Consumer Fraud: Definition, Protections & Types

Instructor: Deborah Schell

Deborah teaches college Accounting and has a master's degree in Educational Technology.

Consumer fraud can result in a personal or financial loss for the victim. In this lesson, you will learn about various types of consumer fraud and how to protect yourself against it.

What Is Consumer Fraud?

Consumer fraud is a personal or financial loss that occurs because of dishonest or deceitful methods used by an individual or business. This type of fraud can happen to anyone at any age, but the elderly and young adults are targeted more often than other age groups. Let's meet Melissa, a young college student. She would like to know more about consumer fraud and learn how to protect herself. Let's provide Melissa with some helpful information.

Types of Consumer Fraud

Consumer fraud can occur in many different ways. An individual could gather information from debit and credit cards to make fraudulent purchases, information could be obtained over the phone or internet in order to impersonate an individual, or someone could be asked to pay additional fees before claiming a prize. Let's examine these frauds in more detail.

Identity Theft

Identify theft involves stealing personal information such as name, banking information, and social security number in order to impersonate someone. Fraudsters use this personal information to get credit cards or bank cards in your name and then make purchases for which you will be responsible. The fraudsters do not pay for their purchases, and failure to make payments can impact your credit rating, which is a measure of your ability to repay debts on a timely basis. If your credit rating is poor, you will have difficulty qualifying for loans or mortgages. With use of technology increasing, this type of consumer fraud is on the rise.

Melissa can protect herself from this type of fraud by being careful about who she shares her financial information with. For example, her bank would never send an email or call asking for her banking information or personal identification numbers. She can also make sure that she reviews her bank and credit card statements monthly to identify any unauthorized transactions. If she finds any, she should notify her bank immediately.

Credit Card and Debit Card Fraud

Credit or debit card fraud involves someone gaining access to your credit or debit card information and using that information to create fake cards or make purchases. There are a number of ways in which this information could be obtained. For example, Melissa could click on a link in an email from someone impersonating a bank representative. This link could contain a computer code which gives a hacker access to passwords.

When Melissa gives her credit card to a restaurant server or a gas station attendant, he or she could take the data from the magnetic strip in her credit or debit card in a practice known as skimming. Once this information has been obtained, duplicate debit or credit cards could be produced and used to make purchases in Melissa's name. Finally, a crook could use personal information obtained from Melissa to contact the credit card company and change her address to his/her own so that they could request a replacement card.

Melissa should remain within sight of her credit or debit card so that skimming practices cannot occur. Lastly, she should check her bank and credit card statements regularly to identify and report any suspicious activity. If Melissa is used to receiving paper statements but hasn't received a statement in a while, she should contact her bank or credit card company to follow up.

Phone and Internet Fraud

Many fraudsters can be very convincing over the phone or via email and some will even pretend to be from legitimate organizations such as a tax authority (e.g. IRS or CRA) to increase their credibility. As part of a phone or Internet fraud, individuals will ask you to verify personal information such as social security number, date of birth, and banking information. They could also pretend to be from a legitimate computer company and attempt to convince you to pay to upgrade your software because 'your computer is a risk'.

This category also includes telemarketers who might try pressuring you into buying something that you don't need. Once in possession of your information, they can use it to impersonate you (identity theft), obtain credit cards in your name, or use your credit card information to make purchases.

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