Tuesday, April 10, 2007

How To Protect Yourself from Fraud: Avoid Preferred Providers

I previously warned about avoiding "preferred provider" lists for home-buying services (the ones that a realtor or mortgage broker might push on you): The recent student loan financial scandal reminds us that the warning applies in all your financial plans. In the student loan scandal, schools or their agents took kickbacks to push high interest rates or other bad terms on students. Today's NPR reported that 90% of students accept school's "preferred lenders" recommendations instead on shopping for themselves.

I will repeat the rule:

A "preferred provider" is preferred by the person making the recommendation--i.e. it benefits him or her but not necessarily you.

Important: This is not just about criminal fraud.

The fundamental lesson goes beyong legalities so do not trust the government to protect you either. Anyone who thinks that stopping the specific fraud in student loans will end the danger is missing the whole point:

The recommender's self-interest might be an illegal kickback but it also could be a perfectly legal and unregulated benefit such as easier paperwork for the recommender even if it costs you more.

This rule applies to everything including medical treatments and prescriptions.

The bottom line: Do your own homework.

Do not expect anyone to care more about you than you do.

No comments: