Last year alone, telephone scammers stole RUR 150 bln from Russian citizens. The number of cybercrimes is on the rise: cybercriminals crack passwords, steal bank details and money from bank accounts, and create phishing websites. Even the legal organizations — banks, insurance companies and brokerage firms — often employ various tricks to make clients dip into their pockets. It is common knowledge that the rich pay for financial literacy, while the poor pay for financial illiteracy. Igor Kostikov, Doctor of Economics, famous financial expert and Chairman of the Council of the Union for the Protection of Rights of Financial Service Consumers, told Invest Foresight how to protect yourself from financial fraudsters and the unfair practices of brokers, realtors, insurers and banks.
— Mr. Kostikov, what are the most common complaints people submit to the union?
— Most of them are related to loans and loan calculations. People often call and ask to explain the details of a loan agreement which they signed without reading. One of the most common situations is when people call the union and say that they wanted to extend a loan but instead were given an agreement on opening a personal investment account. And, of course, every day we receive complaints about fraud from pyramid scheme leaders.
— So apparently, pyramid schemes did not die out in the 1990s, but have transformed?
— Of course. There are many financial pyramids nowadays. Even though it’s a tale as old as time, it is still popular and attractive, and has even got up steam in the recent years. The problem is aggravated by the scammers’ new ways of interaction with potential victims; they invent new opportunities to camouflage the scheme so that nobody would see what’s behind it.
Pyramid schemes have been transformed. Scammers were among the first to begin digitalizing their business; they moved to online platforms and expanded their companies enormously. In the 1990s, newspapers and television were the only advertising media, and now it only takes one click to distribute the information about the company to an infinite number of users. Everything is picking up speed and it is difficult to identify a pyramid scheme, so one should be extremely cautious when receiving any financial offers.
— How do fraudsters typically operate today? What are the most common types of fraud?
— In most cases, scammers make telephone calls. Widely used are the schemes when scammers identify themselves as bank employees and try to steal your bank card verification code. Another type of fraud is calling someone to say their friend or a family member got into a car accident, and ask to send money for an emergency surgery. There are numerous types of scams, with fraudsters becoming more sophisticated each year to trick people out of their cash.
A separate category is securities market fraud. Usually such schemes are utilized by brokers who target investors. However, as such actions fall under the Law on Securities Market, solving these issues is not within our jurisdiction; protection of rights in this sphere is highly difficult.
— Consumers can suffer damages not only due to fraudulent actions, but also due to their own financial illiteracy as well as ploys from financial organizations. Which unfair practices do we risk facing in banks and insurance companies or from brokers?
— Sadly, certain financial organizations actually take advantage of their authority and deceive their clients by providing service which is totally different from what a person expected initially. For instance, banks used to impose services in documents, with boxes for an additional service already checked without a client’s consent — which deprived him or her of the opportunity to decline the option to pay for extra insurance coverage. A recently adopted law prohibits companies from doing so, which will protect the rights of users of financial services.
When approaching an insurance company, we are also at risk of becoming victims of fraudsters. It is not unusual for a company to refuse making payments through using loopholes in the law, or choose to pay a very small amount. Another practice is delaying payouts endlessly, expecting that a client will soon get tired of sending the allegedly lacking information about specifics of an accident, as is the case with CASCO insurance. Actually, such schemes are too numerous to mention.
As regards brokers, it gets even more complicated. Due to legal shortcomings, their activities do not fall within the scope of the Law on Consumer Rights Protection, and services they offer cannot be disputed. This applies to commission fees, discounts and additional fees during assets acquisition as well as to disclosable information.
— The subsidized mortgage program has encouraged many to purchase housing, while a drop in income has prompted people to address microfinance organizations. What is important to know while applying for a loan? How often do organizations that provide loans make use of people’s naivety and their lack of financial literacy?
— As commonplace as it sounds, the key tip here is to read the contract thoroughly. Despite all consumers being aware of this rule, very few take it seriously — but it is inattention and negligence that can cost recipients additional insurance and consequently increased loan repayments. As regards banks, their activities are more or less streamlined — yet, microfinance organizations still use the opportunity for penalties which significantly raise interest rates.
— You initiated financial literacy competitions among senior school students. And what efforts would help provide basic financial knowledge to senior citizens? Can we say that the elderly are the most vulnerable group when it comes to falling victim to scams?
— I believe that it is highly important to provide basic financial knowledge to the younger generation; in the future, young people will educate their parents and grandparents. The Institute of Stock Market and Management organizes an all-Russian competition in financial literacy, financial market and consumer rights protection, Finathlon for Senior School Students, and a quiz on financial mathematics, financial literacy and digital financial technologies, School Finathlon. The competition involves 8th-11th graders, while the quiz is organized for 6th-9th graders. Such events allow school students to keenly engage in acquiring basic financial knowledge form an early age.
Speaking of pensioners, I would not be so positive. We are often approached by middle-aged and young people rather than the elderly. Probably, this depends on a certain person, their overall outlook and personal responsibility for taking financial decisions, and their aspiration to develop and learn more about the financial sphere. Precautious pensioners, who can simply call their bank and double-check the information, are often harder to deceive than thoughtless and trustful young people. The same applies to reading the loan agreement: elderly people normally take more time to thoroughly look into all items in the document and pay attention to all footnotes and endnotes.
As regards efforts to raise people’s financial awareness, we have a section that icnludes financial education videos on our website for people of all ages who seek to improve their financial literacy. Anyone can learn more about frauds and protection of rights of financial services consumers.
This is important. We take the consequences of our financial illiteracy in term of both money and health. Interacting with fraudsters and the recognition that we have been deceived — as well as our attempts to restore justice — can negatively affect our nervous system.
By Natalia Sysoeva