6 financial traps in the time of COVID-19

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. Today it’s the COVID-19 crisis, and it’s no surprise the scammers are back in force to prey on people’s uncertainties, fears and lack of financial knowledge.

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

To help you keep your finances safe, here are six traps to avoid.

1/ Consumer scams and frauds

Fraudsters take advantage of fear around headline news like COVID-19 to steal money from unsuspecting consumers. This could be as simple as so-called ‘phishing’ attacks via text message and email with messages that appear legitimate, perhaps with a prompt such as ‘Click here to get your stimulus money’ or ‘Update your Netflix payment details’. The links are malicious. If they are clicked on, hackers 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 happening but they 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 coronavirus or are claiming to sell vaccines or cures. Others offer (fake) mapping apps for download, or great investment opportunities.

What to do

  • Stay vigilant – keep your wits about you. Check the address of any emails you receive, and even the time you receive them – scam emails originating from overseas are likely to have been sent at unusual times.
  • Ignore online offers for things such as vaccinations and home test kits. Currently, there are no products proven to treat or prevent the virus.
  • Hang up on unsolicited phone calls and offers. The Ministry of Health is contact tracing by cold-call but this process does not require information such as bank or credit card details. A good tactic in this situation is to hang up, then contact the source (usually a company) on one of its main phone numbers to see if it really was them.
  • Watch for emails claiming to be from the World Health Organisation (WHO) or 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 claim a tax refund.

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

The wrecked travel plans of many of us are a great example here. Plenty of Kiwis have paid for winter holidays they either now can’t take or that have been cancelled by the travel providers. While some 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. Fine-print terms and conditions will generally be considered unfair if they create an imbalance between the rights and obligations of the company and the customer.

What to do

  • Request a full refund from your travel agent or whoever you made bookings with. If you have booked through a travel agent and don’t get a refund, take your case to the Travel Agents’ Association of New Zealand (TAANZ).
  • Carefully check the wording of your travel insurance – you may be able to make a claim.
  • 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,
  • If you have paid by credit or debit card, check your card company’s chargeback rules. 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.
  • If you are out of pocket by 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

If you pay any sum to a business and they go bust before they have provided you a service or product, you are in a tough position and have probably lost most or all the funds you paid. This can occur:

  • When you pay for a new build or home renovations, landscaping or some other project and the contractor goes bust.
  • If you have gift cards or vouchers for a shop that goes under.
  • You buy something on the internet and it never arrives.

What to do

  • Get 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 contractor you are dealing with before paying any deposit, and ensure the size of the deposit is in line with industry averages.
  • Gift cards can be useful but always ensure they are valid at multiple companies. If you have any gift cards and vouchers lying around, what better time than now to use them?
  • For internet purchases, stick to reputable sites with timely delivery. Pay by credit or debit card – that way if you don’t get what you paid for, you can apply to your card provider for a chargeback.

4/ Investment scams

These are back in force – perhaps you’ll receive an offer from offshore stockbrokers who promise you great deals on cheap shares if you act quickly. Or it might be something that tugs at your heart strings, such as a health business or medical lab. Of course this is a scam, and one reason for it to come from overseas is that once you send money out of the country it’s usually impossible to get it back or hold the criminals to account. The time pressure is so you won’t get to check the ‘offer’ with someone reputable – like us!

Keep in mind

  • Businesses based in New Zealand are usually subject to oversight by our 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 New Zealand.
  • Before investing anything, take your time and check with a professional. Of course, it would be our pleasure to double-check any investment opportunities that come your way.

5/ Gimmick training courses

Investment-related scams don’t just target those with plenty of money to invest. There are many offshore-based online ‘training courses’, many focused on a younger audience. They advertise freely on social media including YouTube and Instagram. The ads usually show someone at 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 videos seem young and happy, and instead of being at the beach they 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. 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 (although getting rich slow is another story).

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 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 No. 4, engaging the services of New Zealand-based businesses can help.

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

Not all financial traps involve fraud – the best intentions can later cause problems. Rising house prices in recent years has led to 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

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, although 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!

About Milestone Direct Ltd

Milestone Direct Ltd is a full-service financial advice firm with a focus on retirement planning, wealth management, and ensuring your funds don't run out before you do. Milestone Direct is unique, with; no product provider ownership, no quotas, and all financial advisers are paid a salary instead of commission. Milestone Direct Ltd are already trusted as the official financial advice provider to organisations such as the NZ Defence Force, so you can trust them too. Call now for a free and no obligation initial consultation, toll-free 0508 645 378 or learn more at: www.milestonedirect.co.nz.