FOOL'S EYE VIEW
Ten Ways To Get Ripped Off

By Cliff D'Arcy
November 10, 2004

Journalists and broadcasters often use the phrase "Rip-off Britain".

In fact, a quick search for this phrase on Google produced over 8,000 hits worldwide and almost 6,000 mentions on UK websites. Despite the famous British reluctance to complain about shoddy goods and services, there are a lot of angry people out there!

Although public pressure has brought about price reductions in a number of areas (thanks to groups such as the Consumers' Association, publishers of Which? magazine), the UK is still packed with poor products. What's more, there are lots of nasty crooks out there who are waiting to plunder your pockets with cunning frauds. Yikes!

Keep your eyes peeled for these ten scams:

1. Boiler rooms

Beware of telephone calls from smooth-talking salesmen who offer you the 'opportunity of a lifetime' to invest in tomorrow's 'wonder stock'. These conmen sweet-talk naοve (and experienced) investors into buying shares in imaginary or worthless companies. Learn more about boiler rooms in Share Tips From Hell! and read about the latest 'pump and dump' schemes here.

Boiler-room salesmen flatter their victims and play on their fear and greed, causing many to abandon common sense. No matter how authentic and genuine these offers sound, 99.999% are out-and-out scams. Don't listen, don't talk and don't be rude – just hang up immediately.

2. Ponzi schemes

These fake investment schemes are named after Charles Ponzi who, in 1920, swindled almost millions of dollars from American 'investors'. Ponzi promised to turn $100 into $150 within 45 days by trading in "postal coupons". In fact, the 'income' he paid to investors was simply money provided by new victims. As one judge commented, "His scheme was simply the old fraud of paying the earlier comers out of the contributions of the later comers".

Ponzi schemes are alive and well today. Indeed, earlier this year, I helped a friend of mine to recover £30,000 from an illegal investment scam. Any scheme that offers returns of much more than, say, 6% a year will involved some risk to your capital, regardless of the underlying investment. Avoid all schemes that offer 'guaranteed' returns of, say, 10%+ a year, because these so-called guarantees are likely to be worthless.

3. Bog-standard mortgages

It's back to the high street for this rip-off. The Bank of England's base rate is currently 4.75%, yet million of homeowners are paying annual interest rates of 6.75%+ to mortgage lenders. These borrowers are paying their lender's standard variable rate (SVR), the bog-standard rate paid by all borrowers who aren't on a special deal, such as a fixed, discounted, capped or tracker rate.

Although a few lenders offer competitive SVRs, most take advantage of loyal or lazy borrowers by charging them over the odds. If you're paying your lender's SVR, you're probably paying £1,500 a year or more too much, depending on the size of your loan. By switching to another deal or a new lender, you could make serious savings.

Find a cheaper home loan in our Mortgage centre

4. Pyramid schemes

In the Nineties, one of my workmates asked me to help her to borrow £3,000 cheaply. When I quizzed her what this money was for, it turned out that she was planning to join a 'pyramid scheme'. By handing over £3,000 and recruiting eight other people to 'invest' £3,000, she would receive a 'gift' of £24,000 for creating another 'level' of 'investors'.

Of course, this was a scam, because money was just changing hands between contributors – there was no investment to earn returns, nor any products to sell. Anyway, nine times £3,000 is £27,000, so what happened to the missing £3,000?

The problem with Hearts, Women Empowering Women and other pyramid schemes is that they are doomed to fail. With each new participant required to recruit many more to keep the ship afloat, the 'player pool' grows exponentially:

Playing pyramids
Level	Number of new recruits needed (eight times the number in the previous level)
1	1
2	8
3	64
4	512
...	...
10	134,217,728
11	1,073,741,824
12	8,589,934,592*

The last figure is roughly 2½ billion more people than live on Earth, so now we're forced to recruit aliens!

So, mathematically, all pyramid schemes are doomed to fail - and sure enough, eventually, they all do.

5. 'Phishing' emails and telephone calls

Beware of bogus emails that appear to come from your bank or credit-card company. Many of these warn you of a security breach and ask you to verify your personal details. Click on a link and you'll be taken to an identical – but fake - copy of your bank's website. Criminal gangs use the information you enter to empty your bank account or spend on your credit card. Don't respond to any emails from financial organisations unless you're certain that they're the real McCoy.

