1. Scams & Schemes

2. Scam
Fraudulent or deceptive schemes

3. Pyramid Scheme
A type of financial fraud in which people pay to join an organization in exchange for the right to sell memberships to other people.

4. 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.

5. Affinity Fraud
A name for a type of scam that targets members of a specific demographic. Perpetrators may attempt to relate to or exploit characteristics common to the demographic. Targeted groups can include the elderly, ethnic groups, and religions.

6. Predatory Lending Overview
Characteristics and warning signs of predatory lending.
The key targets of predatory lending.
Common abuses and scams.
Nonprofit organizations that can help consumers plagued by predatory lending.
Note to the facilitator: Discussions about predatory lending can elicit strong feelings from some participants. Some participants may equate predatory lending solely with individuals who have low incomes. It is important to be aware of these possible perceptions and also to be sensitive to your audience. In addition, some participants may have personal accounts of predatory lending occurring to family or friends. Allow participants to share their perspectives, but be careful not to let the conversation become a session for participants to share war stories.
Review the topics for discussion in this activity.
• Describe the characteristics of predatory lending.
• Understand the warning signs of predatory lending.
• Learn how predatory lending affects vulnerable communities.
• Identify organizations that can help.
Discuss the fact that predatory lending is generally thought of in connection with mortgages and most of the conversation here will be in this context, but there are predatory lending practices that show up in connection with unsecured consumer credit, as well, such as car loans and personal loans. 6

7. 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.
And many other scams.
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:
Predatory lenders combine a variety of tactics to coax borrowers into high-rate, high-fee loans that either waste equity from their homes or are not affordable and thereby force the borrower into default and foreclosure. Also, predatory lending often uses subprime loan pricing. Describe the potential warning signs of predatory lending, which may include the following practices:
• Credit insurance packaging — Credit life insurance, credit accident and health insurance, or involuntary unemployment insurance is included as part of the loan. This insurance is usually extremely profitable for the lender. Because it is profitable, credit insurance is often sold to individuals even if they might not benefit from it.
• High interest rates and points — Predatory loans may feature interest rates that are well above prime rates and have very high fees or points, but they do not give borrowers a reduction in the interest rate for paying these fees. Special rules apply to these loans, which prohibit certain terms and conditions, such as balloon payments and loan flipping. high-cost loans should be labeled as such under
federal law.
• Balloon payments — High-cost loans often include a balloon payment, which is a large lump sum of money due at the end of the term of the loan. Borrowers who cannot meet the balloon payment may lose their home to foreclosure unless they refinance the loan, often at an excessive cost.
• Loan flipping — Borrowers who are in default or in need of credit (like those with balloon payments) often refinance their loan. The new loan pays off the balance of the existing loan, including any prepayment penalty embedded in that loan. The resulting loan has a higher principal balance and a new set of closing costs and fees
based on that higher balance. A loan may be refinanced several times in this manner. Each time the loan is refinanced, the lender receives a new set of closing costs and fees, which leads to a depletion in equity with little or no benefit to the homeowner.
• Lending without the ability to repay — Loans made based on the amount of equity in a property are made to individuals who do not have the income to repay the loan. 7

8. 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
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:
Display “Slide: Identifying Predatory Lending.” Explain to participants that knowing the warning signs for predatory loans may help you to avoid such loans. There are also some key questions to ask yourself before getting a loan:
• Do I feel pressured?
• Have I shopped around for the best deal?
• Is it too good to be true?
• Do I understand the loan terms and why the loan is good for me?
A loan product or lending practice may not seem predatory until it is compared with a similar loan product offered by other lenders. And the situation may not seem abusive until everyone gets to the closing table. If any fees or charges differ from what was previously disclosed, delay the closing until all terms of the loan are clearly understood. 8

