CONSUMER FRAUD

CONSUMER FRAUD

Deceptive practices that result in financial or other losses for consumers in the course of seemingly legitimate business transactions.

Many think that consumer fraud only affects unwitting people who are all too willing to be duped. In truth, even the most savvy customer can fall victim to FRAUD. It may be as simple and
seemingly innocuous as getting stuck paying a higher rate for a magazine subscription, or it may be as devastating as having one’s identity stolen.

According to the FEDERAL TRADE COMMISSION (FTC), consumers reported $343 million in losses from fraud in 2002. In addition to those
who are unwittingly defrauded, there are a number of consumers who share at least a degree of
culpability in their losses. People who try to save
money on their income taxes by purchasing a
new SOCIAL SECURITY number or wage statement may become victims of fraud, but chances are that they understood that their actions were
illegal, which makes them guilty of fraud as well.
Consumer fraud can take place in person, by
telephone or mail, or over the INTERNET.As
technology continues to improve, INTERNET
FRAUD has risen faster than other types.With or
without technology, however, consumers can
protect themselves against fraud by following a
few simple, common-sense measures such as not
revealing personal information to strangers.
Following are some of the most common
types of consumer fraud.

Identity Theft
IDENTITY THEFT accounts for more than 40
percent of all fraud complaints reported to the
FTC. All identity theft is serious, but even in its
mildest form it can involve the theft of a con-
sumer’s long-distance access code. The thief sells
the code to individuals who use the code to charge
long-distance calls all over the world. In its most
serious form, a thief gains access to the victim’s
Social Security number. With this number, and
some other basic information, a thief can create a
double of the victim. The victim’s information
can be used to make purchases, to rent an apart-
ment, or to take out bank loans. Often, victims of
identity theft first find out their misfortune when
they receive credit card bills totaling thousands of
dollars, even though they had neither opened the
accounts nor made the purchases.

Identity thieves can gain access to their vic-
tim’s information by copying it off of forms (for
example, if they work in an office where such
information is kept), by stealing a wallet or per-
sonal papers, or by otherwise exploiting a care-
less individual. (Fraud experts warn people
never to give their Social Security or bank
account numbers to someone who has phoned
them, even from a seemingly legitimate busi-
ness.) Often identity thieves work in large rings
that span several states, which makes it difficult
to track them down. Thus, even when a theft
ring is cracked, others quickly crop up to take its
place.

Telephone and Mail Solicitations
To most people, junk mail and telemarketer
calls are merely a NUISANCE, but unscrupulous
companies can use both the mail and the tele-
phone to part innocent (and not merely
gullible) people from their money. Applications
for credit cards or personal loans promise easy
credit, but the fine print promises exorbitant
interest rates. Sweepstakes promising millions in
winnings await the lucky recipient, who often
feels compelled to send an order for several
magazines along with the prize receipt. Charities
use telemarketing and mass mailings to ask for donations; while some of those charities are
established and legitimate, others are dubious.
Many phony charities assume names that sound
like better-known organizations in the hope of
fooling consumers.
Every day, people are contacted by telephone
and mail with phony offers. Despite warnings
from consumer-advocacy groups, people continue
to provide credit card numbers, bank
information, and even Social Security numbers
to those whom they do not know. The elderly
are a common target, in part because once they
find that they have been defrauded they refuse to
report the crime because they are embarrassed.
Groups such as the Federal Trade Commission,
the National Consumers League (NCL), and
Consumers Union provide information to the
general public in an effort to curtail fraud.
In 2002, several states initiated “do-not-call”
programs that allow people to store their telephone
numbers in a centralized database that
telemarketers are prohibited from calling.A telemarketer
who calls a prohibited number faces
stiff fines.
Internet Fraud
The growth of the Internet as a communication
tool has also meant its growth as an instrument
of fraud. Internet fraud has grown so
rapidly in recent years that FEDERAL BUREAU OF
INVESTIGATION (FBI) and the National White
Collar Crime Center launched the Internet
Fraud Complaint Center, which compiles data
and offers tips on ways to avoid being
defrauded. In 2001, Internet fraud accounted for
$17.8 million in losses, with a median loss of
$435 per victim.
The most common type of fraud, accounting
for nearly two thirds of all reported fraud, is
Internet-auction fraud. Although there are a
number of legitimate online auction houses,
there are many that are simply scams. Consumers
who purchase items on these sites find
that the goods they bid for never existed, or that
the goods are stolen, or that the seller has added
numerous hidden charges. The seller might even
act as a shill by placing false bids. (Some consumers
jump on the fraud bandwagon, as well,
by using aliases to place multiple phony high
bids in order to deter low or moderate bidders.)
The Internet is also home to credit card
scams, investment scams, and home-improvement
scams. These may appear on web sites or
they may be sent in the form of unsolicited commercial
e-mail (UCE), better known as “spam.”
One common spam message is the “Nigerian
Letter,” in which a person who claims to be a former
high official, usually from the Nigerian government,
seeks help in converting millions of
dollars in funds. The consumer is asked to provide
bank account information so that the funds
can be transferred to that account.
Income Tax Fraud
The INTERNAL REVENUE SERVICE warns taxpayers
to be on guard against tax scams that can
result in loss of funds and, in some cases, legal
difficulties. Some con artists make money at
their victims’ expense by claiming that they can
help to secure tax refunds for their clients.
Invariably, the clients must pay a fee up-front.
One example of this is a company that claims it
can help taxpayers find legal loopholes that will
allow them to stop paying taxes. Another is a
company that offers to help people submit
claims for nonexistent credits. (Some African-
Americans have been targeted by a “reparations”
scam in which they are told they can apply for a
slavery-reparations credit simply by paying a
fee. No such credit exists.)
If the taxpayer knowingly engages in a
scheme that is illegal (for example, signing up
for a new Social Security number), he or she
may face fines or imprisonment.
Combating Fraud
Education is key to combating consumer
fraud. The FTC, FBI, NCL, Consumers Union,
and Direct Marketing Association all work to
educate the public and to identify fraudulent
businesses. The Better Business Bureau is also a
useful tool for consumers who wish to find out
information about specific companies.
FURTHER READINGS
Bertrand, Marsha, 2000. Fraud! How to Protect Yourself from
Schemes, Scams, and Swindles. New York: AMACOM.
U.S. Federal Trade Commission, 1997. Fighting Consumer
Fraud: The Challenge and the Campaign. Washington,
DC: U.S. Federal Trade Commission.
CROSS-REFERENCES
False Advertising; Federal Trade Commission; Internet.