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Most Common Types of Consumer Fraud

Posted by Dmitry Gorin | Apr 30, 2024

Consumer fraud is a broad term that encompasses various deceptive practices that wrongfully deprive consumers of their money or property. In today's digital age, the sophistication and frequency of consumer fraud have escalated, posing significant challenges to individuals and businesses alike. 

Consumer fraud occurs when someone suffers from a financial or personal loss. Fraud can involve deceptive, unfair, misleading, or false business practices. Notably, fraudsters typically target the elderly and college students, but all consumers are at risk of fraud.

Common Types of Federal Consumer Fraud
Consumer fraud involves deceptive practices to obtain someone's money or property.

The Consumer Financial Protection Bureau (CFPB) is a government agency that protects consumers from financial fraud and scams by ensuring banks and financial companies treat consumers fairly. 

The CFPB oversees financial products and services offered to consumers. It's divided into several units that work together to protect and educate consumers about various financial products and services.

The CFPB says criminals are constantly devising ways to access financial information or withdraw cash from accounts. They warn consumers to educate themselves with information to protect against these scams.

Numerous types of crime could fall under the category of consumer fraud. With identity theft, a perpetrator can steal your personal information, assume your identity, open credit cards and bank accounts, and charge purchases.

Credit and debit card fraud occurs when somebody takes your information off the card and makes purchases or offers to lower your credit card interest rate. Debt collection fraud attempts to collect unpaid bills, whether yours or not.

Mortgage scams target distressed homeowners to get money from them. Fake charities and lotteries target people's sympathy or greed.

In response to these threats, federal agencies like the Federal Trade Commission (FTC) and the United States Justice Department (DOJ) are taking a more aggressive stance against consumer fraud using various federal statutes. 

A conviction on these grounds could result in significant fines and prison time. Let's discuss a few of the more common forms of consumer fraud the government is watching for.

Advance Fee Fraud

Advance fee fraud occurs when a victim pays money in anticipation of receiving something of greater value—such as a loan, contract, investment, or gift—and then receives little or nothing in return. 

The scam typically involves persuading the victim to make an upfront payment to secure the deal, often using persuasive and enticing offers and then "disappearing" with the money. Common examples of advance fee fraud scams include:

  • Debt elimination fraud: falsely promising to clean up someone's credit or resolve their debts in exchange for an upfront fee.
  • Nigerian letter fraud: soliciting payments to help release funds from a "frozen" account in a foreign country.
  • Employment scams: offering jobs or business opportunities in exchange for payment of fees or expenses. 

Identity Theft

Identity theft remains one of the most prevalent forms of consumer fraud, with millions of Americans falling victim each year. 

It occurs when someone steals a consumer's personal information, such as Social Security number, credit card number, or bank account details, to commit fraud in their name (e.g., filing fraudulent tax returns, falsely obtaining medical services, etc.). 

The consequences of identity theft can be devastating and may include financial losses, damage to credit scores, and legal issues. Common tactics associated with identity theft include:

  • Mail theft: stealing mail from homes or mailboxes to obtain sensitive information.
  • Phishing: using fake emails, texts, or websites to trick victims into disclosing personal information.
  • Data breaches: hacking into companies' or organizations' databases to steal personal data.

Cashier's Check Fraud

Cashier's check fraud involves the use of counterfeit checks. The fraudster often sends a bogus cashier's check to the victim, who deposits it into their bank account. 

The victim is then asked to wire a portion of the funds back to the scammer under various pretexts before the bank discovers the check is fraudulent. Simply put, scammers take advantage of the trust people place in cashier's checks to steal money from an account or to avoid paying for goods and services. 

It's often difficult to detect fraudulent cashier's checks. Once the check is returned unpaid, the bank can reverse the deposit to the account and collect the deposit amount.

High Yield Investment Fraud

This type of fraud promises exceptionally high rates of return with little or no risk. It often involves investments in phony commodities, securities, real estate, and other complicated financial instruments. 

The fraudsters use aggressive tactics and sophisticated jargon to lure investors into schemes with little to no underlying value. 

Simply put, high-yield investment fraud, also called prime bank fraud, often involves issuing or trading financial instruments from prime banks, prime European banks, or prime world banks that do not exist. 

Fraudulent individuals or companies promise people huge profits with little risk if they invest in these instruments. Promoters use fake documents to appear legitimate and often claim special access to investment programs usually only available to top financiers in the world's financial centers.

Telemarketing Fraud

Telemarketing fraud is another common type of consumer fraud that involves using the telephone to solicit funds from unsuspecting victims. 

Scammers usually pose as legitimate businesses and offer products or services that are either nonexistent, overpriced, or misrepresented. Victims often make payments through credit card transactions without ever receiving the promised product or service. 

What Are Other Types of Consumer Fraud?

In addition to the types of consumer fraud listed above, other types include the following:

  • Debt elimination fraud,
  • Debt collection fraud,
  • Mortgage fraud,
  • Nigerian fraud,
  • Fictitious banking,
  • Phishing,
  • Deceptive robocalls,
  • Fake charities,
  • Internet auctions,
  • Foreign money offers,
  • Lottery fraud.

Who Investigates Consumer Fraud? 

Consumer fraud cases, particularly those with significant financial implications or crossing state lines, are often subject to federal prosecution. Federal agencies that play pivotal roles in investigating these crimes include the following:

  • Federal Bureau of Investigation (FBI),
  • Federal Trade Commission (FTC), and
  • Securities and Exchange Commission (SEC).

As there are too many specific types of fraud for each type to have a law written against it, prosecutors frequently focus on the methods used to defraud, such as wire fraud and mail fraud, when necessary. Convictions can result in substantial penalties, including fines and imprisonment.

What are the Defense Strategies?

When facing allegations of involvement in consumer fraud, a federal criminal defense attorney employs several strategies to protect their client's rights and challenge the prosecution's case. Here are some commonly used defense tactics.

  • Proving Lack of Intent. Many fraud charges hinge on proving the defendant's intent to defraud. A defense attorney might argue that misrepresentations were due to misunderstanding, mistake, or negligence rather than a deliberate intent to deceive.
  • Entrapment. In some cases, the defense may argue that law enforcement agents induced the defendant to commit a crime they would not have otherwise committed. This is known as entrapment and, if proven, can be a powerful defense.
  • Constitutional Violations. Violations of constitutional rights during the investigation, such as unlawful search and seizure, can lead to the exclusion of evidence or even dismissal of charges.

When appropriate, negotiating for a plea bargain with federal prosecutors can result in reduced charges or more lenient sentencing. An experienced defense attorney will understand when to pursue these negotiations to benefit their client. Contact us for more information. Eisner Gorin LLP is based in Los Angeles, California.

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About the Author

Dmitry Gorin

Dmitry Gorin is a licensed attorney, who has been involved in criminal trial work and pretrial litigation since 1994. Before becoming partner in Eisner Gorin LLP, Mr. Gorin was a Senior Deputy District Attorney in Los Angeles Courts for more than ten years. As a criminal tri...

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