Fraud vs. Scams: What’s the Difference?

Fraud is any financial activity that happens without your permission or authorization. This includes unauthorized charges on your cards, someone accessing your accounts, or identity theft.

If someone steals your identity, it means they’ve used your personal information to make purchases or open accounts in your name. Act quickly if you suspect you’ve been a victim of fraud. You can report identity theft at IdentityTheft.gov or fraud at ReportFraud.ftc.gov.

Children and seniors are common targets, so make sure to monitor their accounts regularly for unauthorized activity.

Common examples of fraud

Below are some common examples of fraud you could encounter:

• Identity theft: Identity theft happens when someone steals your Social Security number, credit card account number, or other unique personal information and uses it to open a new credit account or buy things. They might take out a loan or credit card in your name or withdraw money directly from your bank account.
• Tax fraud: Someone could also steal your identity and use the information to file a fraudulent tax return and claim your refund.
• Medical fraud: In this case, an identity thief would use your health insurance to receive medical care.
• Check fraud: This happens when someone alters or steals your checks to withdraw money from your bank account.

Scams trick you into willingly authorizing transactions or sharing personal information. The key difference with scams vs. fraud is that you give your permission because you’ve been deceived.

Someone might pretend to be a debt collector, for instance, and trick you into sharing your bank account information. As scammers get more sophisticated, it’s not always easy to tell the difference between them and a legitimate financial institution.

Common examples of scams

Some common types of scams include:

• Phone scams: These scams happen when a person or an automated system calls or texts you to convince you to send money or share personal information. They may pretend to be a debt collector or government employee and threaten legal action against you if you don’t comply.
• Phishing: Phishing is a type of digital attack where cyber criminals try to get you to hand over personal information. They may send fraudulent emails or send you to a fake website to trick you into giving your login information or credit card details.
• Lottery scams: A person calls or emails you claiming that you’ve won a prize – but requires you to make an upfront payment to cover fees and taxes.
• Romance scams: Romance scammers may fake an online relationship with you and then use your trust to convince you to send them money.
• Charity scams: Charity scammers may ask you to donate money to help victims of a tragedy recover or a specific group of people like firefighters. A common warning sign is that the scammer doesn’t provide specific details about the charity.
• Holiday scams: During the holiday season, scammers may try to steal your money by not delivering something you purchased or stealing gift card information. You can minimize your chances of becoming a victim of a holiday scam by reading reviews from review websites like Trustpilot or the Better Business Bureau to ensure an organization is legitimate before you donate.

Understanding the differences between fraud and scams can help you protect your finances. Here’s how they compare side by side:

Understanding who’s responsible for the financial loss is one of the biggest differences between fraud and scams. It all comes down to whether the transaction was authorized.

You often have strong protections in cases of fraud because you did not authorize the activity. Federal laws like Regulation E limit your liability for fraudulent electronic fund transfers, including debit cards and ATM withdrawals.

The Fair Credit Billing Act (FCBA) can protect you from unauthorized charges on your credit card by limiting your liability to $50 (though some card issuers will waive that charge). This means you can usually get your money back if someone withdraws money from your bank account or charges your credit card without your consent.

With scams, it’s a tougher situation. Since a scammer tricks you into authorizing the payment yourself, financial institutions may consider the transaction valid. This makes recovering your money more difficult, and the liability often falls on the individual. However, you can still attempt to recover your funds.

Whether you’re a victim of fraud or a scam, it’s important to report the activity immediately to give your financial institution and authorities a chance to help.

If you’re the victim of fraud or a scam, act fast. The FTC recommends that you do the following right away:

• Report the fraud or scam to the financial institution(s) involved. If a fraudster opened a new account in your name, make sure it’s closed.
• Place a fraud alert. You can do this with any of the three major credit bureaus – Equifax, Experian, and TransUnion. The bureau you contact will coordinate with the other two. The fraud alert will last for one year unless you extend it.
• Place a credit freeze. This will prevent anyone from opening an account in your name and is a key step if you’re the victim of identity theft. Unlike with a fraud alert, you’ll need to contact all three of the credit bureaus to freeze your credit. The freeze will last until you lift it.
• File a report with the FTC. You can do that on the FTC’s website.
• File a report with your local police. While the local police likely can’t do much, having an official police report may help your case when trying to get your money back and remove bad marks from your credit report

The FTC also recommends you follow up with these steps:

• Close new accounts opened in your name and take steps to remove false charges from your accounts.
• Review your credit report. Look for signs of any other suspicious activity you might not yet know about.
• Consider adding an extended fraud alert, which lasts for seven years. You can place an extended fraud alert if you’ve experienced identity theft and have filed a police report or FTC identity theft report.

The key difference between fraud and scams all comes down to authorization. While fraud gives you stronger protections and better recovery chances, both can impact your finances.

The best defense is staying informed about new tactics and acting quickly if something happens. Whether you’re dealing with unauthorized fraud or you’ve been tricked by a scam, report it immediately to give yourself the best chance of recovery.

If you’re a Chime member or thinking about becoming one, find out how to protect your account against fraud and avoid scams that target Chime members.