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Fraud cases on the rise – Financial Ombudsman service warns

Financial Services Complaints Limited (FSCL), a free financial Ombudsman service, is warning consumers to be vigilant when it comes to fraud, following a noticeable increase in complaints around financial scams over the past year.

“From fraudulent transactions on travel cards , to merchants losing money when a consumer asked for a chargeback after receiving goods , we have seen a wide range of sophisticated incidents of fraud this year,” explains FSCL Financial Ombudsman and CEO, Susan Taylor.

“Perhaps the most notable financial product we are seeing more fraudulent activity is with online investment companies, often involving bitcoin scams.

Investment scam

One case, highlighted in FSCL’s annual report this year saw a woman lose $50,000 after scammers replicated the website of a reputable investment company.

Unfortunately, once Maria realised that she had been scammed, it was impossible for the money transfer company to reverse the transaction, as the scammers had closed their bank account.

“As with most of these scams, Maria had been lulled into a false sense of security, as she initially saw a return on her original investment. Consumers should be alert to the possibility of scams when deciding to invest online. It is a fairly common scam method to tempt someone to invest more money after initially providing a good return. When the consumer invests more money, the fraudster then disappears taking the money with them,” explains Ms Taylor.

Credit card/bitcoin scam

In another case, Ferdinand complained to FSCL when he used his credit card to purchase bitcoin for some online investment opportunities. Sadly, he was scammed and lost the bitcoin- a total financial loss of $13,300.

He complained to FSCL, as he felt his card provider had a duty to refund him when things went wrong.

Like many consumers, Ferdinand wanted to make some extra income. He found traders online who said they would professionally manage investments in cryptocurrency and other markets for him. The traders guaranteed high profits, so Ferdinand agreed to invest with two of them.

Both traders told Ferdinand he needed to fund his investments with bitcoin. The first trader told Ferdinand to purchase bitcoin and transfer it to their company’s cryptocurrency wallet. The second trader told Ferdinand they needed to synchronise his accounts, so asked for his wallet login details.

Within a week, Ferdinand could see what appeared to be significant returns in his account with the first trader. He then agreed to invest more money. In total, Ferdinand used his credit card to buy bitcoin on three occasions.

A few days later, Ferdinand told the first trader he needed to withdraw part of his investment. The trader said Ferdinand must pay cryptocurrency taxes totalling nearly $3,000 for any withdrawal. Ferdinand said he couldn’t pay, and that he thought the trader was scamming him. He didn’t hear from the trader again.

After the problems withdrawing money from the first trader, Ferdinand requested a refund of his deposit from the second trader. Despite Ferdinand sending several messages, the second trader didn’t respond.

Ferdinand complained to his card provider. He asked them to reimburse him for the bitcoin purchases on the grounds of misrepresentation by the traders, and because he hadn’t received the goods he paid for. He also suggested the card provider should have done more to protect him from fraud, particularly because of the amount and frequency of the transactions.

There was no doubt Ferdinand had been scammed by the two traders – but this didn’t automatically mean his card provider had to refund him.

FSCL found Ferdinand had authorised the transactions he was complaining about, so any protections for unauthorised card transactions didn’t apply.

“We then considered whether there were grounds for a chargeback. This a process where a credit card transaction can be refunded because of a problem with the goods or services purchased,” says Ms Taylor, adding that there are limited grounds and time for a chargeback.

FSCL found there weren’t valid grounds for a chargeback because Ferdinand received the bitcoin he requested and paid for. Ferdinand’s real issue was about what happened to the bitcoin after he transferred it and disclosed his login details. That wasn’t a ground for a chargeback.

“The final issue we considered was Ferdinand’s suggestion his card provider should have done more to protect him. Although the transactions were for relatively significant amounts, we didn’t think three transactions over eleven days was enough to put the card provider on notice of the fraud, particularly because Ferdinand had purchased bitcoin from legitimate merchants’’ says Ms Taylor.

“The circumstances in which consumers can recover funds spent on a credit card are limited. Consumers shouldn’t rely on being able to get a refund in place of carefully considering the trustworthiness of who they deal with online.”