone calls are being replaced by emails and text messages. Over the past few years, emails rose from 10% to 26% as the method of contact for impersonation scams. Text messages rose from 9% to 14%. It’s not just that the methods of contact are becoming more varied. The scams are using more complex plots. Rather than a single contact person trying to get your information or money, they may employ accomplices to move the process along. For example, a phony Amazon employee might refer you to a fake banker to discuss a payment or even to someone imitating a law enforcement official.

A growing frontier for fraud is video gaming. As gaming has become an increasingly interactive, social world, scams have become part of the interaction. The Consumer Financial Protection Bureau reports that the exchange of real-world money for virtual assets in video games gives criminals a means of turning in-game cons into actual value. Games often incorporate payment methods and access to financial products that unintentionally facilitate this process. Gaming platforms are designed to compile an extensive amount of personal information about users, which scammers can use to their advantage. Frustratingly, consumers often get little support from game providers when reporting fraud.

Frequent fraud types

The FTC reports the following as the top five most common forms of impersonation fraud:

  1. Copycat security alerts. Getting you to believe you are at risk creates a sense of urgency. That’s just the type of atmosphere fraudsters use to induce you to click on a risky link or make bad decisions about providing sensitive information or transferring funds.
  2. Phony subscription renewals. Scammers send out notices claiming to be from popular subscription services, like streaming channels or computer security companies. They ask people to send a payment to renew their subscriptions, and if you fall for it, they’ll have your money and your financial information.
  3. Fake giveaways, discounts, or money to claim. Everybody likes the idea of winning something. However, when you provide the money or information necessary to claim your prize, you lose.
  4. Bogus problems with the law. People can panic when they think they’re in trouble. That’s just the state criminals want you in to get you to make hasty decisions.
  5. Made-up package delivery problems. With the popularity of online shopping, people often expect packages from FedEx, UPS, or the postal service. So, they might not be surprised to get an email saying there’s been an issue with a delivery. However, the solutions to these fake problems often involve clicking on a risky link or sending a payment to an impersonator.

Common sense is the best defense

Fraud is constantly evolving and becoming more technologically advanced. It helps to be aware of today’s common scams, but there’s no telling what form these may take in the future. In this uncertain environment, common sense is your best defense. Here are some general ways to use common sense to protect you against fraud:

  • Verify identities independently. Don’t respond via links or phone numbers unknown people provide. Use contact information you know or can look up from a trustworthy source.
  • Read email addresses carefully. Fake emails often have subtle differences in their addresses from the real thing. The organization’s name may have a different spelling, or there may be extra characters in the address.
  • Don’t be rushed. A big part of a conman’s game is to make people act hastily. Whatever the situation, you are better off slowing the process down and making decisions calmly.
  • Never transfer money to gift cards or cryptocurrency to make a payment. No legitimate organization would insist that you do this. It’s simply a way scammers get payments made in untraceable forms.

There’s an old warning about handling money in public places: ” Never flash your cash on the street.” These days, you have to think of your personal information as the equivalent of money and the internet and phones as the equivalent of public streets. When in doubt, keep it to yourself.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

Richard Barrington
Financial analyst for Credit Sesame, Richard Barrington earned his Chartered Financial Analyst designation and worked for over thirty years in the financial industry. He graduated from St. John Fisher College and joined Manning & Napier Advisors. He worked his way up to become head of marketing and client service, an owner of the firm and a member of its governing executive committee. He left the investment business in 2006 to become a financial analyst and commentator with a focus on the impact of the economy on personal finances. In that role he has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications.

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