It’s a sad fact that there will always be someone trying to take advantage of others for their own gain. Financial scams are an all-too-common problem for consumers across the world. Some of these scams are easy to spot, but as scammer tactics become more sophisticated, they can be extremely difficult to identify, and tend to target people who are at their lowest point.
If you’re in debt, getting hit by a financial scam of any kind can be a devastating blow—one that makes it even harder to recover financially. In fact, 2022 saw unprecedented scamming activity totaling $530 million in victim losses.
While there are resources out there to help consumers, such as the Canadian Anti-Fraud Centre, an ounce of prevention can be worth a pound of cure.
So, what are financial scams? What are the types of financial fraud that you might have to deal with? Most importantly, how can you recognize and avoid scams?
What Are Financial Scams?
Financial scams, also known as financial fraud, is when someone takes money (or other valuable assets) from others using deception or criminal actions. This is a very broad definition and can include all kinds of illicit activity.
Learning the different types of scams that crooks might use against you is an important first step in avoiding financial fraud.
Types of Financial Fraud/Scams to Watch Out For
There are countless financial scams that criminals employ against their unsuspecting victims—far too many to describe them all in detail in any one article. Also, new schemes are constantly being created by fraudsters to create novel ways to drain the wallets, bank accounts, and assets of their marks.
Scams can be performed in person, over the phone, online, or even remotely using various tricks and devices. Some financial scams that consumers may want to watch out for include:
1. Romance Scams
Is it love in the air, or is it a scam? The Canadian Anti-Fraud Centre reports that “romance scams were responsible for the second highest amount of fraud-related dollar loss in 2022.” Romance fraud was only second to investment scams in terms of total money taken from victims.
These scams usually involve email, text, social media, or dating apps where scammers target lonely singles looking for love.
Warning signs of romance scams include:
- Sudden requests for money for a medical emergency or to travel to meet the victim
- Invitations to join a “business venture” (often an investment scam)
- Constant excuses to not meet in person despite declarations of love
- Errors in messages (such as being called by the wrong name)
- Attempts to isolate you from friends and family you’re on good terms with
2. Investment Scams
Investment scams are a whole category of fraud unto themselves. They beat out romance scams as the #1 type of fraud by dollars lost. Here, the scammer tries to convince their mark to invest in some kind of opportunity or business. Then, once the money’s been paid, the scammer pulls the rug out from under their victim (or victims) and the cash disappears into an overseas bank account where it can’t be pulled back.
Some variations of investment scams include:
- Cryptocurrency Scams. Cryptocurrency investments are often vulnerable to “pump and dump” schemes where the person or group behind the currency will promote it to others and, on the launch day or shortly after when the currency reaches what they believe will be its maximum value, they sell out and leave other investors holding worthless crypto coins or NFTs.
- Ponzi Schemes. Here, a scammer tricks investors into buying into an investment with unrealistic promises of high returns. The scammer pays early investors with proceeds from new investors—but eventually the scheme collapses when it can’t bring in enough new victims to keep the Ponzi scheme funded.
- Franchise/Business Opportunity Scams. Here, the fraudster convinces their victims that they’re going to be operating a business or a machine that creates easy passive income. However, the startup costs are overinflated and when paid, the victim often doesn’t receive the promised supplies to get the “business” running. Or, the fraudster poses as a major national or international brand representative when they don’t have any legal standing to offer franchise opportunities.
3. Credit Repair Scams
Credit repair scams are a type of scam that purposefully targets people who have low credit scores with promises of getting their credit “fixed” so they can more easily qualify for high-quality financial services.
The issue is that credit repair isn’t real—you can’t simply pay someone a little money and have all of the legitimate negative events in your credit history erased.
What you can do is review your credit history for errors and apply to have any incorrect or fraudulent entries removed from it. For example, say you were the victim of identity theft and the criminal took out a massive loan in your name, then skipped out on paying it back. If you report the fraud, you may be able to have that activity removed from your credit history—potentially improving your credit score.
