The year 2010 was marked by continued slow recovery from a devastating recession, a still-sinking housing market, skyrocketing gold prices and a proliferation of charities that were, in reality, less than charitable. It all plays into our annual list of the Top 10 Scams of 2010.
1. Foreclosure rescue scams
For millions of struggling homeowners, 2010 was a year of desperation, as they tried to hang onto their homes against the threat of foreclosure. Many who turned to so-called foreclosure rescue firms, who promised to save their home for an upfront fee, ended up in worse trouble.
Throughout the year, various states stepped up the pressure on individuals and companies in the foreclosure rescue business. In August, California Attorney General Jerry Brown won a $1.1 million judgment against Los Angeles Attorney Mitchell Roth, who he said promised foreclosure relief through aggressive litigation, "but the frivolous and phony lawsuits he filed instead left 2,000 desperate homeowners in even greater debt."
In most cases of foreclosure rescue, the company promises to assist the homeowner in avoiding foreclosure by negotiating directly with the lender. Most make little or no effort on the clients' behalf, but charge a hefty upfront fee.
As of early December, Indiana Attorney General Greg Zoeller had filed 34 lawsuits this year against foreclosure rescuers. In the most recent case, Zoeller said Evansville, Ind., residents Harold and Sharon Matthews paid Hope4Homes, a California firm, $1,800 to negotiate a home loan modification.
According to the state's complaint, the Matthews were instructed by Hope4Homes to stop making payments on their mortgage while Hope4Homes negotiated a new loan. The Matthews fell three months behind on their payments, which had been current, and new loan terms were not reached.
Hope4Homes advertised a "100 percent Money Back Guarantee if we cannot achieve a loan modification for our clients," however no refund was provided, according to the complaint.
"So-called 'foreclosure consultants' are taking advantage of those who are facing desperate financial hardship and scamming them out of thousands of dollars when they are most vulnerable. They are operating illegally and this will not be tolerated in Indiana," Zoeller said.
Those promising to help modify loans didn't confine themselves to home mortgages, either. In Florida, Attorney General Bill McCollum filed a lawsuit against a Broward County company accusing it of deceptive and unfair trade practices related to automobile loan modifications.
According to the complaint, Auto Relief Group, its subsidiaries and owners John J. Boyle and John J. Boyle III falsely represented in national television and radio commercials that they could reduce consumers' car payments by up to 50 percent. The Florida Attorney General's Office was granted an injunction to freeze the company's assets and appoint a receiver to take possession and control of the company.
2. Uncharitable charities
With a stubborn recession, more people are in need of the assistance provided by legitimate charities. But with the worsening economy, there seems to have been an increase in scams masquerading as worthy causes, seeking to exploit those willing and able to help others.
By mid-year, a number of states were cracking down on these sophisticated telemarketing fundraisers, some of whom gave a small portion of the collected funds to charity but others who pocketed the entire amount.
The State of Iowa won a settlement with a Minnesota fundraiser it says was calling consumers in the state seeking donations for several law enforcement associations. Iowa Attorney General Tom Miller said the firm used deceptive tactics to solicit the money, and has agreed to make changes in how it deals with consumers. Before the settlement, Miller was keeping as much as 85 percent of what it collected from Iowa citizens.
Oregon Attorney General John Kroger assembled a list of the "20 Worst Charities," and placed Shiloh International Ministries at the top of the list. Kroger said the organization claims to solicit money to provide medical necessities and moral support to needy children and to provide assistance to the homeless. According to the most recent financial filings, Kroger said the California-based non-profit spent an average of $937,315 per year, 96.37 percent of which went to management and fundraising.
Over the summer a number of states investigated the U.S. Navy Veterans Association, which said it was collecting money on behalf of veterans. Ohio Attorney General Richard Cordray reported the group seemed awfully fishy.
"Our investigators have not been able to locate any of the Ohio officers of the USNVA, although, oddly enough, the organization's national counsel is based here," Cordray said. "Through the counsel, USNVA has advised us that it does not consider the order to be valid and that it does not have to comply with our order to cease and desist fundraising in Ohio."
3. Phony debt collector
At mid-year, ConsumerAffairs.com began to receive a growing number of complaints from people who had been contacted by a man claiming to be a debt collector on behalf of a payday loan company. In nearly every case, the consumers said they had never had a payday loan.
The caller was abusive and threatened to have the consumers arrested and, most disturbing, had personal information about them, such as Social Security numbers and bank account information. In some cases, the consumers had said they had begun an online loan application process and entered sensitive information, before deciding not to complete the application.
Investigations are continuing but it isn't clear how the scammers are getting the information or choosing their victims. However, the scam is spreading and has been reported in many areas of the country.
4. Work-at-home scams
The work at home scam is simply the latest "get rich quick" scheme. It was more prevalent in 2010 because so many people are out of work, or working part-time and need extra income. The lure of easy work from home making big bucks resonates right now. It shouldn't.
