How to Identify a Debt Collection Scam

Debt can be unpleasant even if you’re making your payments in a timely manner without much trouble. It can become especially unpleasant if something interrupts your capacity to repay, because it doesn’t take long for the calls from debt collectors to start. Even if they’re courteous and helpful, being reminded that you owe money is seldom fun.

However, debt collectors are a reality, and they serve an important purpose. They are also required to play by certain rules, on both the federal and state level. Most states require a license. And there are a LOT of fraudulent debt collectors, who either use personal information gleaned from data breaches and other sources, or who simply make cold calls to random people, in hopes of frightening someone into sending a payment or two.

How can you tell the difference?

First, know what you owe. Go to AnnualCreditReport.com three times per year and download your credit report from one of the three major bureaus (Experian, Equifax, Transunion)—they should all have the same information, so it doesn’t matter which one you choose when. Use these to check for errors, but also use them to keep abreast of your actual debts. That way, if someone calls with a claim that you owe an unpaid amount, you will know whether or not they’re telling the truth.

Fraudulent debt collectors almost always use fear to motivate victims into paying up. One way is by threatening the victim with arrest, sometimes by claiming to represent some arm of the criminal justice system. Remember that local, county or state police officers do not make phone calls on behalf of lenders seeking to recoup an unpaid loss. Nor do FBI, CIA, ATF, DEA or Homeland Security agents, or judges at any level of government. As soon as the caller claims to be one of these, or tells you that the cops are on their way to your house, hang up and move on with your life—it was a scam.

Some of those rules I mentioned earlier have to do with how a debt collector is allowed to address you over the phone. A legitimate debt collector is not allowed to threaten or harass you in any way, and they nor to use abusive or profane language. They’re not allowed to call before 8 in the morning or after 9 in the evening, and if you ask them not to call again, they’re required to stop. (That doesn’t mean the debt is gone, though…you’re basically saying, “I know I owe this amount, but you calling every day isn’t causing money to magically appear.”)

Any violation of these is a sign that something isn’t quite right, and of course if you know you don’t have any outstanding debts, or are aware of exactly how much you owe and to whom, it’s easy to spot the deception when someone calls out of the blue.

Choosing Answers to Online Security Questions

When you set up online access to a financial institution or credit card company, many of these providers include a step in which you pick from a list of two or three “security questions” and then type in your own answers.

It’s an extra authentication step, so that if you log in later from a different computer or location, the system can show you one or two questions as a safeguard to make sure you’re the person who is supposed to be logging in, and not someone trying to gain unauthorized access.

However, there are a few important points to be made about the way you answer these questions. First, they’re usually case-sensitive. If you type in “Sycamore Street” and then try “sycamore street” later when the question pops up, it’s going to reject your login. You have to remember exactly how you typed it the first time.

More importantly, however, is the fact that a lot of the answers to these questions may not be all that obscure due to the widespread use of social networks like Facebook. How many people have posted photos of their first car online? That’s one of the more common security questions. There are even images that look like fun, nostalgic discussion prompts, but might actually be social engineering campaigns designed to get large numbers of people to publicly reveal security question answers. Some of these ask about first cars, streets grown up on, or schools (revealing mascots, school colors, etc.).

The first thing is to avoid commenting on such items when they make the rounds on Facebook. Make sure your profile is set to that only friends can view your posts, in case you want to put up any old photos.

But also remember this: nobody says you have to answer security questions honestly.

As long as you can remember your answers, there is nothing stopping you from typing “Batmobile” for your first car, or “Electric Avenue” for the street you grew up on. You can even answer the questions as a favorite fictional character, but it might be a good idea not to pick too popular of one…if you’re a known Harry Potter fanatic, “Privet Drive” isn’t going to be very obscure if you’re answering as the title character.

Of course, you also have to remember which fictional character you’ve answered as for each website. The real point is, anything you can do to make your security question answers harder for someone else to guess (but still easy to remember yourself) can help prevent unauthorized access.

Why You Can’t Keep Funds from a Bad Check

We sometimes get questions from members who deposited a check that turned out to be fraudulent (such as a counterfeit check used in some form of overpayment scheme), or was returned for non-criminal reasons (nonsufficient funds being the most common scenario). The question is: “Why don’t I get to keep the funds?”

The short answer is: because there were no funds to begin with.

The longer answer has to do with what a check is, and what happens when one is written and deposited.

A check is essentially a symbol of money. It is not money itself—even in the old days when a cashier’s check was assumed to be “as good as cash,” a check was still a symbol.

(If you really want to get into it, money is also a symbol, of stored labor or stored value, but that’s outside the scope of today’s article.)

I’m going to oversimplify and leave out the details like electronic transfers and intermediaries, but the story is pretty much as follows. We’ll start with the standard-issue case with no problems: Person A writes a check to Person B.

At the start, Person A has money in an account at Bank A. He writes a check to Person B, who takes it to his Credit Union B.

At Credit Union B, the check is taken in, and a deposit is made to Person B’s account. However, Credit Union B does not make all of those funds immediately available from that check, because it needs to make sure the check is good first. A “hold” is placed on some or all of the funds, depending on if the check is local, non-local, the type of check, etc.

Credit Union B presents the check to Bank A, who looks at Person A’s account and says, “Yes, these funds are available.” Bank A gives the money to Credit Union B, who then makes the funds available to Person B. The money has now successfully moved from Person A to Person B.

Now let’s see what happens if a check is fraudulent.

Person A writes a check to Person B. The check appears to come from an account at Bank A, but in fact Person A has simply created a fake check on a computer. He has no account at Bank A whatsoever.

Person B presents this check at Credit Union B. The check is deposited, and the standard hold is placed on the funds. Credit Union B presents the check to Bank A, who responds, “No, this account does not exist, and we have no customer with that name.” The funds are NOT transferred from Bank A to Credit Union B, and the hold is NOT lifted from Person B’s account. The deposit is reversed. When Person B calls to ask why it’s taking so long for the check to clear, he will find out that the check he deposited turned out to be counterfeit.

And here’s the real kicker: if Person B took out funds equal to the amount of the check, either because he already had enough money at Credit Union B to cover the amount, or because he bullied a teller into lifting that hold prematurely (it used to happen quite often!), that cash is now lost. If he simply held onto it, no harm done: he can re-deposit the money. If he wired it back to Person A, or spent it himself, it’s gone. If his account has been drawn negative, he now owes money to Credit Union B, because he essentially withdrew funds that did not exist. He doesn’t get to keep it because it was never his to begin with—money cannot be created out of nothing.

From Credit Union B’s perspective, Person B came in with a check that turned out to be fraudulent. Bank A will never cover that check, because all Bank A did was exist for Person A to create a fake check for. Credit Union will not cover it, because from their perspective, here is what it saw: Person B presented a check that turned out to be fake.

Credit Union B did not see Person A make that fake check, or give it to Person B. Person B might have made that fake check himself, or even fabricated Person A from whole cloth. If Credit Union B gave Person B money for a fake check and then said “oh, just keep it,” nothing would stop Person B or anyone else from simply making fake checks, cashing them, then claiming to be a fraud victim and keeping the money.

Check holds absolutely exist to protect the financial institution that places them, sure. But they also absolutely exist to protect consumers from taking out nonexistent money, and ending up on the hook for thousands of dollars.

Avoiding Pet Adoption Scams

Emotions can be manipulated, and every scammer knows it.

Usually, they go for fear. Sometimes, they try greed. But pet adoption scams target a different set of feelings: love for animals, sympathy, and the instinct to want to take care of something.

These scams tend to follow the same pattern: put a listing on the internet for a puppy that needs a home, convince everyone who answers the listing to wire money (repeatedly if they can), disappear.

(For whatever reason, these scams usually involve puppies.)

The short version of avoiding these scams is this: only adopt locally. If you can’t see the animal in person, and meet its current caretaker in person, don’t do it.

Getting into the details a bit more, these fraudulent ads will usually be posted on classifieds websites or social networks. Sometimes they entice victims with a too-good-to-be-true price (a couple hundred dollars for a purebred), or after a few emails, tell the victim they need only pay for the dog to be transported on an airplane.

In any case, payment will be requested either by wire (Western Union) or by prepaid gift card, where the victim purchases the card and then relays the numbers to the scammer.

In some cases, it ends there. In others, the scammer will create new complications that need to be paid for in advance; the puppy needs shots before traveling, they need to purchase an expensive crate, there is a third-party courier involved, etc. They’ll say anything to get the victim to continue sending money until the point when the scammer disappears entirely.

