Top Ten Scams Of 2011

1. Government Grant Scam

The Government Grant Scam has seemingly been around forever. It tries to convince its victims that the government is sending them "free" money. In the era of government stimulus, many victims were only too willing to swallow the pitch.

Some of these pitchmen employed photos of President Obama and the American flag in Internet ads to convince everyday Americans they could reap millions of dollars in free government grants. All it took was a small charge to the consumer's credit card and the invaluable, can't-miss, sure-thing information would be on its way.

The Federal Trade Commission (FTC) racked up a number of court victories during the year against defendants running these scams. But other operators remain at large, mostly beyond U.S. borders, often calling victims with the good news that the government was awarding them, $7,000, simply for paying their taxes and staying out of jail.

2. Grandparent Scam

The Grandparent Scam, which first surfaced about five years ago, reappeared with greater frequency in 2011, helped along by the vast amounts of personal information about people that can be mined from the Internet.

In its original form, the scammer would call a senior citizen and pretend to be a grandchild who was in trouble and needed help. The scammer would throw out the bait by saying something like "it's me, grandpa," and hope the victim said something like "is that you, Timmy?" Armed with the name of a grandchild, the scammer would take it from there, persuading the concerned grandparent to wire money.

This year, the scam got a little more scary. In the updated scam, callers identify themselves by name as a particular family member. They say they are being held in jail in Mexico and they need bail money wired immediately. They lace their conversation with correct references by name to other family members, increasing their credibility. One caller even knew that the real person being impersonated had a twin who was born two minutes later.

Law enforcement officials are not certain how perpetrators are obtaining the inside knowledge or phone numbers for victims.  

3. Charity Fundraising Scams

Japan's devastating earthquake and tsunami in April resulted in massive relief efforts for the stricken population. It also resulted in a number of bogus charities that used the disaster to collect money that went straight into the scammers' pockets, as did tornados in southern states.

In addition, a number of states cracked down on commercial telemarketing operations that misled consumers about the money they were collecting, supposedly for a charitable cause. In many cases, officials charged that none, or only a small percentage, actually went to the groups being represented.

Perhaps no state was more aggressive against fraudulent charity fundraisers than Iowa. Attorney General Tom Miller gained access during the year to the listed telephone number of an elderly Des Moines resident and installed a recording system, resulting in a number of prosecutions. In one case, Miller accused Americans With Disabilities, LLC, a Phoenix, Arizona for-profit company, and its owner, Dale R. Sieck. In the suit, Miller said the company used “blatant lies” about disabilities to elicit funds from Iowans.

4. Romance Scams

Scammers used legitimate online dating sites and social networking to reach out and scam people looking for love, a particularly cruel scam that robbed its victims both emotionally and financially. In a romance scam, the scammer develops an online relationship with the victim, establishing a bond of trust before suddenly encountering financial difficulties and needing a "loan" from the new romance in his or her life.

“I found that every person that contacted me was a fraud,” Lisa, of North Port, Fla., told ConsumerAffairs.com. “I learned this after losing money to an online scammer, and have since learned that many, many of Match.com members are actually Nigerian or Turkish scammers."

This scheme is not only growing, but appears to be larger than first thought.

A British study, led by researchers at the University of Leicester, found that over 200,000 people living in Britain may have fallen victim to online romance scams – far more than had been previously estimated.

Researchers found that 52 percent of people surveyed online had heard of the online romance scam when it was explained to them, and that one in every 50 online adults know someone personally who had fallen victim to it.

5. Foreclosure Rescue Scams

The FTC adopted a new rule this year that effectively outlawed some of the most notorious foreclosure rescue scams. These businesses thrived by charging distressed homeowners an upfront fee to negotiate new terms with their lender. In nearly every case, the business provided no service and pocketed the homeowners' cash. The new FTC rule says a business cannot charge a homeowner for foreclosure rescue services until after it has already provided those services.

"Homeowners facing foreclosure or struggling to make mortgage payments shouldn't have to contend with fraudulent 'companies' that don't provide what they promise," FTC Chairman Jon Leibowitz said.

While some of the worst offenders went out of business, others looked for ways to work around the new rule. A number of states spent much of the year bringing enforcement actions against these companies.

6. Unauthorized Charges/Cramming Scam

The scam that seems to make consumers the angriest is when unauthorized charges are placed on their credit cards or telephone bills, a process sometimes known as "cramming." It sometimes happens when consumers complete an online transaction and are offered a "bonus" or "discount" that results in their being enrolled in a program that carries a monthly charge to their credit cards. Sometimes it results from accepting a "trial offer" and agreeing to pay $2 for shipping and handling. Many consumers report other charges are quickly added to their credit cards. Charges are even added to telephone bills for unwanted and unrequested services.

The Florida Attorney General's Office reached a $1.2 million settlement with a Maryland marketer over unauthorized charges on consumers' credit cards in connection with “free” offers and gifts. The settlement with Encore Marketing International includes $1 million in restitution for consumers who submit appropriate claims. Consumers have complained that they enrolled in a membership program and then were charged recurring fees without authorization.

