The Three Levels of Scam — and How to Avoid Them

How quickly we are to invoke the “S” word when things don’t go our way.

“S” — as in “scam.”

More than one million Americans – 1.3 million to be exact – filed complaints with the Federal Trade Commission about scams last year. But problems sent to a government agency typically represent a small fraction of actual complaints—maybe one or two percent. That means at least 1 in 30 Americans are victims of a scheme, swindle, or shady deal every year.

Customers often use the “S” word as if it has magic powers to make a business see things their way, or cough up a refund, or give them a free product(sometimes it works).

But let’s be real. Not everything we say is a “scam” is an actual scam. How do you know if you’ve really been had?

I define a scam as a company that fraudulently misrepresents a product or tries to deprive you of your money by deceit. A scam is often accompanied by terms so restrictive that you don’t have any recourse when you want to return the defective product.

But there are lesser degrees of scam. For example:

The Rip-Off:

Rip-offs are what I would call “scam lite” – which is to say, you’re getting something, but not everything you expected. Often, there’s some deception involved. The business may also be legitimate.

For example, a shady used-car dealership may rip you off by selling cars with their odometers rolled back. It may sell some vehicles that are on the up-and-up, though. Likewise, a factory-authorized dealership might try to sell you an extended warranty for three times its actual worth. But it may also offer models that are a bona fide value.

Bad Deal:

Every business has these: The deals that don’t live up to the hype. Every company marks its items up, and sometimes they overprice them or sell items that are of inferior quality.

These are simply bad deals that can be avoided by shopping around. They are not fraudulent or even questionable. In fact, from a company’s point of view, they’re a good thing because their profit margins are significantly higher.

The “Sustainable” Product:

This is what every product would be, in an ideal world. Both the customer and the company “win” in this scenario. The customer gets a good product at a fair price; the company covers its costs, makes payroll and earns a respectable (but not outrageous) profit.

By the way, this isn’t necessarily what companies mean when they say “sustainable.” For them, it may have something to do with how green their products are, or how “sustainable” the product is to their own bottom line – in other words, how profitable it makes them.

Unfortunately, consumers often have a similar view, which is to say they believe there must always be a single “winner” in a transaction. And they win when a business puts distressed inventory on sale or must liquidate its entire inventory.

But think about it: If we went for the kill every time – indeed, if businesses went for the kill – where would that lead? Down that road lies a dysfunctional and probably unsustainable relationship.

I’ve given this tug-of-war between companies and their customers a lot of though lately. In my upcoming book, Scammed: How to Save Money and Find Better Service in a World of Schemes, Swindles and Shady Deals, I discover that the customer service is at an all-time low in some industries because of this mutual distrust. We may not be getting scammed all the time, but it sure feels like it.

So how do you overcome it?

Well, without giving away the whole book, let me offer one observation I made in my conclusion. You – the consumer – hold all the power, including the power to change this damaged relationship. By patronizing businesses that don’t try to rip you off (or even scam you) you can ensure the good companies do well – and the bad ones don’t.

Christopher Elliott is a consumer advocate who blogs about getting better customer service at On Your Side. Connect with him on Twitter and Facebook, or send him your questions at On Your Side or by email.