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Fraud Prevention
Consumers in the
Marketplace
Chapter Objectives
• Explain how consumers can take
advantage of various selling methods.
• Identify different types of advertising
and marketing techniques.
• Identify reliable sources of consumer
information and protection.
continued
Chapter Objectives
• Recognize and guard against various
forms of financial fraud.
• Write an effective letter to resolve a
consumer problem.
• Outline steps to take in resolving
consumer disputes.
• Describe the rights and responsibilities
of consumers.
Selling Methods
• Sellers use various methods to make
you want their goods and services
• By practicing consumer self-defense,
you protect yourself against fraudulent
practices
Advertising: Getting the
Message to You
• Businesses spend
billions on
advertising to sell
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goods
services
ideas
images
continued
Advertising: Getting the
Message to You
• You win when you look for and find
useful information in ads
• You lose when you let ads persuade
you to buy what you do not want, do
not need, or cannot afford
Common Advertising Appeals
• Insecurity appeal
• Testimonials
• Celebrity
endorsements
• Sex appeal
• Bandwagon
• Puffery
• Nostalgia
• Humor
• Statistics
• Green ads
continued
Common Advertising Appeals
• By using an
image that has
positive
associations,
advertisers hope
to link desirable
traits to their
products
continued
Common Advertising Appeals
• Advertisers look for new ways to grab
consumers’ attention
• Product placement is when advertisers
pay to have their product or brand
appear in movies or television shows
Helpful Information
• Factual description of what is for sale
• Listing and demonstration of product
features and qualities
• Statement of differences between
advertised items and competitors
• Details on prices, special offers, terms
of sale
continued
Helpful Information
• Signs of possible
deception are the
words free, onetime offer, valued at
• If it sounds too
good to be true, it
probably is
Infomercial
• An infomercial is a program-length
advertisement that
– offers easy payments and risk-free trials
– often claims a limited availability of the
featured item
– can offer valuable information and
demonstrations, but consumers should do
their own research
Direct Mail Advertising
• Direct mail advertising includes use of
advertising circulars, catalogs,
coupons, and other unrequested offers
that arrive via mail
• Direct business-to-consumer
advertising is also done via phone and
e-mail
Special Sales and Promotions
• Price reductions and promotions can
benefit sellers by increasing sales and
profits
continued
Special Sales and Promotions
• When consumers buy things they need
on sale, they benefit
• But when consumers buy sale items
they don’t need, they lose
Buying Incentives
• Buying incentives include trading
stamps, coupons, loss leaders, contests,
games, rebates, premiums, and prizes
• Alert shoppers can recognize which
incentives offer real savings that truly
meet their needs
Packaging and Display Tools
• A product’s presentation:
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Color
Size
Name
Logo
Label
Packaging
• Product’s location on store
shelves
Consumer Credit
• Businesses often offer credit to
consumers so they will buy more and
higher-priced goods and services
• Credit use can be good for consumers,
if used with forethought and planning
Deceptive Selling Techniques
• False and misleading statements about
products, services, prices, or
guarantees
• Advertising sale items that are not
available
• Falsely stating that products are being
sold at reduced prices
Bait and Switch
• Using bait and
switch, a pricier
product is shown
to the customer
instead of the
affordable one
advertised
Pyramid Schemes
• Pyramid schemes promise participants
huge profits in a short time
• Each participant must buy into the
plan and recruit others to do so
• The many at the bottom of the
pyramid pay money to the few at the
top
• Eventually the pyramid collapses
Chain Letters
• Chain letters or e-mails often involve a
get-rich-quick scheme or an emotional
plea
• Some threaten serious consequences for
breaking the chain
• They are a waste of time
• Those that promise money, valuable
items, and big returns are illegal
Sweepstakes, Lotteries, and
Games of Skill
• Are forms of
advertising that
offer consumers
opportunities to
win prizes
continued
Sweepstakes, Lotteries, and
Games of Skill
• Sweepstakes require no purchase or
entry fees
• Lotteries award prizes in exchange for
payment
• Skill contests may require a fee or
purchase to enter; the winning skill is
usually determined by judges
Protection Against Financial
Fraud
• Financial fraud is on the rise
• Includes
– crimes related to credit card accounts,
electronic fund transfers, and identity
theft
– unauthorized use of bank, credit, Social
Security, and investment accounts
continued
Protection Against Financial
Fraud
• Incidents of
identity theft are
rapidly
increasing
• Identity theft is
often committed
online
continued
Protection Against Financial
Fraud
• Online identity thieves use many
techniques including pop-up messages
and spam e-mails
• Phishing e-mails may look official and
ask the receiver to send personal
information that is then used to
commit identity theft
continued
Protection Against Financial
Fraud
• To minimize damage,
– file a police report
– immediately report missing checks, credit
and debit cards
– contact the Social Security administration’s
fraud line
– notify the three national credit reporting
agencies
Consumer Self-Defense
• Consumers need to
heed the principle of
