Weak Economy is a Boom Time for Financial Scammers

Back in 2009, when Teresa Yeast's husband was laid off from the job he had held for 17 years, she began searching for ways to earn some money. But with two disabled children to care for, she knew she couldn't work outside the home.

One day Yeast, 45, noticed an ad in an area newspaper looking for people to work from home creating tiny pins shaped like angles out of beads and ribbon. When the same ad for Darling Angel Pins appeared in her local paper in Platea, Pa., she decided to investigate.

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Online, she found an attractive, professional-looking website. "They advertised that they made donations to the American Cancer Society, autism groups, all these great causes, so of course I was drawn to that," she explains. "I thought it would be really great to get involved."

The money sounded good, too. "They told me they would pay me $2.50 for every pin I assembled for them, that I could make as many as I wanted, that they would sell them." All she had to do was mail the company a $500 deposit for the supplies. She'd then make a sample pin, submit it to the company for review and, once approved, begin production.

Yeast mailed her $500, received a box of supplies -- and became one of the millions of Americans victimized by financial scams.

Consumer fraud -- the intentional deceit of a consumer -- is nothing new, unfortunately. For decades there are have been scams related to mortgage loans, credit cards, employment opportunities, lotteries and identity theft, to name just a few. But in recent years, as the American economy has struggled with a high rate of unemployment, a collapsed housing market and a stubborn recession, scammers have seized on Americans' financial fears in new ways.

"There are a suite of scams that concentrate on people that suffer financially and we've really been going after those," says Steven Baker, director of the Midwest region of the Federal Trade Commission. "Certainly it's an increasing problem of people taking advantage of that suffering. It's really bad because you're holding on by your fingernails in the first place and then they steal what little money you have left."

In 2010 more than 1.3 million Americans complained of consumer fraud. And that's only the tip of the iceberg. Unlike Yeast, most don't speak up.

The Dawning Realization That You've Been Had

It didn't take her long to become wary, but by then, it was too late.

"They didn't send me the wire I needed to complete the pins," says Yeast, "and that got me a little suspicious, but when I called them they said, 'Oh, assemble the one pin, send it back, and once we make sure it's of quality, we'll send you the rest of the supplies." So she did.

Except, instead of receiving permission to begin producing more pins, the company rejected her little angel (pictured, right). She made a few changes and sent it back. Again, the company returned it. "It went back and forth, back and forth. I thought to myself that there is no way this pin is not of good quality." She called to discuss the problem. Initially they refused her calls. Then they began saying they'd never received her sample pin.

Eventually, Yeast told them she wanted her $500 deposit returned, which the company had said would always be an option. They refused. So Yeast called an attorney, who discovered that Darling Angel Pins was a multimillion-dollar fraud. The company never accepted anyone's pins. instead repeatedly rejecting every sample until their "potential contractors" simply gave up and walked away, leaving behind their $500 deposits.

Infuriated, Yeast sent letters to "anybody and everybody who would listen." One day, she got a call from the FTC, which wanted to hear more about her story. The national investigation of online fraud that she helped with succeeded, among other things, in shuttering Darling Angel Pins and a dozen other similarly fraudulent companies, and seizing their assets.

A Shocking Number of Scam Artists

While it's hard to measure the size of the problem -- consumers often neglect to report being conned, either because they don't know where to turn for help or because they are embarrassed that they've been victimized -- experts agree it's big.

In the last five years, 6.1 million consumer complaints have been tracked in the Consumer Sentinel Network, a database made available exclusively to law enforcement officials and a clearinghouse for complaints filed with various agencies. In 2010 alone, consumer complaints totaled over $1.7 billion.

And that's only what gets reported. According to Baker, a few years ago his agency conducted a random telephone survey and discovered that only 8.2% of victims reported complaints. "In other words, 90% don't. And we know that from our own cases that we only have a couple of hundred complaints and it turns out there are thousands [of victims]. If I didn't do this for a living, I'd never believe how much fraud is out there."

Tailoring the Cons to the Times

While there hasn't necessarily been an increase in the number of frauds, their shape has evolved to keep pace with the changing economy. "Scams follow the headlines, so the people who do these scams, if they see that a lot of people are unemployed or are at risk of foreclosure, they will go after them, will design something to go after those people," explains Peter Kaplan, deputy director of public affairs at the FTC.

For example, in response to the collapsed housing bubble, there are now scammers who offer to help struggling homeowners to avoid foreclosure, often by promising to secure a mortgage loan modification in exchange for an upfront fee. Frequently, the scammer takes the money, makes maybe one phone call to the loan servicer, tells the homeowner they tried and failed to arrange a modification, and calls it a day, pocketing hundreds or even thousands of dollars the distressed homeowner could have put towards their mortgage.

"People have had such a hard time with their mortgage loan, and such a runaround, that they really think it's better to pay somebody than to work with their servicer or housing counselor," says Yolanda McGill, senior counsel for the Fair Housing and Fair Lending Project at the Lawyers' Committee for Civil Rights Under Law, a nonprofit, nonpartisan organization. "People who get declined for a modification by their lender and want one figure they can go out and pay for it." Scammers know this, and capitalize on it to make a buck at the homeowner's expense.

Other increasingly common frauds leverage the fact that 9.1% of Americans are unemployed. Scammers may offer to help a consumer to start a medical billing practice in exchange for an upfront fee, or advertise an opportunity to start selling a product that doesn't exist.

When It Sounds Too Good to Be True ...

"It's really terrible," says Monica Vaca, assistant director in the FTC's Marketing Division. "These folks are really looking for a chance to work, so they'll pay money to send away to learn about the opportunity. They're not sitting back and saying 'Oh well, I'll just sit back and see where life takes me.' They're really trying to take control of their destiny, really trying to earn money for themselves. Instead, they lose their money and then they also lose their aspiration."

Unfortunately for Yeast, she may never get back her $500 deposit. "It may not sound like a lot of money, but to me, that was my mortgage payment. Literally, at that time, we had a $500 mortgage payment."

She does, however, feel empowered. "I will tell anybody who will listen to be careful with opportunities that sound too good to be true. I mean, of course it's embarrassing. I'm embarrassed. I'm smart. I am college educated. And I got duped. But if I say nothing about it, the scammers keep doing it to other people. So I tell people, 'I know. I get it. Even though you wonder if it's too good to be true, you'll just try anything to work, to feed your kids, to find your next mortgage payment. But that's how you get hooked.'"

Loren Berlin is a reporter with the AOL Huffington Post Media Group. She can be reached at loren.berlin@teamaol.com, on Twitter at @LorenBerlin, and on Facebook.

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