Illustration by Christina Ung
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Special Report
Consumer Confidential
By Ron Burley, January & February 2010
Do you know when you're being hustled by bankers, mortgage brokers, and investment peddlers? Check out our tip sheet on financial pros' everyday deceptions—and how to protect yourself against them
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The rules of money are getting a makeover, and it's about time.
With the implosion of the housing market, the collapse of credit, the
upheaval on Wall Street, and our brush with a second Great Depression,
we've all paid a high price for the abuses at the center of our
economic mess.
The fallout has been painful: trillions of dollars in lost savings,
7.6 million people newly unemployed, and record-high home foreclosures
and bankruptcies—a tidal wave that has yet to crest. Among those
hurt most are Americans over 50, who had more to lose and have less
time to recover.
How do we protect what we have left? Tougher disclosure rules for
financial services are coming into effect, and a series of bills in
Congress aim to curb further outrages—from exorbitant bank fees
to loopholes that encourage investment rip-offs. But no matter what
laws are passed, as Vanguard Group founder John Bogle likes to point
out, the middlemen who handle your money will by definition subtract
from your wealth. Bankers, brokers, and investment dealers understand
what their role is, and as consumers we should understand ours: to
stay skeptical, assert our rights, and keep as much of our own money
as we can.
So don't drop your guard. As the following situations show,
whether you want to shield your credit, finance a home cheaply, or buy
some peace of mind for retirement, you'll run up against companies
with an unfair advantage. Just remember that the first line of defense
in consumer protection is a self-interested customer who's armed
with the facts—in other words, you.
Credit
You shouldn't pay for a bank robbery
As many as 9 million Americans have their identities stolen each year,
according to the Federal Trade Commission. And by far the most
frequent financial crime resulting from the thievery is a new brand of
bank robbery: crooks using stolen information to open fresh lines of
credit—credit cards, car loans, even home loans. The independent
Identity Theft Resource Center (ITRC) conducts an annual in-depth
study of identity theft. In 2008 a record 67 percent of cases it
monitored involved lenders duped into extending credit to a criminal.
People 50 and older—30.5 percent of the populace—accounted
for 35 percent of the victims.
The same whiz-bang technology that fosters online credit approval
makes it hard to combat anyone with your Social Security number and an
evil intent. "Law enforcement just isn't up to the task of
handling thousands of ID-theft cases crossing hundreds of
jurisdictions," says Jay Foley, director of the ITRC. "The
crooks know this and exploit it."
While it's the banks that get robbed, their failure to detect
fraud creates far-reaching collateral damage. In 2008, the ITRC found,
it took 165 hours on average—and cost $951 for everything from
attorney's fees to childcare—for individuals to undo the
harm from a fraudulent loan. The crooks prey on young and old alike.
Leah Beltran, 26, of Portland, Oregon, thought she had escaped
disaster because she quickly notified police and canceled her credit
cards after her wallet was stolen. But then came a stream of forged
checks, fraudulent credit accounts, and traffic violations attributed
to her. Even though Beltran and her family were the victims, the bank
froze their accounts for two months while figuring things out.
"The bank treated us like we were the criminals," she
recalls.
That was in 2006. More than three years later, debt collectors still
call in pursuit of transactions she never made.
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