Not all online pet adoption listings are fraudulent, but stick to local listings only, or contact a local organization that helps find homes for pets. Any stranger asking you to wire money or purchase prepaid gift cards is trying to take your money. There are plenty of people looking for pets everywhere—there is no reason a dog would need to be flown thousands of miles to find a home.

Remember: The IRS doesn’t threaten you with arrest over the phone

As April 15th nears, fraudulent IRS robocalls are bound to proliferate. Many of people get a tax refund around this time of year, and the scammers want a chunk of that money for themselves before it gets used for something else.

Consider this your yearly reminder: if someone claiming to represent the IRS calls you, informs you that you owe unpaid taxes, and then threatens you with arrest if you don’t pay up, that’s a scam.

Every single time.

Just hang up the phone.

Every single time.

The IRS doesn’t call people on the telephone as a first point of contact—if someone does contact you by phone, it’s regarding an issue you are already aware of and are in the process of resolving.

They also don’t keep the police waiting on the other line, ready to storm your house as soon as they get the word that you didn’t pay.

They also also don’t accept payment by wire transfer, prepaid gift card, iTunes card, or over the phone with a debit or credit card.

(They’re really not even all that big on throwing people in jail, other than for crimes related to tax evasion. If you owe money, they want the money.Putting people in jail would be counterproductive.)

Don’t let anybody trick you into a fear response over the phone.

Money-Flipping Scams

The “money-flipping scam” started appearing on Instagram and Facebook, among other places, a couple years ago, but given most social networks’ track record when it comes to deleting fraudulent accounts, I’m sure it is still around.

It works like this: someone will claim to have access to a “flaw” in some monetary transferring system, usually Western Union or one of the prepaid debit card providers. All they need is for you to give them $100, wait few minutes, then they will send you back $1,000 (sometimes $300, but usually they go for the larger amount in the pitch).

That’s the whole thing. And you can guess what actually happens: you wire money away (or load up a prepaid card and reveal the digits to the scammer), then you don’t get anything back, ever.

There are a few things to know. First, there is no “flaw” in any of these systems that allows someone to just create money out of nothing. More than any other error, these payment systems are designed specifically to not allow that. Even money that’s been turned into ones and zeroes in a computer has to come from somewhere, and their entire business depends on outgo not suddenly being ten times the input.

Second, if there was a way to make this happen, you would be attempting to commit a crime by exploiting it. There is a persistent myth that any error by a financial provider (like the old “large deposit went into the wrong account” tale) entitles you to keep the money, and it simply is not true. Even if you did find yourself in some magical realm where a software bug allowed this scheme to work, you’d better be able to pay back that $900 when the error was discovered. They’ve probably got Loss-Prevention Wizards working for them over there.

Three low-tech scams and how to avoid them

For all the attention given to cybercrime like phishing and data breaches, there is still a lot of fraud that occurs outside of electronic channels. Here are just three low-tech crimes and how to steer clear of them.

Dumpster Diving

Big data breaches are alarming due to their sheer scope (and infuriating because the victims did absolutely nothing wrong to cause the theft), but remember that a lot of identity theft still begins with someone digging around in a garbage can for credit applications or documents containing personal information.

The simplest solution to prevent dumpster diving is to shred every single piece of junk mail or document that contains personal information before you throw it out. A cross-cut shredder is the way to go, and they start at under $20 for a small one that can do one or two sheets at a time.

It’s also a good idea to find out how any businesses you utilize store and discard sensitive information. Paper documents containing personal information need to be locked securely, and they need to either shred old documents themselves or contract with a licensed and bonded document destruction company.

Contractor Scams

When your home needs repairs, make sure the work is your idea to begin with. Don’t trust a stranger who appears at your doorstep offering to fix your roof or asphalt your driveway. Use an established contractor with a physical address and some form of online presence (if not a website, at the very least some reviews that indicate that other people have heard of the company before).

Only hire businesses that work under a contract, with the price agreed upon before any work is done. A lot of contractor scams start with a verbal agreement on a price, then when the (often shoddy) work is completed, the victim finds out the price has doubled, tripled or worse. Also watch out for demands for upfront payment – another popular home repair scam is to weasel a large “deposit” out of the victim, then disappear. Anything over 20% before work starts is suspicious. You’ll pay the rest when the work is done to your satisfaction.

