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Cents & sensibility: Avoiding Scams

One of the oldest and most enduring scams, you'd think everyone would be wise to this one by now. But last month alone, authorities in Australia, the US and Finland shut down three separate pyramid schemes which had defrauded hundreds of people.

The basic principle is the same: you recruit, say, 10 people who recruit 10 more, who recruit 10 more and so on. Each new layer of recruits pays the people who recruited them, but for everyone to get paid off, you need an unlimited supply of recruits.

In this example, by the time you get to layer nine, you would need 10 billion people, substantially more than the population of the planet.

Pyramid schemes always collapse and unless you're in at the beginning, you lose all your money. Plus, you run the risk of being prosecuted under the 2007 Consumer Protection Act. And as these schemes rely on recruiting family and friends, when they collapse, the emotional fallout can be devastating.

You get an email apparently from your bank, asking you to confirm, update or validate your personal information. The email looks official, or it directs you to a site that seems perfectly legitimate, right down to the colours and logos of your bank. Only no bank would ever ask you to email your details.

It is a spoof site, and if you hand over your information, they'll steal your identity and clean you out. The National Consumer Agency warns people to be very suspicious of any email with urgent requests for personal financial information.

It's not hard to tell a fake lottery from a genuine one. They'll usually say in large print that you've already won. But even though you're 'a winner', you still have to make a payment or phone call to claim a 'prize'.

If it's a call, it's usually to a premium-rate number, where it will cost you way beyond the value of the 'prize'. Look for the company's contact details and you'll only find a PO Box number. And ask yourself: if you have won, why are they asking for money?

Like any other scam, the deal here is simple. If it looks too good to be true, it probably is. Of the different types of home-work scams, the envelope-stuffing scheme is one of the most prevalent. You answer an ad offering work packing envelopes. Before you can get started, they ask you to send money for raw materials. Instead, you get instructions on how to put in a similar ad to the one you answered. So, basically, it's a pyramid scheme, and, as such, it's illegal.

Another scheme promises payment for putting products together. You get the raw materials, do as instructed, send the completed product back, but you don't get paid because the work is 'defective' or there's no market for the product anymore. But the company gets their goods made free.

Another scheme overpays you in advance with a fake cheque. You're then asked to repay the difference. Victims send on the cash before they realise that the first cheque was bogus.

So-called because these letters and emails first came from Nigeria. However, these days, they could come from anywhere. The person will usually have a sob story, and will need access to your bank account, so that they can transfer a huge sum of money out of a war-torn country. In exchange for the use of your bank account, he'll give you a percentage of the funds available.

Once you agree, it will turn out that you have to pay some kind of advance fee to get the money out, or the fraudster will use the information you've given to empty your account.

The European Consumer Centre says that holiday clubs promise luxury getaways at knock-down prices, but when you try to use your membership, it turns out that the hidden extras make it far more expensive than had been promised.

These holiday clubs are aggressively sold at European tourist destinations, like Spain and Portugal.