1. Be vigilant. Scams appear to be more prevalent during this economic downtown.
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3. Credit repair services can't require you to pay until they have completed the services.
4. Legitimate companies do not ask for personal or financial information via e-mail.
5. Work-at-home firms should be willing to describe their services in writing.
The economy is tough, and there are crooks out there looking to make things a whole lot tougher. The number of financial scams circulating is on the rise, some experts say, as criminals seize every opportunity to take advantage of the desperation many are feeling due to the economic downturn.
"I've been doing this for 22 years, and it's by far the most scams I've seen," said Steve Bernas, president and chief executive of the Better Business Bureau of Chicago and Northern Illinois. "Everyone's looking for get-rich-quick schemes."
Here's a rundown of offers to beware of, along with advice, from the Federal Trade Commission, the Better Business Bureau and the Illinois attorney general's office:
Pay now, loan laterHow it works: Criminals set up fake loan companies that guarantee consumers, including those with weak credit ratings, a loan, but with a catch: Pay a fee before the loan is approved. Fees can run several thousand dollars. The consumer sends the fee but never gets the loan and loses the fee as well.
How to avoid it: It is against federal and state law for a business to request upfront fees for loans, according to the Better Business Bureau. Fees also are referred to as taxes, insurance, processing fees or collateral. An advance fee by any name is illegal.
Another red flag is the promise of a loan before the consumer has even applied. The FTC says no legitimate lender would ever guarantee that a consumer will get a loan.
Keep the changeHow it works: In one version, consumers are asked to be mystery shoppers for a money-wiring service. Cash the check, wire some of the money and keep the rest as payment.
Then there are checks sent to sellers of merchandise on online auction and classified sites for more than the price of the item being sold. The seller is told to cash the check, keep a portion as payment and wire the rest back to the buyer. Of course, the check is bogus. But, according to the BBB, the check will appear to have cleared, though the bank is investigating its validity. By the time the bank determines that the check is a fake, the victim is on the hook for the money.
How to avoid it: Experts say the red flag is receiving a check from a stranger or company and being asked to deposit it and wire back a portion of the money.
'Stop Foreclosure Now!'How it works: According to the FTC, you may get a personalized letter from a firm that found you by looking through foreclosure notices. Or maybe you saw an ad saying, "We guarantee to stop your foreclosure."
Once you're on the hook, the firm uses various schemes to steal your money. One method is by phony negotiations on your behalf. They tell you that they can work a deal with your lender to stop foreclosure if you pay an upfront fee. They also may tell you to stop contacting your lender and to make your mortgage payments to them.
"The attorney general says [consumers] should avoid these rescue schemes that ask for money upfront, because they're just looking to swindle your cash,"said Natalie Bauer, spokeswoman for Illinois Atty. Gen. Lisa Madigan.
Another method is the bait-and-switch rescue loan. You are told you are signing papers for a new loan to get your mortgage up to date. But you're really signing over the title of your home in exchange for the loan.
Then there's the rent-to-buy con, in which you surrender your title in a deal to stay in your home as a renter, with the goal of buying it back later. Tactics vary, but the result is the same: You lose your home.
How to avoid it: The FTC advises that you not use any firm that guarantees to stop foreclosures, tells you to stop talking to your lender, collects a fee before services or accepts payment only by cashier's check or wire transfer. You also should see red flags if the firm persuades you to lease your home and buy it back later, or tells you to make your mortgage payments to them instead of your lender.
In November, Madigan sued seven mortgage "rescue" companies that she said were preying on vulnerable homeowners on the verge of foreclosure. In each case, Madigan said, the firms targeted homeowners who had fallen behind on mortgage payments.
Alternative advice: If you are having mortgage trouble, the FTC recommends talking first to your lender about renegotiating payments. Also, contact a credit counselor through the Homeownership Preservation Foundation, a non-profit organization that offers personalized assistance to help at-risk homeowners avoid foreclosure. Their 24-hour, toll-free number is 888-995-HOPE. The FTC offers foreclosure advice on its Web site: www.ftc.gov. The Illinois attorney general's office offers a homeowner's help line at 866-544-7151, which provides referrals to Housing and Urban Development counselors.
