Financial Fraud: A Guide to Protecting All Your Finances

close up of money

Technology has increasingly become the main platform for everything from communication to shopping. You can now buy groceries without leaving the comfort of your home or purchase goods with same-day delivery.

Unfortunately, the growth of our Internet-based society comes with personal information vulnerabilities and financial fraud schemes.

Approximately 15.4 million consumers were victims of identity theft or fraud in 2016, which shows an increase of 16% from 2015. Statistics for 2016 also uncovered that card-not-present fraudulent cases, in which transactions were made online or by the phone, increased by 40%. Overall, scammers stole an estimated $16 billion, which is nearly $1 billion more than 2015, suggesting online financial fraud is on the rise.

Let’s take a look at the common financial crimes lurking out in the world today and highlight preventative steps you can take to keep your identity and money safe.

Types of Financial Fraud

Data Breaches

From Equifax to Whole Foods, 2017 was no stranger to data breaches. The year was riddled with thieves and hackers disabling firewalls and scouring consumers’ private data. Data breaches occur when an online criminal accesses a computer or network to steal files and extract sensitive information. The sensitive information may include:

  • Full names
  • Birth dates
  • Social security numbers
  • Member identification numbers
  • Email addresses
  • Physical addresses
  • Phone numbers
  • Bank or credit card account numbers
  • Healthcare information
  • Claim information

This type of financial crime may result in identity theft, as the hacker can use or sell your personal information to open new accounts, make purchases, or receive a tax refund. Credit unions and members can help hold retailers and merchants accountable for breaches and fraudulent charges by filling out a simple form as part of the Stop The Data Breaches campaign.

Email Fraud

Scammers may use fraudulent emails or copycat websites to coax you into providing them personal information or access to your computer. This tactic is known as phishing. Scammers will try to make you believe that you must provide them with personal information or you’ll face frozen bank accounts or jail time.

Fraudulent emails will often use familiar, trusted logos from companies and organizations to provide a false sense of security. They may also use email addresses that are similar to genuine company email addresses in order to trick their victims.

If you think an email is questionable, do not respond. Instead, contact the company through their website contact form or published customer service phone number.

Online Auction Fraud

This type of online fraud has grown with the rise of third-party websites like eBay that allow individual vendors to sell goods to consumers via bidding.

One of the most common types of auction fraud is simply when the seller doesn’t deliver the goods that were bid on and won. The payment is accepted by the seller, but the purchased items are never shipped and the seller cuts off communication with the buyer/bidder.

Another type of auction fraud targets sellers. In this case, the winning bidder sends a counterfeit check or money order to the seller with a request that the seller refund the difference between the price they paid and the actual market value of the item. Once receiving the money, the scammer will pocket the extra cash and walk away with the item before the counterfeit check is rejected by a bank.

Online Investment Fraud

These scams often lure victims in with the promise of being able to double or triple their savings. Advance fee schemes, a popular type of financial crime, involve scammers persuading victims into paying money up front in order to invest and receive large sums of money in the future.

Another common scheme targets individuals that have retirement savings in an Individual Retirement Account (IRA). This scam encourages victims to sell the money they have in their IRA and use it to buy shares of a startup company. The scammer promises a 60-70% return on their investment, but ultimately leaves victims without retirement savings.

Work-From-Home Scams

For millions of unemployed Americans, looking for ways to make extra cash is a main focus and concern. Unfortunately, some criminals will take advantage of that vulnerability by posting job listings online that offer the convenience of working from home.

In some cases, scammers will send detailed job offers that look legitimate. However, the offer letter will include a request for bank information before the individual has even accepted the position.

Telephone Scams

These scams occur when scammers use voice phishing, also known as vishing, to gain victims’ personal information. The criminals encourage individuals to provide bank information over the phone or via an online platform they have created to deliver a false sense of security. They may also pretend to award the victim with a cash prize, suggesting that they won a contest or sweepstakes.

Criminals may even impersonate the IRS, demanding personal information or immediate payments over the phone. They often threaten police arrest, deportation, or license revocation to scare victims into abiding by their requests.

Online Dating Scams

Scammers will target individuals looking for a partner on a dating website or app, or through a social media platform such as Instagram and Twitter. They often create fake profiles using a fictional name or false identity, which is commonly known as “catfishing” in today’s society. The scammer usually expresses strong emotions for a victim in a short period of time and will suggest moving from the dating website or app to a private channel such as phone calls, email exchanges, or text messages. Once they gain their victims’ trust, they will ask for money for a personal or medical emergency. After receiving what they desire, scammers will cut off contact with the victim.

Who is At Risk for Online Financial Fraud?

While anyone can fall subject to online financial fraud schemes, millennials and seniors are suggested to be more at risk for fraud.

A 2016 study by Better Business Bureau indicates that individuals between the ages of 25 and 34 are more likely to lose money to fraud due to riskier online behavior than other age groups. In the study, more than half of the victims in this age group had a college degree, debunking the theory that less-educated individuals are more likely to fall victim to fraud.

Though millennials had the highest risk rate, seniors can also be susceptible to financial fraud since they’re more likely to pay scammers larger sums of money. Elders tend to trust scammers easier than other age groups, and scammers play on the older generation’s cognitive decline and emotions.

15 Ways to Prevent Online Financial Fraud & Identity Theft

  1. Do your research and know how to spot possible scammers.
  2. Never share social security numbers or bank account numbers on platforms that aren’t secured or trusted.
  3. Ensure your smartphone and/or laptop is protected, all software is up to date, and that you only use them on a secure WiFi network.
  4. Monitor your credit frequently with secure websites and apps such as Credit Sesame.
  5. Track and monitor your online transactions from all monetary accounts in one place with a financial app so you can easily recognize fraudulent activity.
  6. Never provide personal information over the phone to unsolicited callers and be wary of who or what you trust. If something doesn’t seem right or if something seems too good to be true, take extra steps to look into it.
  7. Make passwords hard to crack, change them frequently, and keep them protected.
  8. Avoid clicking on links in suspicious emails or providing bank account and social security numbers via an email exchange.
  9. Don’t pay in advance for investment opportunities based on an empty promise or guarantee of becoming rich quick. Instead, learn how to safely invest your money with the help of our investment financial guide.
  10. Don’t allow external sources to access your computer unless they’re completely trusted.
  11. Wipe old computers of personal information prior to recycling or selling them.
  12. Check with your bank about their financial fraud prevention methods and privacy policies.
  13. Consider trying an identity theft protection service for added security.
  14. Shred or destroy any physical documents that include your personal information. Even junk mail can lead to online financial fraud or identity theft.
  15. Stay on top of the most recently discovered scams by subscribing to the Federal Trade Commission’s scam alerts.

I’ve Been Scammed! What Do I Do Now?

  1. Stop all contact with the scammer.
  2. Compile any documents or evidence of fraud such as contracts, receipts, emails, and/or bank and credit card statements.
  3. Notify your bank, credit union, or credit card company of any fraudulent charges immediately. Request a refund or file a dispute if necessary.
  4. Report the scam to your local police station.
  5. Report the scam to hosting sites (e.g. contact eBay directly if an individual eBay seller scammed you).
  6. Submit a consumer complaint and report the fraudulent case to the Federal Trade Commission.

Want more information on financial fraud? Take a look at our fraud and security resource page for useful links and phone numbers!

Liz Oliver
Liz Oliver

Liz Oliver is the Member & Loan Services Officer at Lancaster Red Rose Credit Union. She’s been a member of the LRRCU team since 2007.