Financial Scams & Schemes Scams & Schemes

Financial Scams & Schemes Scam Fraudulent or deceptive schemes

Financial Scams & Schemes Pyramid Scheme A type of financial fraud in which people pay to join an organization in exchange for the right to sell memberships or products to other people.

Financial Scams & Schemes Ponzi Scheme Closely related to a pyramid scheme but the promoter generally has no product to sell and pays no commission to investors who recruit new members.

Financial Scams & Schemes Affinity Fraud A name for a type of investment scam that targets members of a specific demographic. Fraudsters frequency are – or pretend to be – members of the group. Targets can include the elderly, ethnic groups, religious groups or professional groups.

Financial Scams & Schemes Predatory Lending Includes: Unfair or abusive loan terms. Loan terms that deceive and exploit borrowers’ lack of understanding about loans, terms or finances in general. Targeting minorities, the poor, the elderly and less educated. Prey on people who need immediate cash. 6

Financial Scams & Schemes PREDATORY LENDING Sell properties for much more than they are worth, using false appraisals Encourage borrowers to lie about their income, expenses, or cash available for down payments in order to get a loan. Knowingly lend more money than a borrower can afford to repay. Require a “prepayment penalty” for paying off loan early. Target geographic areas (red line) for higher mortgage loan rates. 7 In communities across America, people are losing their homes and their investments because of predatory lenders, corrupt appraisers, mortgage brokers, and home improvement contractors who:

Financial Scams & Schemes IDENTIFYING PREDATORY LENDING Packaging a loan with single-premium credit insurance products. Repeatedly refinancing a loan in a short period of time. Charging excessive rates and fees to a borrower who qualifies for lower rates and fees. 8 Predatory lending is not defined by federal law except to the extent that a loan is a high-cost loan and contains one of a fixed list of terms or conditions. Predatory or abusive lending practices can include:

Financial Scams & Schemes Payday Loans/Car Title Loans/Check Cashing –Open longer than typical bank hours, allowing easy access to cash regardless of time of day. –Can charged annual percentage rates ranging from 200 to 500 percent. Utah usury limits (None): –Rare: 1,564% –Average: % –565 payday and title loan stores –Usually a term of two weeks, but usually takes 33 days to payback leading to payday loan trap of refinancing over and over (Loan Flipping).

Financial Scams & Schemes

Credit Effects: Does not build credit. Payments are not reported to the credit reporting agencies. Only reported as negative information if unpaid and account goes to collection or judgment account.

Financial Scams & Schemes Pawn Shops: Pawnbrokers lend money on collateral of value such as jewelry, musical instruments, electronics, tools, household items, firearms, etc. Loans are based on value of collateral being held by pawnbrokers. When customer pays back the loan, merchandise is returned. If loan is not paid, collateral becomes property of pawnbroker and can be sold.

Financial Scams & Schemes NINE WARNING SIGNS OF PREDATORY LOANS 1.Unreasonably high interest rates. 2.Multiple refinancing (loan flipping). 3.Unnecessary debt consolidation. 4.Balloon payment (oversized payment at end of loan). 5.Excessive fees. 6.Door-to-door solicitation. 7.Back-dating of documents (document dated earlier than the one on which the document was originally drawn up). 8.Kickbacks between lender and broker (something of value as compensation or reward for providing favorable treatment to another party). 9.Single-premium credit life and disability insurance (optional). 13

Financial Scams & Schemes COMMON SCAMS Advance fee up front before receiving loan Receive notice that won a prize but must pay taxes, shipping and handling charges or processing fees before receiving prize. Online auctions. “Grandchild” in distress and calls grandparent to wire money to “the police”. Bogus charities. Unsolicited job or employment offer that promises exorbitant pay for working from home. 14

Financial Scams & Schemes TOP STRATEGIES TO AVOID SCAMS Don’t become a victim. Investigate strangers who have deals too good to be true. Always stay in charge of your money. Don’t be fooled by appearances. Watch out for salespeople who prey on fears. Monitor your investments. Report fraud or abuse. Do your homework. Be wary of door-to-door solicitations. 15

Financial Scams & Schemes ADDITIONAL RESOURCES Department of Housing and Urban Development (HUD) — Office of Consumer and Regulatory Affairs, Interstate Land Sales/RESPA Division. (202) ; Federal Deposit Insurance Corporation (FDIC) — Consumer Affairs Division. (877) ASK-FDIC ( ); Federal Trade Commission (For federal lending violations involving mortgage and consumer finance companies.) (877) FTC-HELP ( ); TTY (202) ; Federal Reserve Board of Governors of the Federal Reserve System — Division of Consumer Affairs. (202) ; 16