While the terms fraud and scam are often used interchangeably, there is an important distinction to make. Fraud involves stolen information, such as credit card or bank account numbers, while scams trick victims into providing personal information through tactics such as phishing emails, fake social media accounts, and too-good-to-be-true offers.
Technology has become a potent tool for scammers, resulting in record-high financial losses for Americans. As of 2022, reported consumer losses due to fraud surged to $8.8 billion, according to the latest Federal Trade Commission (FTC) data. Notably, significant losses were attributed to investment scams including cryptocurrency fraud which exceeded $3.8 billion, a figure that has doubled compared to the previous year.
In this article, we’ll look at the distinctions between fraud and scams, their legal implications, and recovery options. We’ll also share tips for recognizing warning signs and protecting your finances and personal information.
Fraud vs scams.
Fraud and scams are two forms of deception that can wreak havoc on your financial well-being. Fraud typically involves unauthorized access to personal information without the victim’s knowledge or consent. Scams are designed to manipulate victims into willingly providing their information. Fraudsters rely on illegal access, while scammers employ psychological manipulation.
For example, credit card fraud entails criminals making unauthorized transactions using your stolen card information—they may have hacked a merchant’s website or used a card skimmer at a gas station to get your card details. In contrast, phishing scams may deceive you into revealing sensitive information such as your card number through fake emails and websites.
Common examples of fraud.
Fraud can take many forms, each with the potential to inflict serious harm on victims. Here are some examples of fraud to be aware of:
- Identity theft: The use of your personal information to make unauthorized transactions, open new accounts, or commit crimes in your name.
- Unauthorized credit card use: Thieves steal your credit card information and make fraudulent charges.
- Tax fraud: Criminals file false tax returns to claim refunds in your name.
- Investment schemes: Fraudulent investment opportunities, including cryptocurrency schemes, promise high returns but only deliver financial losses.
- Insurance fraud: Thieves submit false insurance claims to receive payouts.
- Mortgage fraud: Dishonest borrowers misrepresent information to secure a mortgage or obtain more favorable terms from lenders.
Understanding these common examples is crucial for recognizing potential threats and taking proactive steps to protect your finances and personal information.
Common examples of scams.
Similar to fraud, scams can take on many different forms, all designed to exploit the trust and vulnerability of victims. Phishing is a common scam involving deceptive emails that appear legitimate, tricking recipients into revealing sensitive information. Here are some other common scams to look out for:
- Tech support scams: Scammers impersonate tech support agents to gain access to victims’ computers.
- Prize scams: Victims are told they’ve won a prize or lottery but must pay fees or provide personal information to claim their winnings.
- Romance scams: Also called sweetheart scams, fraudsters start fake relationships to gain victims’ trust and eventually request money or personal information.
- Online marketplace scams: Fraudulent sellers offer products but never deliver, while tricky buyers overpay for items with a fake check or money order or fraudulent cash app transfer and ask you to send them the difference.
- Debt collection scams: Illegitimate debt collectors threaten criminal charges to scare victims into making payments.
Other scams include travel scams for fake vacation deals, social media scammers impersonating friends or posting phishing links, job hunting scams requiring fees or personal information, and holiday shopping scams involving fake online stores.
Protection and legal implications.
Fraud and scams also differ in the legal implications and how victims can attempt to recover financial losses.
Credit card companies, credit unions, and banks offer safeguards against unauthorized transactions, making it easier for victims to recover their losses. Identity theft and other types of fraud are treated as serious criminal offenses with clear legal consequences, and law enforcement agencies actively investigate and prosecute fraud cases.
Scams, while also illegal, may not always result in criminal charges or successful prosecution due to the difficulty of identifying and apprehending scammers. Scam victims may find themselves with fewer options for compensation, especially because they themselves may have provided account details to the scammer.
Safeguarding against fraud and scams.
Protecting yourself from both fraud and scams requires vigilance and awareness. Here are some tips to help you stay safe:
- Educate yourself: Learn to recognize common fraud and scam tactics to protect yourself online.
- Verify information: Always confirm the legitimacy of individuals or organizations requesting your personal information or money.
- Secure your devices: Use strong, unique passwords (or, even better, passphrases) and keep your devices and software up to date to reduce vulnerability.
- Be skeptical: Question unsolicited offers, requests, or deals that seem too good to be true, and do your research.
- Research businesses: Before making online purchases or investments, research the credibility of the company.
- Monitor financial statements: Regularly review your financial statements and credit reports for any unusual or unauthorized transactions.
- Stay safe on social media: Be cautious about accepting friend requests from strangers, avoid quizzes that may be used to hack your account, and report suspicious activity.
- Job hunt securely: Research potential employers and be wary of unrealistic job postings.
- Shop safely online: Shop only from reputable websites, verify sellers, and avoid clicking on unsolicited links.
Being skeptical can help keep you safe online. Question everything and always do your research, especially when a situation seems too good to be true.
Steps after falling victim.
If you fall victim to a scam, the aftermath can be disheartening. Scam victims often face little to no compensation or recovery options. Scammers, skilled in concealing their identities, are rarely held accountable. In contrast, fraud victims have more established avenues for recovery. Regardless of whether you’ve fallen victim of a scam or fraud, taking swift action is crucial.
- Contact your financial institution: Report fraudulent transactions immediately to your bank, credit union, or credit card provider to minimize financial losses.
- Notify local law enforcement: File a report with your local law enforcement agency, providing all relevant details about the incident.
- Notify consumer protection agencies: Report the fraud or scam to consumer protection agencies, such as the FTC.
- Contact credit reporting bureaus: Especially in cases of identity theft, contact the three nationwide credit reporting bureaus to make them aware of the fraud and initiate a credit freeze.
- Monitor accounts closely: Regularly check your accounts for suspicious activity and update your passwords and security settings.
Scammers are skilled at their craft, employing various tactics to deceive individuals into divulging their financial or sensitive personal information. It’s essential to recognize that falling victim to these scams is not your fault, and you’re not alone in facing this challenge.
Avoid falling victim by staying educated and aware.
Understanding the difference between fraud and scams is important, but it’s knowing the warning signs of both that can help you protect your finances and personal information. Fraud involves illegal access to your information, while scams manipulate victims into willingly giving up their data. While the legal implications and recovery options differ, both fraud and scams can have serious consequences.
Educate yourself about common tactics, protect your personal information, and be cautious when dealing with unfamiliar individuals or offers, especially when something seems too good to be true—it usually is. In a world where financial fraud and scams are on the rise, staying vigilant is your best defense. Learn more about how to avoid identity theft and protect yourself from scams on the OnPoint blog, and explore more in our 2023 Guide to Personal Cybersecurity.