Make Sure You Avoid These Financial Scams

If you’ve been the victim of a financial scam, you’re not alone. Scams are more common than you might realize — if there’s a financial activity or transaction present, there’s almost certainly some type of scam attached to it.

According to the Federal Trade Commission’s (FTC) Consumer Sentinel Network Data Book 2019, there were 3.2 million consumer-reported cases of identity theft, imposter scams, and telephone and mobile services issues, generating $1.9 billion in total fraud losses. 

That works out to be nearly one scam for every 100 American citizens! Being aware of commonly used money scams today can help you better identify the red flags of fraud. 

Here are a few scams to know about, how to spot them, and what to do if you’re a victim.

1. Unemployment Benefit Scam

Scams surrounding unemployment benefits are a major problem, especially during times of economic uncertainty and unemployment. For example, in the wake of the COVID-19 pandemic, tens of millions of workers turned to unemployment benefits for financial support. 

The anticipated $600 weekly federal unemployment benefit — on top of state unemployment benefits — made those weekly payments a bigger target for scams than ever before. According to the FBI, scammers filed fraudulent unemployment claims using stolen identities. Scammers purchased personally identifying information (PII) online, which were stolen from previous data breaches, computer intrusions, email phishing schemes, and a host of other sources.

With your information — which often requires no more than your full name, Social Security number, and current address — a scammer can file for unemployment benefits under your name and have the funds routed to their bank account.

How to Avoid Being Scammed

The first tipoff is a communication from your state unemployment office. They might contact you or your employer, directly, to get more information about the unemployment claim. You might also notice unauthorized transactions on your bank or credit card statements related unemployment or unsolicited inquiries related to benefits.

Anytime you’re contacted by an unemployment agency about a claim you didn’t file, suspicious activity might be involved.

What to Do If You’re a Victim

If either you or your employer are contacted by the local unemployment office, never ignore it — whether it comes by phone, mail or email correspondence. Don’t provide any information to the person who contacted you — it could be the scammer phishing for more information. 

Instead, do an independent search online for the unemployment office’s phone number. Contact the number that’s listed on their official website to follow-up on the call. Report that you were contacted by the office about a benefits claim that you believe is fraudulent. 

Unemployment offices typically have departments set up to investigate fraud. Once they’re involved, there won’t be much more you’ll need to do, other than to continue reporting any new suspicious activity related to the false claim.

2. Income Tax Refund Scam

The income tax refund scam has been growing in recent years, but has been more pervasive during years when tax filing deadlines are extended. Thieves obtain your identifying information, then file a tax return with a large refund that’s direct-deposited into the scammer’s account. 

Thieves are able to pull this off because they file early in the year, like in February. When filing deadlines are extended, it gives income tax refund scammers more time to pull-off the theft.

How to Avoid Being Scammed

Unfortunately, you typically won’t be aware of this scam until you file your own income tax return and the IRS contacts you about a discrepancy. For example, you might’ve reported your actual information on your 1040 tax form, but the IRS will note that your return was already filed months before and a refund of $X has been paid.

The notification from the IRS isn’t a bad thing either — it means they’ve noticed the discrepancy and getting them involved ASAP is your best move.

What to Do If You’re a Victim

As messy as this problem is, it’s actually one of the easier scams to deal with. That’s because it’s become so common that the IRS has an entire department dedicated to resolving these issues. All you need to do is contact the IRS and get the process moving — unless they’ve already contacted you in writing. 

If you’re initiating the investigation about the discrepancy, reach out to them in writing using certified mail, return receipt requested. Due to the filing discrepancy brought on by this scam, the IRS might reject your tax return if you try to file it electronically. In this situation, you can file IRS form 14039, Identity Theft Affidavit with your tax return.

Remember, you’re not liable to the IRS for the funds it dispersed in the refund scam. You’ll also receive the tax refund that you’re owed, based on your legitimate income tax return, though it might be delayed.

3. IRS Lawsuit or Arrest Scam 

“This is the IRS and unless you make payment immediately, you’ll be sued or arrested.”

This might not be the exact wording you’ll see, but it’s a common scam. The scammer typically communicates by phone as a recorded message, requiring you to call a phone number and make an immediate payment to avoid prosecution.

Some people simply comply and pay to avoid further threats or perceived issues with the IRS. It’s a common fear that thieves take advantage of.

How to Avoid Being Scammed

Be aware of suspicious requests. According to the IRS, it will never:

• Initiate contact with taxpayers by email, text or social media to request personal or financial information — after all, it already has this information.
• Call taxpayers with threats of lawsuits or arrests.
• Call, email or text to ask for taxpayers’ Identity Protection PINs.

If you encounter any of the warning signs above, you’re likely dealing with a scam.