Finally, be especially wary after a major weather event (tornado, flood, etc.) that causes damage to your house. Fraudulent contractors come out of the woodwork after disasters, and when you’re trying to put your home back together and get things back to normal, a walk-up approach can seem tempting, but remember: losing money to a contractor scam is only going to add to your problems. Stick with an established company to save headaches later.

Sticky Mailbox Lid

There are some scams that are so tacky, the perpetrators should be ashamed of themselves. This is one of those. These crooks target mailboxes with pull-open lids, coating the inside with a sticky substance so that anything someone drops into the box stays on the lid. The crook then walks up and takes the envelope in hopes it contains a check or cash. If you’re mailing something at a mailbox with a pull-open front, double-check to make sure your envelope went all the way down. So far the cases I’ve read about happened in New York City, but I’m sure it’s just a matter of time before this two-bit scheme makes its way across the country.

Beware sneaky web addresses

I came across something interesting not too long ago. I can’t remember if it was part of a junk email message or a spam comment on this site. It really doesn’t matter either way.

There was a pitch for some sketchy health/beauty/investment/dating product or service and a shortened URL. I already knew it was a scam or a rip-off, but I was curious to see where that shortened URL led. I copy-and-pasted it at LongURL, which is still a fine tool for checking out a link before you click.

I forget the specific contents of the website. Again, that part doesn’t matter so much for my purposes today. What does matter is the address the shortened URL pointed to: www.cnbc.com-feb-finance.net/[removed]. (By the way: there’s no link to the actual site for a reason).

Look at that address closely; it looks like it points to www.cnbc.com, the mainstream stock market and business news site, but it doesn’t.

The actual domain is “com-feb-finance.net” — you’ve got to look closely to see that what comes after the “com” is not a slash, but a dash.

Most web browsers make detecting this trick relatively easy, since they highlight every website’s domain in some way (with a background color, bold text, etc.). But if you’re using an old web browser like Internet Explorer 6, you may glance at the URL, see “www.cnbc.com” and assume the site is reputable.

So be cautious when visiting a new website. If someone is attempting to deceive you with the URL, you can rest assured their motives are sinister.

Shady Online Advertisements

If it wasn’t part of my job, I’d completely ignore online banner advertisements like these, but here we are…

Example #1:

advert01-weather

This one showed up on Weather.com today (without the arrows and giant NO, obviously; those are my additions).

Now, that’s a pretty reputable website. I mean, generally you look at your city’s weather page and it says SNOW, and you look out the window and hey presto, it’s actually snowing. But the site is just littered with ads like this. You’re not getting a gigantic TV for 60 bucks, and you’re not getting car insurance for $9, unless they mean per day. Don’t click.

Example #2:

advert02-cnnThis one came from CNN.com, another reputable website. Nobody is selling an iPad for $14. Nobody. Apple doesn’t discount. Know why? They don’t have to. They could come out with a $7,500 Macbook tomorrow, in this economy, and it would be a hit with their core users.

Once again, just ignore these ads. Do what I would do if I wasn’t paying attention to this junk for the purpose of writing about it. (I’d also ignore that noise about “penny stock rockets” and “Royal Caribbean whatever”, too.)

The “Never Do This” Files: wiring money to strangers

Flag of the United Kingdom, Union Flag.
Image via Wikipedia

I’ve talked about lottery scams, secret shopper scams, overpayment scams and advance fee fraud on this site until I’m literally blue in the face.

Yeah, literally!

There isn’t much more to be said about those topics at the moment, so what about some other variations?

Here’s one from our friends in the U.K.: a scam that involves getting people to wire good-faith money in advance of making a used car purchase.

How it works: a used car is advertised by a con artist, and an interested buyer contacts him. The “seller” agrees to make a long-distance trip to sell the car, but only if the buyer wires some money first to show serious interest. After all, he doesn’t want to make the trip only to find out the buyer is going to back out, right?

So, the buyer complies. He wires the money and forwards the receipt to the crook, who is then able to take the cash.

That’s all there is to it. Of course there never was a car.

It’s actually an even simpler scam than the old fraudulent check schemes, because it only requires a telephone and the ability to place a classified ad. No complex setups or realistic-sounding fake company names, no long, convoluted emails about Microsoft Lotteries or the need to come up with a counterfeit cashier’s check. Just a listing for a car that doesn’t exist.

So put this in the “Never Do This” file: don’t wire money to strangers.

Ever.