By the way, this message from computer wizard BluePulse shows you how to confirm the real address of any website you visit. Thanks, BluePulse!

6. Payment protection insurance (PPI)

Lenders make massive profits from selling overpriced life, accident, sickness and unemployment cover alongside mortgages, credit and store cards, personal loans, etc. I reckon that lenders and insurers collect around £5 billion a year from selling these policies, yet pay out less than £1 billion in claims each year. So, selling this cover earns these firms a tidy £4 billion a year, because it costs five times as much as it could!

Despite working for leading PPI providers for eleven years, I've never bought one of these policies. Here's why.

7. Fake lotteries

If you get a telephone call or email telling you that you've won a prize in a foreign lottery, hang up or hit the "Delete" button immediately. Before handing over your 'prize', the lottery organisers (aka 'fraudsters') will demand money payouts to cover taxes, insurance, administration charges and other bogus fees. You can't win a lottery without buying a ticket. These are just a variation on the age-old 'advance fee' fraud – demanding money upfront with the promise of riches further down the line. Learn more here.

By the way, even the National Lottery offers poor returns to punters!

8. Premium-rate telephone cons

There are two variations on this scam. The first is when your PC becomes infected with a 'dialler' program, which is a virus-style program that hijacks your PC and connects to the Internet via a £1.50-a-minute premium-rate number, often starting with '090'. Some international premium-rate lines charge as much as £2.18 a minute, which is almost £131 per hour!

Your PC can become infected by rogue emails, web pages, unsolicited links, pop-up windows and downloaded programs. BT allows you to bar all UK premium-rate numbers for free (just call 150), but you should learn how to protect yourself by reading Internet Phone Scam!

The second premium-rate phone fiddle involves competitions that require you to call a premium-rate number to claim your prize. A six-minute call will cost you £9, but your pathetic 'prize' will be worth considerably less than this. Give these dodgy scratchcards a miss, and hang up on crooked callers who tell you that you've won a holiday or other fabulous prize!

You won't get rich quick by calling a £90-an-hour telephone lines, but you will become poor very quickly indeed!

9. Extended warranties

Three years ago, I bought a digital camcorder from my local branch of Dixons (after shopping around on the web for the best price, naturally!). Although I knew exactly what make and model I wanted, it took me ages to 'seal the deal'. The camcorder cost £440, but the salesman kept pestering me to buy a three-year extended warranty. This cost £150 - more than a third (34%) of the price of the goods. Ouch!

The pushy salesman wouldn't take no for an answer, until I explained that I'd worked for several warranty insurers and knew how massively overpriced these plans are! After all, my household contents policy would cover any accidental damage or theft, so all I'd get for my £150 would be two more years' breakdown cover.

Last year, Dixons defended itself aggressively against the Competition Commission's enquiry into extended warranties. However, I see that it now charges £209 to cover a £440 camcorder for five years (48% - that's almost half), so not much has changed! Independent provider Warranty EX provides similar cover for £107 – less than half the Dixons price. Warranty Direct also massively undercuts high-street retailers' warranty costs.

Several credit-card companies offer free extended warranties on household appliances paid for with their plastic. Make the most of these offers, self-insure, or try independent warranty specialists, but don't buy warranties on the high street (except at electronics store Richer Sounds, which won't rip you off)! Lastly, new rules governing shop-bought warranties come into force before Christmas – learn more here.

10. "Become A Millionaire" courses

I keep seeing adverts for 'get rich quick' courses all over London at the moment. It surprises me that so many stock-market and property gurus are willing to give up their precious time to share their wisdom with mere mortals.

I mean, be honest, if you discovered a foolproof way to make money from shares or property, wouldn't you devote all your time to it? Why waste your time sharing your secrets with others - and risk derailing your gravy train? Surely you'd be better off doing deals from your villa in the Algarve or private beach in the Caribbean?

The only people who get rich from investment seminars are the people selling them - at upwards of £2,000 a pop!

Finally, the US-based Crimes of Persuasion website has heaps of information on schemes, scams and frauds, and is very entertaining, too.

More: Double Your Money Today! | Check out our Financial Scams discussion board.