Friday, August 22, 2008

#4. Product scams

Many scams involve the sale of products or services to the unsuspecting victims. These products can be: healthcare or medicine; medical alert devices; home security systems; land; objects related to some special event, disaster, or major crisis; collectibles; auto repairs or parts; and much more. All of these scams attempt to take advantage of the victim’s fears or hopes. Besides scams involving many products, this section will also briefly address collectibles scams.

While Emily was watching television, she became very interested in a 30-minute “infomercial” extolling the virtues of a new product that promised a “cure” for arthritis. The man in the in the infomercial, who was identified as a doctor, called the medication a “stupendous breakthrough” in medical science. Emily had suffered with arthritis for many years and had found little relief from the doctors or the medication they prescribed. Her call for information resulted in a visit from a high-pressure salesman. After almost two hours, Emily was convinced that she had found a cure for her arthritis. She gladly paid the salesman $250 for her initial supply of the medication. As a bonus, the salesman told her that the purchase price was completely reimbursed by Medicare. The next day, when her sister came to visit, they examined the bottles and discovered that the medication was nothing more than some commonly available herbs. Emily was the victim of a healthcare products scam.

Elements of products scams:

  • Exaggerated claims about the effectiveness of the product.
  • Advertisements depict extremely emotional situations and often prey on fears of older people.
  • Unsolicited calls by a salesperson after the person contacts the business for information.
  • High-pressure sales tactics often use intimidation.
  • Advertisements often insinuate that the product is “so effective” that the traditional medical establishment (or other professional organization) is concerned that it will lose business.
  • Untrue claims that healthcare products are reimbursed by Medicare.

Since there are so many different products and ways of selling them, it is important to take some time before making purchases or signing contracts to investigate the claims. For example, real “medical breakthroughs” are announced in professional medical journals not by salespeople on TV. With some products, you may just find out that you bought something that ends up useless or does not work as advertised. However, with health care products, it is important that you find out if the product will have any negative side effects or interactions with your current prescriptions. Contact your doctor or health care provider before taking medications or other treatments. Many diseases and conditions, such as cancer, AIDS, and arthritis, have national organizations that can provide you with reliable information on the latest developments in that field. They may also be able to provide you specific information concerning the proposed treatment or cure. It is always important before spending money on expensive products to verify claims that the medication or treatment cost will be reimbursed by Medicare or your own health insurance.

Protect yourself by:

  • Reading and understanding all contracts completely before you sign.
  • Consulting with qualified professionals before entering into installment contracts and obtaining more than one bid on a possible contract.
  • Verifying all claims for “medical breakthrough” cures with competent medical professionals including doctors, pharmacists, and others with the background to know about the claims.
  • Talking to others who have the same service or product to find out how they like it and whether it serves their needs.
  • Reporting fraudulent activity to the appropriate consumer protection agency in your state.
  • Never inviting a salesman into your home when you are alone and not taking advice from a person you have never seen before and will likely never see again.
  • Never signing a contract or agreeing to a purchase before reading and reviewing the provisions out of the presence of the salesman.

Another type of “product scam” is the collectibles scam. This scam is often portrayed as an “investment opportunity,” though the scam artists are attempting to get you to purchase worthless items.

Mary opened her mail to find a colorful brochure advertising “original artwork.” The brochure discussed the investment possibilities of owning original artwork and stated that “all of the paintings in our collection are originals signed by the artist.” The brochure went on to explain that original artwork appreciates tremendously after the death of the artist and that many of the artists in this collection were reaching the ends of their careers. Buyers were assured that each picture came with a “certificate of authenticity.” Mary was very interested and called the number for further information. She found out that the paintings cost many hundreds of dollars but that she could expect them to increase dramatically in value over the next few years. Mary purchased two of the paintings as an investment. She didn’t realize that she been scammed until a few years later when she took pictures to be appraised for insurance purposes. Mary then found out that they were worthless copies.

Elements of the collectibles scam

  • Collectibles of any description offered primarily as an “investment” and not as merely a collectible.
  • The victim has given little or no opportunity to examine the collectible before purchase and discouraged from obtaining an independent appraisal.
  • The collectible often comes with a “certificate of authenticity.”
  • The collectibles are sold outside the normal retail channel for such items.

Collectibles are a fertile area for scam artists. Some scam artists will deal in counterfeit collectibles. Others will try to sell a less valuable item as if it were more desirable. They accomplish their task by altering the item to make it appear more valuable. This is particularly a problem with certain types of collectibles, such as postage stamps, coins, and gemstones. Before purchasing expensive original art or collectibles it is very important to obtain an independent appraisal. A legitimate dealer will never hesitate to allow an independent appraisal. Experience has shown that only the most knowledgeable collectors make money by investing in collectibles. The value of collectibles, of no matter what type, is always dependent upon the same things: condition and desirability. Likewise, collectibles go in and out of fashion. Today’s hot item may be worthless tomorrow; unfortunately the opposite is sometimes true. This is one area where there is no substitute for extensive personal experience or the advice of a trusted expert.

The easiest advice to give about collectibles is to buy only those things which you yourself enjoy owning. Without the extensive background knowledge of the particular collectible you purchase, you are seldom likely to purchase a good investment. One simple rule governs all collectibles: they are sold at retail and purchased at wholesale. Often, the markup in collectibles is far in excess of 100 percent. This means that if you purchased a collectible for $100 from a dealer, the same dealer would only pay you $50 or less for the item. Although, high-quality collectibles may appreciate over time, unless you wait 20 or 30 years you’re unlikely to make up the difference between retail and wholesale by appreciation alone.

Protect yourself by:

  • Purchasing only collectibles that you personally enjoy and want to keep.
  • Becoming knowledgeable about your collectible interest area.
  • Purchasing collectibles only from reliable dealers.
  • Obtaining an appraisal from a independent, professional appraiser before purchasing an expensive collectible.
  • Understanding the economics of collectibles – they are sold at retail but purchased by dealers at wholesale.
  • Realizing that condition and desirability are of the utmost importance in determining the value of a collectible.

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