Financial traps and scams to avoid

Joseph Darby

The contagious effect: an increase in financial scams & business failures, and what you can do to avoid them

Like a pack of sharks who smell blood, the scammers are already circling.

A decade or so ago during the Global Financial Crisis, investment fraud and other consumer scams were rampant. As any crisis spurs a degree of fear among at least some of the population, it’s no surprise the scammers are back in force to prey on people’s uncertainties, fears, and lack of knowledge in some areas.

Figures show that internationally this is already a major problem. Google is reportedly blocking 18 million coronavirus scam emails every single day, while what seems like every financial regulator across the developed world have issued warnings about an assorted array of scams.

To help you keep an eye out for the sharks, here is a collection of six corona-inspired traps to avoid.

1. Consumer scams and frauds

Fraudsters take advantage of fear around big headline news, like the coronavirus, to steal money from unsuspecting consumers.

This could be as simple as so-called 'phishing' attacks, via text message and e-mail with messages that appear legitimate — perhaps with a prompt such as “Click here to get your stimulus money” or “update your Netflix payment details”. However, the links are malicious. If the links are clicked, con artists can access a computer or phone and steal personal information such as IRD numbers and bank account data. They can then steal identities, money, or both.

These types of attacks are always underway but ramp up during times of chaos.

While stealing your personal information is usually the top priority (to access personal accounts or build a false online presence), other scams are coming in all varieties, shapes and sizes. Some ask for donations to help fight the virus, are claiming to sell vaccines or cures, downloadable false mapping apps, or great investment opportunities.

What to do instead

Stay vigilant – keep your wits about you.

  • Across the board, Covid-19 has increased the need for vigilance when receiving emails.
  • Ignore online offers for things such as vaccinations and home test kits. Currently, there are no products proven to treat or prevent the virus.
  • Usually, it is best to hang up on unsolicited phone calls and offers. However, the Ministry of Health is “contact tracing” by cold-call – even then, they should not be asking for personal information such as credit card details or bank information. A good tactic in this sort of situation is to hang up, then contact the source (usually a company) on one of its main numbers to see if it really was them.
  • Watch for emails claiming to be from the WHO or NZ Government departments.
  • Do your homework before making any donations. Never donate in cash, by gift card, or by sending funds offshore. Donations to NZ registered charities are best, as you can also claim a tax refund on donations made.
  • Check the email address for any emails you receive, and even the time you receive them. (Scams may be sent from overseas, so can be sent at unusual times).

2. Paying for a product or service you don’t receive

The best example of this occurring already is with many people’s travel plans. Plenty of Kiwi’s have paid for winter holiday’s they either now can’t take or that have been cancelled by the travel providers. While some travel providers are offering to hold the sums paid in credit, this might not meet individual needs. Other providers are charging hefty cancellation fees, in some cases up to 25% of the purchase price.

In some of these situations, there may be breaches of the ‘unfair contract’ provisions in the Fair Trading Act. For instance, fine print terms and conditions will generally be considered unfair if they put customers (you) at an unfair disadvantage by creating a significant imbalance between the rights and obligations of the company and you - the customer.

What to do instead

There are several things you can do, which might include:

  1. Request a full refund from your travel agent or whoever you made bookings with. If you’ve booked through a travel agent and don’t get a refund, you may be able to complain to the Travel Agents' Association of New Zealand (TAANZ),
  2. Carefully check the wording of your travel insurance, in some cases you may be able to make a claim,
  3. If you had air travel to, within, or from the USA, you are protected by US law. In this event, airlines are required to provide a refund regardless of why the flight has been disrupted, where the airline is based, or where the ticket was purchased,
  4. If you’ve paid by credit or debit card, check your card company’s chargeback rules. In short, these transactions are governed by international agreement, and card companies may allow for a chargeback if the cardholder has paid for but not received goods or services. There are deadlines for this, so get in quick! You can learn more here, and
  5. If you’re out of pocket a significant sum, it may be worth talking to a lawyer about legal action or taking matters to the disputes tribunal to recover any funds paid.

3. Paying a deposit or sum to a business that goes bust

Most often, if you pay any sum to a business and they go bust before they’ve provided you a service or product, you are in a tough position, and have probably lost most or all the funds you paid. This could occur in any number of situations, including:

  • A first home buyer who pays a builder or developer to build a first home then the builder goes bankrupt,
  • If you have gift cards or vouchers for a shop which goes under,
  • Internet shopping for items which never arrive, and
  • Paying for renovations on your home, landscaping, or another project and the developer goes bust.