What to Do If You’re a Victim

The single best strategy if you encounter this kind of call: hang-up immediately. That doesn’t mean the scammers won’t call back again, or attempt to contact you from a different phone number. But it does put an end to that particular conversation.

Whatever you do, don’t provide information to a live individual, nor call any phone numbers that are given. Scammers want to get personal information from you, and any conversation that takes place increases the risk that you’ll provide it, even inadvertently.

4. Phishing Scam

If you own a computer, there’s a high chance you’ve been targeted by a phishing scam. In this scam, a scammer sends you an email masquerading as a financial institution or other authoritative agency. The message will ask you to provide personal information through a link within the email itself. 

If you click on the link, you’ll be risking either exposing your computer to a virus or malware, or brought to a convincing, fake website that asks you for sensitive information, like your Social Security number, financial account numbers and more.

The scammer is using the bogus email to grant themselves access to either your computer or to a financial account that you own. 

How to Avoid Being Scammed 

No matter how convincing an email may look, never click on links provided in the message. That’s the most basic rule to follow, but it’s not always the easiest.

Scammers can create nearly exact replicas of correspondence or even web pages from a bank or other legitimate company. One tipoff is the sender’s email address — if you look closely, it’s not from the company’s legitimate domain name (the name after “@” in an email address).

For example, you might get a genuine-looking email from Charles Schwab. In this case, you might expect the sender’s email address to look something like, “[email protected]charlesschwab.com”. 

Instead, the sender’s email address is “[email protected]” or “[email protected]charleschwab.com”.

In that last example, notice the misspelled domain name. These are signs that the email is bogus. It’s even easier to detect when you receive a notification from a financial institution you don’t even have an account with. 

What to Do If You’re a Victim

Don’t click on any links within a suspicious email. It doesn’t need your Social Security number, your account number, or anything else about you, because — if it was, in fact, legitimate — it’d already have your information on file.

If you accidentally click on a link or provide information, immediately contact your real financial institution to let them know what happened. They’ll freeze your account, and likely issue you a new account number.

You’ll also need to contact the three credit bureaus (Experian, Equifax, and TransUnion) to request a credit freeze. This prevents scammers from obtaining new credit in your name. If you’ve provided your Social Security number to a phishing scam, you might also need to get a new Social Security number issued by the Social Security Administration.

5. The Romance Scam

Romance scams commonly happen through dating sites, but it could also happen when meeting someone in person. In this scam, thieves manipulate their victim into believing the scammer is seeking a genuine relationship. They’ll work to earn your trust over several weeks or even several months, but eventually they’ll ask for money.

They’ll offer a seemingly reasonable excuse for needing the money. It might be just a few hundred dollars, for example, to help a family member pay a medical bill. This might be followed by requests for more money, usually in larger increments. Once the scammer has had their fill of your money, the relationship mysteriously ends along with further communication.

How to Avoid Being Scammed

Anyone can be vulnerable to this kind of scam, but watch for any of the following:

• The person doesn’t reveal concrete details about their background.
• You never get to visit their residence.
• You never meet their family or friends.
• The person is reluctant to meet your family or friends (this to avoid additional witnesses who can identify them to the scam).
• You find that they have more than one name.
• They ask you questions about your finances early in the relationship. The questions become more frequent and detailed.
• Money is requested, with a promise of repayment. It’s even possible that they’ll repay the first amount requested as a way to gain your confidence.
• They usually have some sort of hard-luck story to gain your sympathy.
• You’re confused about important details of their life, despite feeling emotionally attached.

If you notice one of the above details, it’s fair to be on alert. But if you notice multiple issues, some level of deception might be involved. 

What to Do If You’re a Victim

If you’ve been caught in a romance scam, report it to the police, immediately. You may also want to contact any financial institution that the scammer might’ve been aware of. For example, if you transferred funds from your personal checking account to the scammer’s bank account.

The scammer might already have your bank routing number and personal account number, if you issued them a check. Reach out to your bank to freeze your account, immediately, and request a new account number.

There’s no guarantee that you’ll recover the money you transferred to the scammer after they disappear. To avoid this outcome, stay vigilant and watch for warning signs when entering a new relationship.

The Bottom Line

It’s not always easy to detect a scam. The internet makes scamming even easier, and thieves have gotten more creative in creating credible schemes. Key elements that are usually present in a scam: 

• A request for personal information, and/or
• A request for money.

If you can be alert to those two warning signs, you have a better chance at avoiding the most popular scams. For more formal and comprehensive protection from scams, you can:

• Sign up for one of the Best Identity Theft Protection Services of 2020
• Use a good credit monitoring service to watch your credit — this can alert you to unauthorized activity on your credit report.
• If you’ve already been a victim of a scam and your credit has suffered for it, you may need a credit repair service can help rebuild your creditworthiness.

By watching for the most obvious warning signs, and employing professional services for added protection, you can avoid the worst of what the scammers will throw at you.