In February the Federal Trade Commission (FTC) issued a warning to consumers not to fall for these scams that are often advertised among legitimate job listings.
"The ads don't tell you that you may have to work a lot of hours without pay, or they don't disclose all the costs you might incur, for placing newspaper ads, making photocopies, or buying the envelopes, paper, stamps and other supplies you need to do the job," the agency warned. "People tricked by these ads have lost thousands of dollars, not to mention time and energy."
In September Ohio Attorney General Richard Cordray sued three Northeast Ohioans for their roles in NSA Technologies, a work from home business scheme that left consumers without promised jobs and out of money.
According to the lawsuit, NSA Technologies advertised work from home jobs, self-employment guides and job placement services through online ads. In the suit, Cordray accused the operation of taking money from Ohioans in payment - some victims paid hundreds of dollars apiece - and then not providing the services that were purchased.
Nebraska Attorney General Jon Bruning says any work at home "opportunity" that requires you to pay an upfront fee is not reasonable and is not legitimate.
"Whenever you're asked to pay for the chance at a job, or information about work from home jobs, it's a scam," Bruning says.
5. Facebook scams
It seems everyone was on Facebook in 2010, including scammers, capitalizing on the social networking site's popularity to spread computer malware and steal identities.
In August spammers sent out millions of emails touting a Facebook "dislike button." Of course, there is no such thing, but many people clicked on the link to download the button, and instead downloaded malware that gave hackers control of their Facebook accounts.
That same month many Facebook users began seeing messages telling them to go to a website where they could sign up to "test" Apple iPads. Needless to say there was no such offer, but people who went to their site were asked to submit personal information.
In November, some Facebook users received an email that appeared to be from Facebook security, telling them their password had been changed and the only way to get a new one was to open an attached .zip file. Those who opened the file downloaded a Trojan horse.
6. Gold scams
The price of gold hit record highs in 2010, prompting many consumers to try and cash in by selling Aunt Martha's old broach. Many jewelry stores advertised they would "buy your gold jewelry." In many cases, this was a case of "seller beware."
In July, the New Jersey Office of Weights and Measures cited 49 gold and jewelry buying businesses with more than 1,600 summonses for alleged violations of state statutes. Following a statewide inspection sweep, officials said they found inaccurate scales that misweighed items and resulted in consumers receiving less money.
"Some of the buyers defrauded consumers, short-weighing their items and likely paying them less than the true value of the items," New Jersey Attorney General Paula T. Dow said.
Even without a rigged scale, consumers often risked receiving less than the market price of gold when they sold their jewelry. A survey conducted over the summer by the Massachusetts Attorney General's Office found a wide range of prices offered for the same piece of gold jewelry.
"Our survey shows significant differences in the prices various jewelers will pay average consumers for their gold," said Barbara Anthony, Massachusetts' Undersecretary of the Office of Consumer Affairs and Business Regulation. "It takes a little legwork and a little time for consumers to make sure they are getting best price for their gold. A few hours of work can mean hundreds of extra dollars."
Companies selling gold to consumers also came under scrutiny. Two California district attorneys launched a probe of Goldline International, claiming the company steered vulnerable consumers into purchasing overpriced gold coins instead of pure gold.
7. Debt settlement scams
Companies promising to help consumers settle their credit card and other debt for less than the amount owed have done very well during the recession, but increasingly consumers complained these firms did nothing to help, just took more of their money.
"I signed with Legal Helpers which is the Customer Service Arm of Square One Debt Settlement out of Sunrise Florida in May 2010," Sandra, of Dayton, Ohio, told ConsumerAffairs.com in September. "It has been five months and they have almost $1200 of my money. One of my creditors told me yesterday that Lebal Helpers are not Lawyers and they will not negotiate with them, period."
In the second half of the year the FTC adopted new rules prohibiting these companies from collecting money from consumers until they had delivered on their promises. The rules were aimed at weeding out the scammers who collected a hefty fee from the distressed consumer, then disappeared.
"Most debt settlement companies charge big fees up front even though most consumers don't get the help they expect," said Lauren Bowne, staff attorney for Consumers Union's Defend Your Dollars campaign. "These new rules will help protect consumers who are already drowning in debt from being ripped off by debt settlement companies that fail to provide any relief. But more needs to be done to ensure that the amount of fees charged for debt settlement services are fair."
At the end of the year, however, many debt settlement firms were still advertising on radio and television.
8. Ponzi schemes
After Bernie Madoff was arrested two years ago, you would think people would be wiser about Ponzi schemes, in which an investment is guaranteed to pay off in unbelievably high dividends. Either people are desperate to find a lucrative investment in this environment or authorities are more diligent in rooting out these schemes, but 2010 saw more arrests, prosecutions and convictions.
In Minnesota, investors lost nearly $80 million in an alleged Ponzi scheme in which the operator oversold participation in large commercial and personal loans arranged through his company.
