UNIT 5- BE A CRITICAL CONSUMER Section 3.3 Deception and Fraud

Section 3.3 Deception & Fraud  Goals: 1. Understand the concept of deception and recognize how consumers can be harmed by these practices. 2. Identify common types of fraud.

Key Terms  Trading up  Loss leader  Fraud  Bait & switch  Pyramid scheme

Deception vs. Fraud  The difference between deception and fraud is a matter of degree and often not clear cut.  Deceptive advertising or selling practices taken to unlawful extremes become fraud.

Fraud  Fraud – the deliberate deception designed to secure unfair or unlawful gain. Cheating the customer!  By law, a statement is fraudulent if it 1. The person who makes it must know it’s false. 2. The purpose of the statement must be to cause others to give up property that has value, such as money, without fair compensation.  Fraud is hard to prove, best defense is to avoid it by being a educated consumer.

Legal Deceptive Selling Practices  Trading up- the practice of pressuring consumers to buy a more expensive product than they had intended.  Sale Price- A sale price is only a sale price if it is below the regular price.  Suggested Retail Price- manufacturers suggested retail price is sometimes made higher than what they expect to get. (i.e. car sticker prices)  Loss Leader- The item priced below cost to attract you to the store in hopes that consumers will buy other items at full price that they hadn’t intended to buy.

Fraudulent Practices 1. Bait & Switch- the practice of baiting the consumers with an advertised but nonexistent bargain and then switching them to a more expensive product. 2. Pyramid Schemes- a type of financial fraud in which people pay to join an organization in exchange for the right to sell memberships to others. There is no legitimate product. 3. Internet & Phone Fraud: Con artists that often play on your emotions to get you to pay them your money.