caveat emptor
• Be cautious and
follow up when
products and services
don’t meet your
expectations or a
seller’s claims
Successful Complaining
• The art of complaining is an essential
self-defense tool
• Complain to the right person in the right
way
• Simple exchanges and returns of
unsatisfactory merchandise can often be
handled by taking purchases back to
sellers
continued
Successful Complaining
• For more complicated matters,
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put your complaint in writing
be prompt
address the right source
be specific and factual
suggest a solution
be reasonable, businesslike, and persistent
continued
Successful Complaining
Consumer Advocates
• If you can’t settle differences directly
with sellers, an outside party can help
• One such party is a consumer advocate
• A government regulatory agency can
help when dealing with dishonest and
fraudulent business practices
Difficult Cases
• A last resort is
legal action:
– Binding arbitration
– Small claims court
– Class action
lawsuits
– Individual
lawsuits
The Informed Consumer
• Consumers need to know the available
data sources that can help them make
wise economic decisions
• Community resources include local
newspapers
• The Internet provides much valuable
information; check reliability of sources
Dealing with Distance Sellers
• Understand the details of the sale:
what you are buying? from whom are
you buying?
• Maintain your security when shopping
online
• Check the privacy policy
• Keep a complete record of each
transaction
continued
Dealing with Distance Sellers
• Pay by credit
card
• Know your rights
• Take your time
• Don’t fall for the
unbelievable
Evaluating Consumer
Information
• Create a file to help you make
intelligent consumer decisions
• Evaluate filed materials periodically
– Use reliable and informed sources
– Determine their primary purpose; ads
give only positive facts
– Review the data’s usefulness and discard
outdated material
Consumer Rights and
Responsibilities
• Eight consumer rights have been
endorsed by the United Nations and
Consumers International, a worldwide
consumer organization
• Each right carries responsibilities for
consumers
Safety: Rights and
Responsibilities
• Consumers are
entitled to
protection from
dangerous goods
and services
• Government’s
role is crucial
continued
Safety: Rights and
Responsibilities
• Consumers are responsible for
– reading and following product directions
– safe use, storage, and disposal of
potentially dangerous products
– reporting product-related health and
safety problems to seller, manufacturer,
and sometimes the proper government
agency
Truthful Information: Rights
and Responsibilities
• Consumers are entitled to accurate
information on which to base choices
and decisions
• Government also plays an important
role
continued
Truthful Information: Rights
and Responsibilities
• Consumers are responsible for
– investigating a seller’s policies
– checking a store’s reputation
– evaluating advertising claims and product
performance
– comparing quality and prices
Choice: Rights and
Responsibilities
• Consumers are entitled to choose which
goods and services to buy and where to
shop
continued
Choice: Rights and
Responsibilities
• Consumers are responsible for
– carefully choosing products and services
that best meet their needs at prices they
can afford
– dealing only with reliable, reputable
businesses
A Voice: Rights and
Responsibilities
• Consumers are entitled to speak up, be
heard, and expect results when they
have legitimate problems or concerns
• Business and government are required
to respond
continued
A Voice: Rights and
Responsibilities
• Consumers are responsible for
– speaking out and expressing concerns to
appropriate business and government
representatives
– learning and using appropriate and
effective means of communication
– letting businesses know what they like
and want, as well as what they dislike
Satisfaction of Basic Needs:
Rights and Responsibilities
• Consumers are entitled to satisfying
their basic needs
continued
Satisfaction of Basic Needs:
Rights and Responsibilities
• Consumers are responsible for
– putting essential needs ahead of other
items when spending
– learning about and taking advantage of
basic services
– getting the training and education that
enables them to earn a living wage
Redress: Rights and
Responsibilities
• Consumers are entitled to receive fair
settlement of disputes, including
compensation for
– misrepresentation
– shoddy goods
– unsatisfactory services
continued
Redress: Rights and
Responsibilities
• Consumers are responsible for
– presenting their disputes clearly to the
appropriate authorities
– making their demands reasonable
Consumer Education: Rights
and Responsibilities
• Consumers are
entitled to
consumer
education so they
can make
informed,
confident choices
continued
Consumer Education: Rights
and Responsibilities
• Consumers are responsible for seeking
the knowledge and skills to make
informed choices by
– taking a consumer education or personal
finance course
– becoming aware of basic consumer rights
and responsibilities
Healthful Environment: Rights
and Responsibilities
• Consumers are entitled to live and
work in an environment that is
nonthreatening to the well-being of
present and future generations
continued
Healthful Environment: Rights
and Responsibilities
• Consumers are responsible for
– learning about environmental issues
– conserving and preserving resources
– minimizing any negative impact they
have on the environment
In Your Opinion
• Do most consumers
understand their
rights and
responsibilities? On
what experiences
do you base your
opinion?
