Peter Gondre

A Federal Trade Commission Study indicates scams that may target students are seeing an alarming increase.

According to the FTC, “consumers reported losing more than $5.8 billion to fraud in 2021, an increase of more than 70 percent over the previous year.” Millions of Americans fall victim to scammers every year, and the number keeps growing. 

Think of the classic Nigerian prince. He’ll send you $10 million, and all you have to do is wire him a measly $6 thousand. Today, that scam seems pretty obvious, but unfortunately, scams have changed since then.

Scam prevention, like this effort from the FTC, is often focused on an older population. Scammers target senior citizens because of the perception that they are less likely to recognize red flags like paying for professional services with gift cards and might be more easily overwhelmed by false claims of criminal action.

But young adults, especially college students, are surprisingly vulnerable to fraud.  The FTC found that 41% of people reporting fraud were between the age of 20 – 29, a much higher rate than any other age group. 

 

 

Javelin, a California based economic research group, completes its own yearly report on fraud and identity theft. According to them, in 2021 losses due to identity fraud “totaled $28 billion and affected 27 million consumers in the United States.” They also identify students as being particularly susceptible.  A comparison of their findings with those of the FTC indicates millions of cases may be going unreported. 

What can a student do to protect themselves from getting their money or information stolen?

 The simplest solution: Recognize the signs. New forms of making income, especially income online, have recently started cropping up. The International Trade Association notes a surge in popularity of online retailers during the Coronavirus pandemic. Some are legitimate, others less so. It’s up to you to parse which is which.

We’ll separate out three common categories of scam, all with heavy overlap.

1. Pyramid Schemes
2. Imposter Scams
3. E-Commerce Schemes

• Pyramid Schemes

Multi-level marketing isn’t always, but can be form of pyramid scheme. In multi-level marketing, a business hires someone to sell their product and gives said hire a portion of the sale. It’s fairly common, and you may recognize it as working on commission. The legal issues only come up when we turn our attention away from the sale and towards the salesperson.

In an illegal pyramid scheme, the initial promoters recruit investors, who in turn recruit more investors, and so on. The product being sold matters less than continuing to attract new “investors,” as the majority of profit comes from new investment. 

 

 

This form of marketing is illegal in the US and carefully monitored by government agencies. In 2019, leggings manufacturer LuLaRoe was sued by the State of Washington for running an illegal pyramid scheme. The company lost the suit and paid out $4.75 million to compensate victims in Washington. 

At issue was that LuLaRoe was making the majority of their profit from recruitments. They charged thousands of dollars just for the privilege of selling leggings, and members had to buy the items from LuLaRoe themselves. This resulted in investors taking on thousands in debt with the promise of six-figure profits. Instead, they ended up with a stockpile they couldn’t give away.

 

• Imposter Scams

 

The Nigerian Prince who emails you asking for a check is not just an internet joke. It’s a classic example of an impostor scam. An imposter scammer will say or do anything they think will convince you to give them your money or information.

Imposter scams are very common and very successful. The FTC states “more than $2.3 billion of losses reported last year were due to imposter scams.” Some popular imposter scams are fake student loan relief calls, fake job offers, urgent calls from government, insurance, or finance agencies, and catfishing.

 

The tactics change over time, but fundamentally they all try their best to entice you with some spectacular offer, or scare you into complying, disappearing as soon as they get what they want. 

 

 

 

• E-Commerce Scams

 

 

Penn State students may be familiar with these if they’ve read any emails offering unsolicited job offers in their inbox. According to BigCommerce, “Ecommerce fraud is criminal deception conducted during a commercial transaction over the Internet.” This is a vague definition, because scammers have been employing several different avenues in their fraud attempts. 

An E-commerce fraudster may for example tell you that you can make a ridiculous amount of profit by joining into a suspiciously easy business after paying out a small fee. Or they’ll ask you to enter a contract with them wherein they gain access to your personal information. 

For example, let’s look at retail drop-shipping. Financial consultant Lesley Hensell Desmond wrote up a very comprehensive article explaining the dangers. “Drop-ship gurus” convince recruits to place items for sale on online marketplaces like Amazon. But the seller doesn’t actually own the item they’re selling instead buying them from physical retailers like Walmart and reselling them.

This functions like a pyramid scheme. The drop-shipper gets a slim profit and a large risk of getting their account permanently banned. Meanwhile the recruiter gathers up more sellers under a false company and skims money off each one.

The Take-Away

College can be a heavy financial burden, before, during, and after completion. It’s understandable to want to look for a way to make it a little easier, but there are some out there waiting to take advantage of that. Being able to distinguish real financial resources and malicious actors is an invaluable skill.

Here are a couple easy-to-remember ways to avoid getting scammed:

• Remember, no legitimate organization will ask for your full social security number through email or over the phone. That includes the government.
• Make sure you know and recognize the credentials of anyone or anything you trade money or information with online.

Most importantly, if it sounds too good to be true it probably is.