9. TEN WARNING SIGNS OF PREDATORY MORTGAGES
Unreasonably high interest rates
Multiple refinancing
Unnecessary debt consolidation
Balloon payment
Negative amortization
Door-to-door solicitation
Back-dating of documents
Large loan broker fees
Kickbacks between lender and broker
Single-premium credit life insurance
Explain the ten warning signs of predatory mortgages:
1. Unreasonably high interest rates (APR)
Predatory lenders may charge rates well above those of conventional mortgages.
2. Multiple refinancing
Also called flipping, this practice occurs when a lender refinances a loan to generate fee income without providing any notable benefit to the borrower.
3. Unnecessary debt consolidation
Similar to the above, a predatory lender may collect fees by offering a debt consolidation loan that has little or no benefit to the borrower.
4. Balloon payment
Balloon payments offer borrowers smaller monthly payments. But if you cannot afford to pay the lump sum due at the end of the loan, you must obtain another loan, resulting in more fees to the lender, or risk foreclosure.
5. Negative amortization
In this practice, a loan is structured so that the monthly payment is insufficient to cover accrued interest, which means that the outstanding loan balance increases every month. At the end of the loan term, you could owe more than the amount originally borrowed.
6. Door-to-door solicitation
Predatory lenders often target communities of individuals with language barriers or little financial knowledge.
7. Back-dating of documents
Beware of a lender who asks you to falsify information on your loan application or other loan documents.
8. Large loan broker fees
Predatory loans commonly have fees greater than 5% of the cost of the loan.
9. Kickbacks between lender and broker
In this scenario, the lender or broker receives a kickback – or bonus – for making a loan more costly to a borrower.
10. Single-premium credit life insurance
The lender adds credit life insurance to the amount of a loan, without giving the borrower an option. This coverage offers little benefit to the borrower. 9

10. COMMON SCAMS Advance fee schemes The prize that will cost you
Online auctions
Fraud jobs
Moneymaking schemes
Bogus charities
Scam schools
Display “Slide: Common Scams.” Review the slide’s top scams and top strategies for avoiding scams.
• Advance fee schemes — These schemes require you to pay a fee in advance to receive a credit card, loan, or scholarship. In return, you get something that is worthless, or worse yet, you get nothing at all.
• The prize that will cost you — This is a scheme that alerts you that you have won a prize, but in order to claim the prize, you must first pay taxes or a handling fee. An example is a scheme that claims you have won a free resort stay, but are required to purchase an airline ticket. In this case, the airline ticket price is inflated to cover the cost of the resort stay.
• Online auctions — Beware of auction items that are priced far too low. There’s a good chance that it could be a scam. The item may be fake or in bad condition. The item might even be stolen. Be sure to avoid buying anything online from someone who contacts you through or through an instant message.
• Fraud jobs — There are a number of employment scams. Many fraudulent job opportunities are promoted as work-at-home opportunities. Often someone who claims to work in the “human resources department” requests your personal information and then uses it to steal your identity. Another common employment scam involves an individual who promises you a job, but only if you pay an employment fee.
• Moneymaking schemes — There are a variety of scams that claim you will make a lot of money in a very short time, such as pyramid schemes and counterfeit check schemes. Pyramid schemes seem like a fast way to make a lot of money, but usually, the only person to make money is the one at the top. Counterfeit check schemes usually come in the form of a letter or message from overseas seeking your help in obtaining payment on a check. If you cash the check, the perpetrator claims that you will keep a portion of it for your trouble and requests that you mail a cashier’s check for the remainder. The original check turns out to be counterfeit, leaving you without your “bonus” and possibly with a bank judgment against you.
• Bogus charities — Unfortunately, you have to be on your guard even when giving to charities. Some scam artists will use high-pressure techniques to convince you to donate money to a bogus charity. Avoid bogus charities by never giving payment information to anyone calling or ing you, claiming to be with a charity. Any reputable charity will be happy to send you paperwork on their organization. You can also research the organization online and with the Better Business Bureau to ensure that it is a legitimate organization.
• Scam schools — Fraudulent career and trade schools lure potential students in
with the promise of a lucrative job upon graduation. By the time the students graduate, they’ve amassed a sizeable debt but are left with only substandard training and little more than an outdated classified ad in their hands. 10

