For once, I am not talking about Congress or their $700 billion Wall Street bailout boondoggle that may or may not work. Of course, it doesn't seem to be doing anything for the stock market, but Bush warned us that it would take time to have an effect. Many consider that the biggest scam of them all, but what I am talking about today are some of the most common scams that crop up during economic hard times. These are things, put together into a list by our friends at the L.A. Times, that even Pelosi and Reid can agree are pretty dirty tricks to play on consumers. If you are a small business owner working out of your home, or your credit has taken some damage as the economy picked up speed on the downward spiral, make sure you pay special attention.
Credit Repair Scams
With the rise of the FICO Score as the primary grade of credit-worthiness, so rose a cottage industry of people claiming that they can clean up your credit, raise your score and open the door to low interest rates, high credit card limits, the ability to afford more house, more car, more boat, more, more, more...you get the idea. There is a serious problem with this.
No One, So Far, Can Deliver
As pointed out by the Times, FTC officials have taken action against about 70 companies that promise credit repair. According to said officials, “they have yet to come across a legitimate business that can quickly eliminate rightful dings on a credit report.” Wrongful stuff, out-of-date stuff, you can take care of yourself. The legitimate entries that stand between you and 0% financing, however, are there to stay, at least for a while.
What that means is that credit repair is, right from its concept, a scam. However, if you are still uncertain, there is one nearly infallible test. If a so-called credit repair service attempts to get an upfront fee or a deposit from you, they are a scam. Do the work yourself. It will cost you time and postage, but you will be able to accomplish the same legitimate improvements as any service.
Foreclosure Rescue Scams
Losing your home and your workplace at the same time is a terrifying prospect, especially since it leaves you open to scammers who advertise that they can “save your home—Guaranteed!” Here are some of the warning signs to look for:
You are asked to pay an upfront fee—or your monthly mortgage payment—to someone who promises to negotiate with your lender. According to the FTC, that is a likely setup for a rip-off. Usually, the scammer simply takes the money and runs, leaving you in a worse position than before.
You are asked to sign documents to receive a "rescue" loan that you didn't request. Those documents may well result in your signing over the title to your home to the scammers, so check them very carefully. Have a lawyer check out any documents to make sure they are on the level.
You are offered a rent-to-buy scheme. Here, the homeowner turns over the title to their home and then pay rent, the plan being that the home will be eventually repurchased. The danger is that the new owner could continuously raise the rent until the resident can be evicted and the house sold; or that the buyback agreement could be so convoluted that the conditions for repurchase can never be met.
Quick Debt Solution Scams
This scam promises to get you out of debt quickly. It will also usually promise to get creditors off your back, stop repossessions and even stop foreclosures. Many such scams hook you by offering to consolidate your bills into one monthly payment without borrowing any money to do it. More often than not, these services lead you to bankruptcy.
Sometimes, bankruptcy is necessary, but many times people who have not yet reached that extremity will be seduced into filing unnecessarily. Will they get a break from their debt? Most likely, but that relief comes with a huge price tag. Bankruptcy remains on your credit report for ten years, where it can hinder you from getting a loan, disqualify you from renting an apartment and possibly even keep you from getting a decent job. Working out an arrangement with your creditors is always preferable and should be your first course of action before even considering bankruptcy.
Free Lunch Seminar Scams
You have to admire the irony of these things, the so-called “free lunch” seminars, because everyone knows that there is no such thing as a free lunch. In fact, for many consumers, these so-called seminars turn out to be the most expensive lunches they ever had.
You have seen the ads for these “educational” or “workshop” events. They are neither. Sure, they feed you something and you get to chit-chat with like-minded would-be entrepreneurs such as yourself. However, according to the Securities and Exchange Commission, many of these events are no more than slick and somewhat misleading sales presentations. The warning signs to look for include and “guaranteed investment” (no such thing) and any other ridiculous promises such as “Add $100,000 to your net worth at once!” According to the SEC report, about half the seminars it attended featured misleading claims, and 13% appeared to be engaging in outright fraud.
Here, a little common sense is in order. If your child came to you, all excited about a business endeavor that involves guaranteed investments or promises to add some 6-digit figure to their net worth, what would you say, as a parent rather than a budding entrepreneur? You would, at the very least, be skeptical. That is how you have to approach these seminars and judge them as you would if it was you child's money on the line, not your own.
Home-based Business Scams
You have to admit that it is a lovely thought: work at home, choose your own hours, be your own boss. Many people see this as the chance to strike out on their own, own their own small business, really take charge of their lives. Whether the opportunity is in medical bill processing, craft work, e-commerce sites, or that old chestnut, envelope stuffing, it promises to open the door to freedom. Unfortunately, according to the FTC, such offers are usually very expensive dead ends.
The medical billing pitch is that doctors desperately need subcontractors to take care of their accounts. The promoters even say they'll assist in locating clients. However, according to the FTC, after you pay your fee—which could be as high as $8,000 for “training” and “support”—you're most likely to be left on your own to find clients and generate revenue, something few if any are able to do.
Assembly or craft work often requires a large investment by the consumer in both equipment and raw materials. The out for the promoter here is that the finished work will only be purchased if it is up to standard. It never is and so the worker is left with relatively expensive equipment and supplies and no income.
In the e-commerce scheme, consumers are told how easy it is to start their own retail business on the Web, or how they can earn high commissions by hosting referral sites. Getting a site up on the Internet is easy, but getting it to make money for you is not. There is a great deal of competition online, and unless the person knows what they are doing and is willing to work at it, it's tough for an independent site to get noticed. The setup fees, therefore, are wasted money, as are the worthless "promotional" services that the consumer is pressured to buy.
Envelope stuffing is the grand-daddy of these scams. Consumers are told they can make a good income in the business, but they soon discover that the low pay per stuffed envelope makes that impossible as it would require more envelopes to be stuffed in a given week than is humanly possible in order to make a decent wage. Victims are often turned into scammers when they are told to simply place the same types of recruitment ads in local publications to make their money back.
The Bottom Line
Whatever else goes bad during these times of economic trouble, don't allow yourself to be scammed. Whether it is one of these listed here, or a multilevel marketing scheme designed to part you from your money, or something else, remember that these criminal activities thrive on fear: Fear of the future, fear of poverty, fear of not keeping up with the Joneses. Use common sense. Ask questions and demand straight, detailed answers before you put down any money. If the offer is legitimate, that shouldn't be a problem. If the information you want is not forthcoming, if you sense any resistance to your questions, then you are not going to get the truth, so walk out. If the offer or promise is too good to be true or it guarantees a return on investment, then it is a fraud, walk out.
By weeding out the scams, you will be in a better position to find real opportunities, and that is right where you want to be.