Scams
Scams Ripped From Today's Headlines
When markets and the economy go haywire, criminals cash in.
By Bob Frick, Senior Editor
From Kiplinger's Personal Finance magazine, January 2009
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For example, the Federal Trade Commission last fall censured four companies that falsely claimed they could reduce clients' debts by up to 60%. The companies had also advised clients to stop paying their bills without telling them they could be sued by creditors. And the four falsely told clients they could help repair credit reports.
Credit counseling can help, but there are no miracle cures. A good agency can negotiate with lenders to eliminate late fees and lower interest rates for a reasonable amount -- the average program costs $24 a month. You can find a legitimate credit-counseling agency at www.nfcc.org or www.aiccca.org.
Mortgage-foreclosure rescue. More than half of homeowners who are late on their mortgage payments aren't aware that lenders have programs to help avoid foreclosure, according to a survey by Freddie Mac and marketing-research firm Roper Public Affairs & Media. People who don't know their options can fall prey to crooks who charge $1,000 or more for fraudulent foreclosure-avoidance services.
Federal regulators have shut down operations that they say not only failed to forestall foreclosures but also virtually guaranteed they'd happen -- by promising that action would be taken but not following through. The culprits, regulators say, also persuaded homeowners to wait for weeks instead of contacting lenders.
If you have mortgage problems and your lender can't help, you have alternatives. Find a housing-counseling agency approved by the U.S. Department of Housing and Urban Development (links are listed at www.hud.gov). If you're worried about foreclosure, contact the Hope Now Alliance (www.hopenow.com or 888-995-4673).
Bank phishing. Now that Uncle Sam is insuring deposits up to $250,000 (up from $100,000), you should feel better about handing over cash to your bank. But given all the headlines about bank mergers and the growing number of banks and thrifts on the Federal Deposit Insurance Corp.'s "watch list"of troubled institutions, it's not surprising that many depositors are still leery.
Popular phishing schemes -- e-mails designed to get you to relinquish private security information, including your Social Security number -- falsely tell you your bank has been acquired. The FTC gives this example: "We recently purchased ABC Bank. Due to concerns for the safety and integrity of our new online-banking customers, we have issued this warning message ... Please follow the link below to renew your account information."
Phishers also target mortgage accounts using similar pitches: "We recently acquired the mortgage on your home and are in the process of validating account information. Please click here to update and verify your information."
Reverse mortgages. Their stock portfolios eviscerated, retirees may be tempted to tap their home equity for cash through a reverse mortgage. It can be a good move, but regulators warn of several pitfalls. Outright fraud is rare, although it does occur; one adviser pocketed $42,000 from a reverse-mortgage payout without his client knowing.
A more common problem: obliging reverse-mortgage applicants to buy additional products or services as part of the loan agreement. Lanier, the Florida official, says some reverse-mortgage providers push clients to buy deferred annuities. These insurance products can come with high fees and tie up cash that the borrower may need immediately. New rules from HUD prohibit lenders from linking reverse mortgages with other products. Another sleazy move is when advisers charge for providing information on reverse mortgages or for referring a client to a lender. HUD provides mortgage information for free and can hook you up with counseling agencies that can provide advice and a list of HUD-approved lenders. Call 800-569-4287 for the name and location of a HUD-approved counseling agency near you.
Reader Comments (10)
Posted by: JAIAJ at 12/10/2008 10:10:51 AM
It's unfair to call debt negotiation a scam just because of a few crooks. Many debt negotiation companies really work hard to help consumers get out of debt. Consumer credit counseling only helps people who can already pay their bills or could if they had lower interest rates. That's not very helpful for many consumers, but debt negotiation is helpful for people who cannot afford to fully repay their debts due to some financial hardship.
Posted by: David J. at 12/12/2008 08:34:16 AM
The story didn't say all debt negotiation was a scam, and pointed readers to legitimate ones. Nothing unfair about that.
Posted by: JD at 12/12/2008 05:38:45 PM
JAIAJ, that's why the article said SOME debt negotiation services are scams. Read more carefully and react less emotionally.
Posted by: Ron at 12/12/2008 08:23:58 PM
They didn't call debt negotiation a scam all the time. Like the other potential scams, they noted that legit actions can take place, but be wary of people doing "xyz." Debt negotiation is one of those things, and one that I think should be at the top of the list. Debt negotiators can, and are, helpful for many people, but they can also ruin someone's credit (e.g. suggesting that no payments be made to the companies but instead to the negotiators, and telling people to refuse phone calls). Just because it can be helpful doesn't mean it CAN'T be a scam, and I think Kiplinger does a good job to point that out.
Posted by: mg at 12/13/2008 04:35:03 AM
There are more than just a few crooks in the debt consolidation game. Their whole business model is centered around getting people behind in their debts, then negotiating for lower payoffs. Actually, a person could do the same and not have to pay the thousands of dollars for the "privilege" of doing so. Then again, if people would live on less than they make, they could pay off the debts and not have to use the debt "consolidation" scams.
Posted by: Gene at 12/17/2008 09:27:29 AM
I am a principal in a debt negotiating company. I agree that their are many crooks in this business. There are also some of us who have chosen to make our living this way because we have experienced first hand the way card companies kick you when you are down. We intend to be part of the solution, not part of the problem. We try to be very honest and straight forward in our counsel that getting out of debt is hard. It requires sacrifice and discipline.
Posted by: JOHN at 12/17/2008 11:27:18 AM
WATCH OUT FOR OVERSEAS DEALS TAHT WANT YOU TO COLLECT MONEY FOR THEM AND YOU TAKE A PERCENTAGE FOR YOUR TROUBLE.YOU WILL END UP WITH A BUNCH OF BOGUS MONEY ORDERS OR TRAVERLERS CHEQUES THAT WILL GET YOU ARRESTED IF YOU TRY TO CASH THEM. WATCH OUT FOR OVERSEAS SCAMS...
Posted by: Vicki Rodgers at 12/17/2008 12:32:26 PM
Re: Credit Rating. Why are the credit rating entities allowed to continue to give a person a credit rating during a crisis such as the one we are experiencing now? AIG, the top three car manufacturing, and many public companies are not rated or at least it is not impacting them as it is private persons. We are in trouble too because of these companies laying off workers, others are ill, or we simply do not have the funds. If we obtained help from the government as the fortune 500 companies, etc., we could, too, get on our feet. However, our credit rating follows with us and we still can't get our good ratings back? Why aren't the credit rating companies taken to task for harrassing the Main Street people who are suffering from no fault of their own?
Posted by: John at 12/17/2008 01:01:20 PM
I am glad that you saw fit to call it what it really is: a BET.
Posted by: gerald abrams at 12/17/2008 01:39:53 PM
All we heard about for the last few years was the cost of the war, now the Govt. is spending money faster than they can print it. Please explain how this will not turn to inflation with high interest rates like we had under Carter.