Central Ideas of the Chapter
• Consumers need a set of basic skills to
navigate the marketplace.
• Businesses use a variety of methods to
sell products to consumers.
• Consumers need to know what options
they have for protecting themselves
against fraudulent practices.
continued
Central Ideas of the Chapter
• Consumers are guaranteed certain
rights in the marketplace, but they also
have responsibilities to know and
exercise these rights.
Glossary of Key Terms
Back
• bait and switch. A fraudulent sales
technique that involves advertising an
attractive offer to bring the customer into the
store. The item is either sold out or is
undesirable. The seller then presents a more
expensive substitute.
• binding arbitration. A method of settling
disputes outside of court in which the
parties involved agree to accept the decision
of a third party.
Glossary of Key Terms
Back
• buying incentives. Trading stamps,
coupons, store games, and prizes offered by
sellers to help sell goods and services.
• caveat emptor. A principle meaning the risk
in the transaction is on the buyer’s side;
literally, let the buyer beware.
• chain letters. Letters or e-mails that
generally promise big returns for sending
something, such as a postcard or a dollar, to
the first person on the list.
Glossary of Key Terms
Back
• class action lawsuits. Legal actions in courts
of law brought by a group of individuals
who have been similarly wronged.
• consumer advocates. Individuals or groups
who promote consumer interests in areas
such as health and safety, education, redress,
truthful advertising, fairness in the
marketplace, and environmental protection.
Glossary of Key Terms
Back
• direct mail advertising. Advertising
circulars, catalogs, coupons, and other
unsolicited offers that arrive through mail or
another delivery service.
• identity theft. The crime of stealing
someone’s credit cards, bank and investment
account numbers, or social security number
and using the information to commit theft or
fraud.
Glossary of Key Terms
Back
• infomercial. A program-length form of paid
television programming designed to sell a
service, product, or idea.
• lawsuit. Civil action brought by a person
who claims to be damaged, or negatively
impacted, by another person.
• loss leader. An item that is priced at below
cost to attract buyers who will then purchase
other merchandise.
Glossary of Key Terms
Back
• lottery. A form of advertising in which prizes
are awarded to participants by chance in
exchange for some form of payment.
• phishing. A crime committed online with
messages that seek personal information.
• product placement. A type of advertising in
which a brand name product or its
trademark is shown in movies and television
programs.
Glossary of Key Terms
Back
• pyramid schemes. Scams calling for each
participant to buy into the plan for a given
amount of money and to sign up a certain
number of additional participants to do the
same. The only way you can move up the
pyramid and collect the promised profits is
to recruit new participants who in return
will recruit other participants. The many
participants at the bottom of the pyramid
end up paying money to the few at the top.
Glossary of Key Terms
Back
• rebate. A deduction in price that is returned
after a product has been purchased.
• skill contest. An opportunity to win prizes
in which contestants pay an entry fee or
make a purchase to enter, and the winners
are determined by skill.
• small claims court. A simple, inexpensive
way to settle minor differences involving
small amounts of money without the aid of
lawyers.
Glossary of Key Terms
Back
• spam e-mails. Unrequested e-mails usually
sent by a company to a variety of e-mail
addresses as a form of advertising, but may
also be sent by criminals.
• sweepstakes. A form of advertising in which
the chance to win items of value or prizes is
offered to consumers with no purchase or
entry fee required to participate.