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What Are the Biggest Financial Scams of 2012?

February 4th, 2012 by Kenneth Long

Every year shows various trends in financial scams. In 2010 and 2011, debt settlement scams, tax reduction frauds and worthless vehicle extended warranties were prevalent. While it may be too soon to determine what the biggest scams in 2012 will be, it is expected that boiler room payday loan operations may become one of the faster growing scams.

Payday lenders constantly look for ways to attract vulnerable and desperate borrowers who are often locked out of traditional lending markets. They are looking for opportunities to sell high-priced payday loans to the working poor.

Payday loan operators are discovering that the brick and mortar (storefront) payday loan operation is incredibly risky. Imagine signing a 5 year lease and hiring staff only to have your state’s legislature outlaw usurious loans. You can be put out of business almost overnight.

In order to protect themselves from state regulation, payday lenders are discovering ways to isolate themselves from this regulation. An industry giant known as Western Sky Financial is based on a Native American reservation. Western Sky claims that it is not subject to state laws and is instead subject to regulation by the sovereign Cheyenne River Sioux Tribe. States such as Colorado disagree.

Other fraudulent schemes operate from Caribbean outposts. Most of these operators mask their identity. Many of them are Americans who attempt to evade regulation by simply hosting a website offshore. Meanwhile the profits are funneled right back into their personal accounts.

The delivery methods of payday loans are what makes these loans possibly the biggest fraud on the radar for 2012. Email spam has always been a lucrative delivery method for sourcing payday loan leads. Some loan commercials have become more popular even on mainstream television channels, including ESPN.

Finally, we are seeing an increase in the use of robotexting, a method in which a computer is used to send out thousands of text messages to cellular telephones in order to lure unsuspecting consumers to payday loan websites. Payday loan robotexting is increasingly being used to promote these predatory loans.

The owners of these websites hide behind offshore website hosting companies that provide shelter and anonymity for the owners. They rarely provide legitimate information on public website directories. Some provide fake information in violation of ICANN policies while others subscribe to private registration through use of a proxy, a method which is legal and fairly common.

Some states such as West Virginia have gone after payday lenders that sell illegal loans to citizens of their states. Others like North Carolina refuse to investigate violators who sell the loans online, choosing only to regulate brick and mortar lenders.

Regardless of which scams are the most popular in 2012, you would do wise to steer clear of any business transaction from less than transparent operators. Checking the Better Business Bureau for a reliability rating can often be your best (though not perfect) defense from scammers and crooks.

This entry was posted on Saturday, February 4th, 2012 at 2:14 pm and is filed under Consumer Protection, Financial News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 responses about “What Are the Biggest Financial Scams of 2012?”

  1. Brian said:

    You are irresponsibly reporting this information. To call something that is legal a scam is wrong. Selling a payday loan to someone who is irresponsible with money is no more a scam than selling a Big Mac to someone who has a weight problem. Do your job as a reporter and stop targeting “Hot Topics”.

  2. Kenneth Long said:

    Dear Brian:

    Actually, selling payday loans to residents of states that outlaw such loans is in fact illegal, as is evident by the numerous court filings against the firm mentioned above by the attorneys general in some of those states. I encourage you to check your facts sir.

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