Some warning signs of a credit repair scam include:
- A lack of contract details or no contract at all
- Promises to remove all negative credit events
- Requests for payment in gift cards or alternative assets like cryptocurrency
- High pressure sales tactics
- They call themselves a credit “repair” company instead of a credit “rebuilding” service, credit counsellor, or financial advisor
4. Grandparent Scams (i.e. Emergency Scams)
These scams target older Canadians using urgent language and emotional manipulation to trick victims into making payments. The scammer will often cold call senior citizens and pose as a relative (such as a child or grandchild), member of law enforcement, or a lawyer calling on behalf of a loved one.
The scammer then asks the victims to transfer money to pay for an emergency situation. Some examples of “emergencies” highlighted by the Royal Canadian Mounted Police (RCMP) include:
- Paying bail
- Covering legal fees
- Provincial and/or Federal fines
- Car collisions
The emergency, of course, is fake. Either the relative in question is perfectly fine or doesn’t really exist (here, the scammer is counting on the victim to not know all of their family members). However, the victim may be convinced that the emergency is real and take out money from their bank to hand over to the scammer (either in-person or via courier).
How to Avoid Financial Scams
The fraudulent schemes listed above are just a few of the different types of scams that have been identified over the years. The question is this: with new scams being created all of the time, what can you do to protect yourself?
Here are a few tips to help you avoid financial scams or at least minimize their impact:
NEVER Trust Businesses Asking for Payment in Gift Cards.
Legitimate businesses don’t demand payment in forms other than legal tender. If a representative of a business or company demands that you pay in gift cards or cryptocurrency instead of money, it’s almost certainly a scam.
Regularly Check Your Credit Report.
How healthy is your credit score? Is it high or low? Did it change suddenly? Check your credit score regularly to see if there are any suspicious changes to it and review your credit history for errors on the regular. Large, unexpected swings can be an indicator of fraudulent activity (like identity theft). Also, this can help you guard yourself against credit repair scams since you’ll know how good your credit is and won’t be as vulnerable to urgent messages about your credit score and history.
Beware of “Urgent” Messaging.
Many scammers rely on urgent messaging to trick their targets into making hasty decisions. They may claim that it’s your “last chance” or that “time’s running out” or tell you that a situation is particularly dire (such as “you’re going to jail if you don’t pay $$$”). This is a tactic to make you panic so you’re more compliant with their schemes.
Investigate Company Histories.
If you get an offer for a financial product, ask yourself: “how long has the company been around? Are they accredited by any major industry organizations? Are there news stories from reputable publications about them?” Verifying the company’s history can be a good way to identify fly-by-night organizations that are actually scams. Credit Counselling Canada (CCC) is an organization that provides accreditation for credit counsellors.
Don’t Click on Unverified Links in Emails or Trust the Caller ID.
Unfortunately, modern scammers can be incredibly sophisticated and have tools that help them pose as legitimate organizations in emails or use caller ID spoofing to make it look like the call came from a real company. So, it’s important to avoid clicking on unverified links in emails (especially shortened URLs like bit.ly which are often used to hide spammy links) and to never give out sensitive information (especially financial information) over the phone.
Pay Attention to the Warning Signs of a Scam.
If someone is asking for money or offering you an investment opportunity, be on the lookout for warning signs like urgent language, high-pressure sales techniques, or making return-on-investment claims that are too good to be true. These are indications that the “opportunity” or “emergency” is really a scam.
Report Suspected Scams to the Authorities.
If you think that you’ve been targeted by a financial scam, report it to the Canadian Anti-Fraud Centre as soon as possible. You can also contact the CAFC by calling 1.888.495.8501.
A lot of scam avoidance consists primarily of being cautious and skeptical of unfounded claims or unprompted communications from strangers.
If you’re in need of help dealing with debt or resolving issues with your credit due to fraudulent activity, don’t fall for a scammer. Get in touch with a trusted not-for-profit credit counsellor by reaching out to Credit Canada!