Make bad credit disappearHow it works: The companies claim to be able to erase your bad credit or, in some cases, create a new credit identity. You pay them and, you guessed it, you get nothing.
How to avoid it: The FTC warns not to use any company that wants you to pay upfront for credit repair. Under the Credit Repair Organizations Act, companies can't require you to pay until they have performed the promised services. Other red flags: If a company doesn't tell you what your free options are, recommends that you not contact the three major credit reporting agencies, tells you they can eliminate bad information on your report or suggests you create a new identity by applying for an employer identification number to use instead of your Social Security number.
Bottom line, there's no quick fix to repairing your credit. It takes time and requires repayment of debts. Anything a credit repair company can do legally, you can do by yourself, the FTC says. For a detailed guide on how to repair your credit yourself, go to www.ftc.gov.
Let's make a dealHow it works: The company claims it can arrange to pay off your credit card debt for 10 percent to 50 percent of what you owe. The firms, some of which claim to be non-profits, say that any negative entries can be removed from your credit report through their debt-negotiation program, according to the FTC. They tell you to make payments to them instead of your creditors, and may promise to hold your money in a special account to pay your creditors on your behalf.
In reality, there's no guarantee that a creditor will accept partial payment of the debt, the FTC says. In addition, if you stop making payments to the creditor, late fees and interest usually will accrue, possibly causing your original debt to double or triple. This could result in negative information on your credit report, a lawsuit from your creditor, garnished wages or a lien on your home.
How to avoid it: Before you do business with any debt-negotiation company, check with your state attorney general's office, the BBB and your local consumer protection office to see if there have been any complaints filed against them. For help locating a credit counselor, try the National Foundation for Credit Counseling at www.nfcc.org or the Association of Independent Consumer Credit Counseling Agencies at www.aiccca.org.
IDtheft@crooks.comHow it works: Sometimes, crooks send you an e-mail claiming to be from your bank asking you to verify account information. Or they may claim to be writing from the IRS about an unclaimed economic stimulus payment or refund. The e-mails often look legitimate and have real-looking logos and references to legitimate companies. In any case, they prompt you to reveal personal information—Social Security number, account number, etc.—and use it to steal your identity.
How to avoid it: The FTC says that legitimate companies do not ask for personal or financial information via e-mail. The state attorney general's office has an identity theft hot line at 866-999-5630, which offers tips to avoid identity theft and resources for people who have had their identities stolen.
Be an armchair millionaireHow it works: Three popular versions of the work-at-home scam involve medical billing, envelope stuffing or craft assembly. In the medical billing scheme, you're offered the chance to make a lot of money from doctors who want to outsource their billing. They tell you that no experience is required and that they will provide you with clients. All you have to do is invest $2,000 to $8,000, according to the FTC. In reality, you have to sell the service and, the FTC says, few consumers who purchase the business opportunity are able to get it off the ground.
The assembly or craft work scam encourages you to invest hundreds of dollars in equipment or supplies, or requires that you spend hours making goods for a company promising to buy them. But after you've purchased the supplies and completed the work, the phony company doesn't pay you. The FTC says many consumers have had companies refuse to pay because the work didn't meet "quality standards." The standards are impossible to meet, and consumers are left with goods that they either have to sell themselves or take a loss on.
"They've been around since the 1930s," said the BBB's Bernas. "People keep giving them business."
How to avoid it: The FTC says legitimate work-at-home programs should tell you in writing what's involved in the package they're selling. The agency says you should ask questions to determine what tasks you will have to perform, whether you will be paid a salary or commission, and when you will get your first check. The FTC also recommends you check the company out with the attorney general's office and the BBB to see if there have been any complaints.