What to do instead

We strongly suggest getting sound legal advice before entering any contracts – especially if they involve building a home or another significant project. If you must pay a deposit of some kind, try to keep it small – 10% - and ensure you get a receipt! Thoroughly check out the trader you are dealing with before paying any deposit and ensure the size of the deposit is in-line with industry averages.

For internet purchases, stick to reputable sites with timely delivery. Pay by credit or debit card, then, if you don’t get what you paid for, you can apply to your card provider (usually a bank) for a chargeback.

Gift cards can be useful, but always ensure they are valid at multiple companies. If you have got any gift cards and vouchers sitting around, what better time to use them than now?

4. Investment scams

Investment scams never went away, and now they’re being taken up a notch.

The Global Financial Crisis (GFC) saw investors flock to finance companies, fake term deposits, international share offers, syndicate real estate deals, and scams involving gold and other precious metals.

These sort of schemes are back in force – perhaps you’ll receive an offer from exclusive offshore stock brokers who promise you great deals on cheap shares if you act quickly enough, maybe even something that might tug on your heart strings, such as a health business or medical lab? Of course, this is a scam, and the reason they might be overseas is because once you have sent money out of NZ its usually impossible to get it back or hold the criminals to account. The reason there’s time pressure is so you don’t get a chance to cross-check it with someone reputable – like us!

What to do instead

Always keep in mind:

  • Businesses that are based in NZ are usually subject to oversight by NZ authorities. This does not guarantee you won’t be ripped off, but it can help.
  • Cold calling or knocking on doors to offer investments is illegal in NZ.
  • Before investing anything, take your time and check with a professional. Of course, it’d be our pleasure to doublecheck any investment opportunities that come your way!
Scam - gimmick training course

5. Gimmick training courses

Investment-related scams are not just targeting those with plenty of money to invest. There are plenty of offshore based online “training courses” which are often focussed on a younger audience. In case you have not seen them, they advertise freely on social media including YouTube and Instagram. Such courses are most often advertised by a quick video of someone on an exotic beach location, perhaps with a laptop, who claims to be earning megabucks in passive income, and 'for a small price they’ll show you how you too can be rolling in easy money'. The people in the video’s seem young, happy, and instead of being at the beach may have a flashy car or be filming from a mansion (the car and mansion are rented for the video shoot, of course!)

This is nothing more than a modern get rich quick scheme.

What to do instead

Always keep in mind:

  • If it sounds too good to be true, it is. You can immediately disregard any self-proclaimed ‘expert’ who promises you can easily and quickly become rich. (Though getting rich slow is another story!)
  • Please allow us to clarify some terminology: there is no such thing as a passive investment or passive income. Someone somewhere is having to work for it. For example, even to receive the “passive income” of rent from an investment property, you still must spend time and effort to select a property, invest a significant sum upfront to purchase it, and then either pay someone to manage and maintain it on an ongoing basis, or do that yourself. There will still be decisions to be made (such as when to renovate) and ongoing costs, such as rates and insurance.
  • As was the case with #4, engaging the services of NZ-based businesses can help.

6. Gifting or lending to friends and family, or guaranteeing their borrowing

Over recent years, a spike in NZ house prices has led to many family members – and even friends – helping each other with home ownership. There are several ways this can occur, including as a loan, an outright gift (which doesn’t have to be repaid), or commonly, a guarantee that parents will honour the obligations of a loan if a child fails to meet the conditions.

What to do instead

In each of the situations above, documentation should be completed to ensure everyone is clear on what’s being agreed to, and that everyone is protected should the situation change. We can assist starting this process, though usually a good lawyer is needed to complete some of the documentation – and most importantly to ensure you understand all the benefits and risks of whatever you’re doing!

The bottom line – six covid-inspired financial traps to avoid

Let’s recap the top six financial traps for you to avoid:

  1. Consumer scams and frauds
  2. Paying for a product or service you don’t receive
  3. Paying a deposit or sum to a business that goes bust
  4. Investment scams
  5. Gimmick training courses
  6. Gifting or lending to friends and family, or guaranteeing their borrowing

Keep above in mind, and you’ll have the best chance of avoiding the sharks out there!