Investors lured by the glitter of Hollywood got taken for a ride, according to California Attorney General Jerry Brown, who has charged a Laguna Niguel movie producer with 89 felony counts for orchestrating a "cold and calculated" $9 million Ponzi scheme.
Brown says the producer promised investors up to 35 percent returns for making loans to his B-movie production company. Another California man was sentenced to 135 months in federal prison for running an investment fraud scheme that took in almost $4 million from more than 100 victims who were lured to the scheme with promises of "guaranteed" annual interest rates up to 120 percent.
In September, an Illinois man was sentenced to 10 years in prison for bilking 75 investors, some of them close friends, out of $28 million.
In October the Securities and Exchange Commission (SEC) charged a radio talk show host of misappropriating $2.5 million in investors' money that was supposedly being used to fund real estate loans. Instead, say authorities, it was used for personal expenses.
In the case of all Ponzi schemes, the investors usually lose their nest eggs they were counting on for retirement or other vital expenses.
9. Unauthorized charge scams
The unauthorized charge scam is a perennial on our annual list and occurs when consumers discover that a company has placed a charge on their credit card or phone bill without their informed consent. Over the years many companies have used fine print and outright trickery to make sales in which the consumer is unaware that a sale is taking place.
In September, New York Attorney General Andrew Cuomo reached a settlement with discount club marketer Webloyalty.com, which agreed to refund millions to consumers who say they were defrauded into paying unauthorized charges.
Cuomo's investigation into the discount club industry found that when consumers completed online purchases from familiar retailers, they were often presented with a cash-back or discount offer from a marketer like Webloyalty. Information about accepting the offer and its ramifications -- including the fact that the consumer was agreeing to transfer his or her credit or debit card account information -- was buried in fine print and cluttered text.
Since consumers were not required to provide their financial information as part of the enrollment process, they often accepted the offer without knowing they were joining a fee-based program.
Once enrolled in a discount club, recurring charges begin to appear on consumers' credit or debit card from unfamiliar companies. Due to their low dollar amount or the non-specific club names on consumers' account statements, the charges often go unnoticed.
"In this all too common Internet scheme, consumers were tricked into paying for monthly services for a discount club while shopping online at trusted retailers," Cuomo said.
Other states began actions of their own. The State of Iowa filed a consumer fraud lawsuit against Trilegiant, a major marketer of discount buying clubs that are often sold to consumers through third-party and negative option market arrangements. Iowa Attorney General Tom Miller, who filed the suit, claims the company unfairly and deceptively charged Iowans for memberships in discount buying clubs or other programs, in many cases without consumers' knowledge.
In Minnesota, Attorney General Lori Swanson filed suit against Discover Bank, accusing it of deceptively charging some credit card customers for pricey optional financial products that the company markets.
10. Timeshare sales scams
True, not everyone owns a timeshare, but many who do would love to unload them. Unfortunately, in this market that's easier said than done. That's why so many timeshare owners were taken in when they received an unsolicited call from a "broker" who claimed to have a client interested in buying their timeshare. To proceed further, however, they had to pay an upfront fee.
In Illinois, Attorney General Lisa Madigan warned timeshare owners in her state that scammers have moved into the timeshare sales space, collecting money but making no attempt to sell anything.
Madigan said the scam typically works like this: a timeshare owner gets a call out of the blue from someone claiming to be a timeshare reseller. They have a client who wants to buy their timeshare, are they interested?
If the owners rise to the bait, the scammer tells them they must pay a refundable security deposit or fee to ensure that the sale goes through, and instructs them to wire money to an out-of-state bank account. As soon as the owners wire the money as directed, they've fallen victim to the scam. In most cases, by the time the owners realizes they've been defrauded, the con artists have closed out their bank account, disconnected their phones and disappeared.
Victims filing complaints with the Attorney General's Office have reported wiring as much as $5,000 to the scammers, Madigan said.
In March, Florida Attorney General Bill McCollum unveiled continuing investigations into at least 17 timeshare companies and their affiliates throughout the state for deceptive trade practices.
"Florida's consumers are trying to make prudent financial decisions," the attorney general said at the time, "but many timeshare resale companies are blatantly scamming people by promising sales or refunds and failing to provide services even after taking hefty up-front fees."
There were plenty of other scams during the year that cost consumers money and heartache. Making our dishonorable mention list this year are the many scams related to the BP oil spill, this year's one-time $250 payment to Medicare Part D participants and the growing number of cyber scams. In that last category, "tabnabbing" could be one to keep an eye on in the new year.
It goes without saying, as we do each year, that consumers must remain vigilant against those who use deception and trickery to part them from their money. Important financial decisions should never be rushed and consulting a trusted friend of adviser is always a good idea.
As always, if it sounds too good to be true, it probably is.
With high unemployment and a stagnant housing market, it's no surprise "foreclosure rescue" tops our list of the Top 10 Scams of 2010....