11. HOW DO THIEVES WORK? Skimming Pharming Dumpster Diving
Computer Spyware
Account Redirection
Phishing
Pharming
Wireless Hacking
Stealing
Shoulder Surfing
Thieves basically have two objectives. First, they want to get private information. Second, they want to use this information for their own benefit. How do they get access to information that is supposed to be private? They steal mail or credit cards and pick through trash. Read on to find out more about the many ways a thief can steal your personal information.
Skimming: This may be the most frequently used method of credit card fraud. Basically, it’s when you give your credit card to a waiter, cashier, or doctor’s office receptionist and they copy your account information. Thieves may also place a card reader in the card slider at an ATM machine. Your account information is recorded when you get money out of your account. Protect yourself by checking your account activity often.
Dumpster Diving: This is exactly what it sounds like. Thieves go “diving” (searching) through dumpsters, trash cans, recycling bins, and even trash heaps at the dump.All they need to find is one pre-approved credit card notice and they can open a credit card account in your name. But often times they will find much more. Shred all papers with personal information on them.
Computer Spyware: Spyware software can be downloaded onto your computer when you visit web sites or take your computer in for repairs. This software allows thieves to record your website history and everything you type, including account numbers and passwords. You can protect yourself by installing virus detection or anti-spyware software onto your computer and keeping it up to date.
Account Redirection: Thieves can go to the post office and fill out a change of address form to have your mail
sent directly to their address. Or, they can call your financial institution and tell them that you have moved. Banks and credit unions will often send out letters to both addresses, so keep an eye out for this sort of mail. If you haven’t moved, but you get a letter from your bank saying your address has been changed, call your bank ASAP—as soon as possible!
Phishing: You’ve probably gotten a phishing before. These s seem like official messages from a bank or online store asking you to update your account information; but when you do, the information goes directly to the thief. Phishing can also happen over the phone, as a thief pretends to be a bank officer calling to discuss your account. If you think the or call is valid, always call them back using a phone number you
know you can trust, like the phone number on the back of your credit card. Whoever answers the phone will be able to connect you to the right department.
Pharming: Similar to phishing, pharming attempts to trick you out of your account or login information. Thieves create fake websites designed to look like a bank or online store and then buy domain names similar to the real web addresses. So when you accidentally type in the wrong web address, you end up at the fake site. When you log in, the thieves get your username and password. If you need to login to an account, do it directly through the company’s website, not through an link.
Wireless Hacking: If you use a wireless internet connection for your computer or cell phone, you could be hacked. Thieves look for unsecure connections and then tap into your information. Often times the thief will be sitting at the coffee table next to you or sitting in a car in the parking lot. Your best bet is to simply avoid accessing personal information if you are using an unsecured connection.
Stealing: By grabbing your wallet or purse, a thief can get access to a ton of information very quickly. These
thieves often have an entire network set up to handle the contents of your purse or wallet, so that within minutes your credit card can be used or your bank account emptied. Or a thief can steal your incoming and outgoing mail from your home mailbox, which can provide instant access to your account information and pre-approved credit offers. Call your bank and other important institutions immediately if you suspect your information has been stolen. Never carry your Social Security card or number in your wallet or purse. Keep your card in a secure place and take it out when it is needed, such as when you are hired for a new job. Keeping a list at home of what is in your wallet or purse will help you know which companies to call if your information is stolen.
Shoulder Surfing: By watching you punch in your calling card number or listening to you give a friend your address, a thief can get information directly from you. Look around to make sure no one is listening before you talk about personal information. Or better yet, just don’t share your personal information in public.

12. 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.
Top Strategies to Avoid Scams:
• Don’t allow yourself to become a victim because you don’t want to appear rude. Con artists will exploit your good manners.
• Investigate strangers who have deals that seem too good to be true.
• Always stay in charge of your money. Beware of anyone who suggests putting your money into something you do not understand or who urges that you leave everything in his or her hands.
• Do not be fooled by appearances. Successful con artists sound and look extremely professional and have the ability to sound credible and respectable. Always investigate the offer thoroughly.
• Watch out for salespeople who prey on your fears. Fear can cloud your judgment. You should not make a decision because you feel pressured or fearful.
• Monitor your investments and ask questions. Insist on regular written or oral reports.
• Do not let embarrassment or fear keep you from reporting fraud or abuse. Con artists know that you might hesitate to report that you have been victimized in financial schemes out of embarrassment or fear. Every day that you delay reporting fraud is one more day that the con artist is spending your money and finding new victims.
• Do your homework. If you receive an offer you find interesting, ask for more information and continue your research into other possible deals.
• Be wary of door-to-door solicitations. 12

13. 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) ;
Display “Slide 7: Additional Resources,” which provides a listing of government agencies and nonprofit organizations that provide assistance
with predatory lending concerns and counseling. 13