Beware the Deposit

I understand that many legitimate companies need a deposit before providing a completed product or service. There are several valid reasons. The company needs a deposit for cash flow. The deposit allows them to cover some costs to begin making the product or providing the service. A deposit also implies a commitment from the client. If a customer pays a deposit, they’re more likely to pay in full. A friend of mine describes it as having “skin in the game”…the customer has something to lose (the deposit).
Unfortunately, asking for deposits is a common method of fraud. One example is using credit cards. “Beginning in 1999…members of a ring called between 900,000 and 1.8 million people and netted more than $10 million from 37,000 victims using several credit card scams…A Bank in Metropolis, IL that was processing some of the charges lost $1.9 million”. These allegations were listed in federal court documents.
What happened? “Telemarketers called people with poor credit and pretended they were responding to credit card requests from the victims. In exchange for a fee of $149 to $249, consumers were promised a credit card with a limit of $2,500 to $3,000….If customers were reluctant telemarketers would sometimes threaten that refusal would further harm their credit and result in it being ‘red-flagged’, documents show.”
This scam is along the lines of the email lottery scam. A person gets an email explaining they’ve won a lottery, and all they need to do is send money so that the winnings can be wired/ sent by courier, etc. The “winner” sends funds- then never hears from the emailer. Both of these scams focus on something the consumer wants or needs, then gets them to pay a deposit for it.
The Lesson: Do your homework when a vendor asks for a deposit. Verify that the company is legitimate. You can ask for references, or check with Better Business Bureau.
Your Homework: Have you been taken advantage of in some sort of deposit scam? What steps could you take from preventing it from happening in the future?
(Source: “Woman pleads guilty in telemarketing scam”, St. Louis Post Dispatch, 7/28/07)