“Consumers deserve to have a clear and prominent disclosure of any fees associated with a transaction, and we are committed to protecting Floridians from deceptive practices,” said Florida Attorney General Pam Bondi.

Consumers who aren't aware of post-transaction marketing – often called “negative option” marketing, need to get familiar with how it works.

When completing a transaction with Company A, the consumer will get an offer of a free item or discount from Company B, usually through a pop-up. They accept it because they aren't aware that it will enroll them in a “club” that hits their credit card with a monthly fee.

Also this year Sen. John D. (Jay) Rockefeller IV (D-W.Va.) revealed the findings of a yearlong Senate Commerce Committee staff investigation into a nationwide epidemic involving mystery fees being placed on consumers’ landline telephone bills without their knowledge or consent. The investigation showed that this practice could be costing Americans $2 billion a year, that the nation’s largest telephone companies are profiting from it, and that third-party landline telephone billing has largely failed as a legitimate method of payment.

7. Debit Card Reader Scam

Technology continues to aid scammers in their quest to steal money from consumers. A dangerous tool that is becoming more wide-spread is a "skimmer" that steals debit card numbers and PINS when they are used at stores, gas stations, and even ATMs.

In early January two California men were sentenced for their role in an elaborate debit card reader scheme that stole more than $90,000 from some 200 people in Northern California by using skimming devices at gas stations. In this case, the thieves were able to install the devices inside the gas pumps and so that consumers were completely unaware.

Then in May, Michaels craft stores reported the debit card readers at 80 of its stores in 20 states showed signs of tampering. That means consumers who used debit cards in those stores may have exposed their bank information to criminals. Michaels replaced all 7,200 debit card readers at all of its stores nationwide, as a precaution. Within a month, hundreds of consumers nationwide who had made debit purchases at Michaels had reported fraudulent withdrawals from their bank accounts.

8. Fake Debt Collector Scam

For a couple of years now, a scammer, described as “having a thick accent” has been terrorizing consumers, posing as a debt collector for a payday loan company and making all sorts of abusive threats. The objective is to frighten victims into paying a phony debt with their debit or credit cards.

While this particular scam has continued unabated over the months, it appears to have spawned at least one copy cat scam, which has shown up in North Carolina and perhaps other states as well. In North Carolina, consumers have reported phone calls from a scammer claiming to be a police officer, prepared to arrest the victim for an unpaid debt. Of course, nothing like that is legal.

The scary thing about this scam is the fact the caller, in many instances, has obtained personal information, including Social Security numbers, about the victims. That means that even if the victims don't fall for the scheme, they could be vulnerable to identity theft.

How did the scammers get this information? So far, no investigation has been able to determine that. In September Minnesota Attorney General Lori Swanson's office suggested a link between the scammers and online payday lenders. Consumers who had begun the process of applying for a payday loan online, but not completing the process, tend to be targets of this scam. Another good reason to stay away from payday loans of any kind.

9. Work-At-Home Scams

The FTC and a number of states have spent 2011 cracking down on phony business opportunities and work-at-home schemes. In one case, a federal judge ruled in favor of the FTC, ordering Real Wealth, Inc. to pay $10.4 million, the full amount of harm caused to thousands of consumers nationwide who were victimized by the defendants’ work-at-home and grant scams.

The court also banned Real Wealth and its owner from marketing or selling work-at-home or grant-related products, and from assisting others in doing so. The defendants were accused if conning thousands of consumers nationwide with a direct-mail campaign that sometimes targeted the elderly and disabled. They deceptively marketed and sold booklets that supposedly explained how to earn money by working from home or applying for government grants.

The defendants lured consumers with deceptive sales pitches, such as “Collect up to $9,250 with my simple 3 minute form” or “All I do is mail 30 postcards everyday and I make an extra $350 a week!” The defendants also claimed that consumers could “rake in up to $1,500+ per week or more in solid cash” by learning “secrets” about the “$700 billion banking industry bailout.”

The FTC also reached a settlement with Independent Marketing Exchange, Inc., which it says made deceptive claims about its work at home and mystery shopping opportunities. The FTC’s complaint against the defendants was part of a broader crackdown in 2010 on work-at-home scams called “Operation Bottom Dollar,” which resulted in law enforcement actions against seven operations that targeted job seekers.  

10. Debt Settlement/Reduction Scams

You hear their ads on radio and see them on the Internet. They claim they can help consumers lower their credit card balances, allowing debt-burdened consumers to walk away from their stressful obligations. Federal and state officials went after these firms in 2011, charging some with making deceptive telemarketing calls, calling consumers on the Do Not Call Registry, and using illegal robo-calls.

In one case the FTC reached a settlement with Advanced Management Services (AMS) that put the company out of business. The settlement banned the defendant from selling debt relief services.

The FTC charged that AMS soaked clients up to $1,590 and promised a refund if they failed to deliver at least $2,500 in interest rate savings. But, instead of arranging reduced interest rates, the defendants sent consumers instructions to pay down their credit card debts early to save money on interest. Consumers who demanded refunds allegedly were denied outright, got the runaround, or had a $199 “nonrefundable fee” deducted from their refund.