Pyramid Scheme A type of financial fraud in which people pay to join an organization in exchange for the right to sell memberships to other people.
Ponzi Scheme Closely related to a pyramid scheme but the promoter generally has no product to sell and pays no commission to investors who recruit new members.
Affinity Fraud A name for a type of scam that targets members of a specific demographic. Perpetrators may attempt to relate to or exploit characteristics common to the demographic. Targeted groups can include the elderly, ethnic groups, and religions.
PREDATORY LENDING Sell properties for much more than they are worth, using false appraisals. Encourage borrowers to lie about their income, expenses, or cash available for down payments in order to get a loan. Knowingly lend more money than a borrower can afford to repay. And many other scams. 38 In communities across America, people are losing their homes and their investments because of predatory lenders, corrupt appraisers, mortgage brokers, and home improvement contractors who:
IDENTIFYING PREDATORY LENDING Packaging a loan with single-premium credit insurance products Repeatedly refinancing a loan in a short period of time Charging excessive rates and fees to a borrower who qualifies for lower rates and fees 39 Predatory lending is not defined by federal law except to the extent that a loan is a high-cost loan and contains one of a fixed list of terms or conditions. Predatory or abusive lending practices can include:
TEN WARNING SIGNS OF PREDATORY MORTGAGES 1.Unreasonably high interest rates 2.Multiple refinancing 3.Unnecessary debt consolidation 4.Balloon payment 5.Negative amortization 6.Door-to-door solicitation 7.Back-dating of documents 8.Large loan broker fees 9.Kickbacks between lender and broker 10.Single-premium credit life insurance 40
COMMON SCAMS Advance fee schemes The prize that will cost you Online auctions Fraud jobs Moneymaking schemes Bogus charities Scam schools 41
TOP STRATEGIES TO AVOID SCAMS Don’t become a victim. Investigate strangers who have deals too good to be true. Always stay in charge of your money. Don’t be fooled by appearances. Watch out for salespeople who prey on fears. Monitor your investments. Report fraud or abuse. Do your homework. Be wary of door-to-door solicitations. 56