Financial fraud can be defined as an intentional and malicious act of deceiving an individual or for the personal financial gain of the deceiver. It takes many forms – some financial frauds rely on stealing information from a credit card or identity theft, while others involve more complicated schemes. The most common types of financial fraud can be avoided, but in order to do so, you must maintain a high degree of skepticism. Furthermore, never share your financial information over social media and be wary of get-rich-quick schemes.
Sometimes fraud is outside of and beyond one’s control. Even if you’re on the lookout all the time, someone could get your credit card data through a card skimmer or buy your personal information off of the dark web. Millions of people fall victim to financial fraud and scams, experiencing financial insecurity. Besides losing money, it also comes with stress that can trigger depression, anxiety, or panic. The most common types of financial fraud you should watch out for include:
- Bank account takeover fraud
- Debit and credit card fraud
- Internet scams and fraud
- Stolen tax refund fraud
- Driver’s license fraud
- Healthcare fraud
- Mortgage fraud
- Elder fraud
- Mail fraud
Financial Effects of Financial Fraud
The financial consequences of financial exploitation, abuse, or fraud can last for months or even years after it occurs. Depending on the type of financial fraud, the problems can include:
- Financial loss
- Cleaning up and closing compromised accounts and opening new accounts
- Disputing the perpetrator’s activity in credit files and working to restore a good credit score
- Working with the IRS, Social Security Administration, or other institutions (depending on the type of fraud committed).
Through financial account takeover, fraudsters can also take over investments, retirement, reward, and other financial accounts. That could affect your ability to obtain credit, your retirement, or your children’s education. Financial fraud is not something you can forget about, especially when it involves sensitive information. Thieves may store the information and avoid using it for months or even years, waiting for when you are inattentive or distracted. Also, they could sell your financial information on the black market (dark web). You need to proactively watch for red flags and stay alert indefinitely.
One of the most known cases of identity theft and financial fraud occurred in 2001 when one person became a victim of financial fraud that went undetected for 12 years. In 2013, the victim found out that the perpetrator had acquired several credit accounts and purchased a home using the victim’s name and social security number. In 2017, a woman (pretending to be a Federal Emergency Management Agency employee) held meetings in a Houston hotel to collect the personal information of people who were staying there during Hurricane Harvey. The hotel acknowledged it to be a scam, but for some, it was too late. As many as 30 people disclosed their private information (including the last 4 digits of their social security number, FEMA number, etc.) and have been victims of financial and identity fraud without even knowing it until they started receiving letters from creditors.
The impact of internet fraud or identity theft can be long-lasting and devastating, impacting the victim’s financial life and wellbeing in many ways – from a bad credit score to bankruptcy. Years of security breaches and exposed personal and financial data have left millions of people vulnerable to financial fraud and identity theft.
Victims of property-related financial fraud can experience housing problems. In case of a mortgage refinancing scam, victims might end up losing their homes. Also, those seeking to purchase or rent a home can be denied due to erroneous criminal records and/or lowered credit.
Emotional Impacts of Financial Fraud
In the wake of financial fraud, victims of fraud can experience symptoms such as persistent feelings of anxiety, ongoing resentment and anger, shame and embarrassment, hopelessness, loss of ability to trust, perception of lack of justice, questioning of spiritual beliefs, depression, and even suicidal thoughts. The term Fraud Trauma Syndrome is used by researchers to describe the emotional experience of fraud victims.
This is how poor mental health of a fraud victim can take a toll on their life.
- Low self-esteem. Fraud is typically under-reported because people (often unconsciously) look for ways to protect their self-esteem by paying more attention to things to build their self-esteem, rather than those that threaten it. Most people are reluctant to accept that they’ve fallen victim to fraud and avoid telling others. When self-esteem starts to plummet, people go into a spiral of negative thought patterns that make them feel worse about themselves. In addition to losing money, fraud victims often feel robbed of their dignity, security, and self-esteem.
- It isn’t easy to think clearly. Victims of financial fraud may find it difficult to think clearly about the smallest things, let alone their financial future. Planning, making important decisions, and organizing their financial situation may feel like a lost battle because their financial stability and freedom have been compromised.
- Feeling that life is out of control. When people start feeling as though they’re losing control over their thoughts and moods, they may begin to feel that their life is out of control. They might even lose hope about a brighter future.
- Loss of trust. Victims of financial fraud often spend months or years recovering from these crimes. Some of them describe it “like being raped” or as “psychological mugging,” experiencing the same loss of trust problems as victims of violent crimes. Since there’s a chance that offenders cannot be found, victims may need to liquidate their assets and hide them out of reach, or even declare bankruptcy. They lose faith in the credit system that was supposed to protect them.
- Avoiding problems leads to anxiety. Tackling incoming bills or having to talk with their credit card company to discuss late payments takes a lot of fortitude and concentration. Also, having to sit down and create a budget from “thin air” requires the victim to face the cold facts. When you’re not feeling best, it is much more tempting to avoid these types of problems, which creates high anxiety.
- Being desperate for temporary stress relief. People who cannot face the fact that they’ve fallen victim to financial fraud begin to seek temporary relief. They try to do anything to get out of the situation – buying things they can’t afford or falling into addiction because it provides momentary pleasure. However, this can lead to more financial distress and other problems.
Elderly people are particularly vulnerable to financial abuse. According to an AICPA survey on personal financial planning trends, nearly half of the financial planners surveyed say that they have elderly clients who showed diminished capacity or signs of dementia for the first time in the past year. Financial fraud and abuse can be just as costly as for other generations. However, the emotional impact that elderly people experience can be more severe, and the emotional stress of elder fraud often outweighs the financial impact. To lessen the risk of elder abuse and be able to identify and address it early, one should establish checks and balances for Power of Attorney, successor trustee, and important professionals.
One of the contributing factors to experiencing emotional response long after a financial crime occurs is the fear and perceived risk of revictimization. Victims of identity and financial fraud may experience revictimization because their personal information has already been compromised, so there’s a chance that their names are still available on the black market. This fear may leave them in a heightened emotional state. Furthermore, researchers also add that nonresponsive law enforcement and legal systems can make victims feel revictimized because their cases weren’t investigated and prosecuted.
According to the Identity Theft Center 2018 Aftermath report, some of the impacts of financial fraud included victims getting into more arguments and fights, not feeling able to trust family and friends, not feeling close to them, and not receiving support from them. Avoid these financial and emotional impacts of fraud by taking preventative measures to protect your personal information from fraudsters and scammers. Efforts to prevent identity theft and the impact of fraud victimization typically center around noticing warning signs, timely reporting, and seeking help. Tools like Split Credit Monitoring can help keep you informed and help you detect and react to identity theft.