One hundred years ago next year, the National Consumers League was formed as America's first nonprofit consumer group. At that time, the League was at the forefront of the consumer movement battling overcrowded working conditions, unsanitary food handling procedures, and other market and workplace abuses. NCL is still leading the fight to protect the American consumer. One of the many threats facing consumers today is fraud. Criminals attempt to raid the pockets of consumers over the phone, through the mail, in person or over the Internet.
To fight this growing threat, the National Consumers League founded the National Fraud Information Center in 1992. NFIC was designed to fight telemarketing fraud through prevention and by improving the enforcement capabilities of federal and state agencies. We run a national 800# hotline where consumers can call to ask questions and report cases of fraud. That number is 1-800-876-7060. Consumers from all across the US and Canada now know to call NFIC before sending their money. We handle on average 350 calls a day at the NFIC phone center. Of these, approximately 35% are consumers who have already lost money to scam artists. But we can still help them. Our telephone counselors can assist English and Spanish speaking consumers by taking a full report of what happened, including all the information a law enforcement agency would need. This report is entered into our computer system and shared with the Federal Trade Commission. It is also faxed out on a real time basis to any of more than 160 law enforcement agencies whose interests match the report. NFIC works closely with authorities in both the US and Canada to ensure that all cases of fraud reported to us are referred to the appropriate agents.
In early 1996, the National Consumers League decided to expand its efforts to cover scams in cyberspace. Thus was born the NFIC website and the Internet Fraud Watch project. With the creation of www.fraud.org, consumers from all across the globe can get tips on how to avoid scams or can report fraud through our online forms 24 hours a day, 7 days a week. Fraud.org receives over 70,000 visits and over 1300 e-mails per week from consumers all across the globe. Internet Fraud Watch compliments the efforts of the National Fraud Information Center by performing the same prevention and reporting functions for Internet based fraud that NFIC does for telemarketing. IFW uses the same 800# and website as NFIC, allowing consumers and law enforcement one call or URL for all the information they need on telemarketing and Internet fraud.
And what are the most common frauds online?
Top Ten Subjects of Reports to Internet Fraud Watch for January - June 1998
There were also plenty of bogus investments, empty travel and vacation offers, fake scholarship search services and fraudulent prize offers. The rankings have not changed considerably from 1997 to the first half of 1998. However, there are some key points we should consider when looking at these rankings.
If you drew the top 10 scams of the first half of 1998 as a pie chart, over one half of the pie would be web auctions. In the classic auction scam, the consumer is the high bidder in an online auction, sends his/her money and receives nothing in return. The money is most often sent as cash, check or money order and is sent by regular mail. Just because the money is sent by traditional means does not mean that it isn’t Internet fraud. In fact most of the reports to IFW do not involve what many consider to be E-commerce. But, I’ll discuss that more later.
Also, consumers are not simply being taken by fraudulent companies as they are in the more traditional telemarketing and mail arenas. Most of the reports in the top two ranked scams are of a crime committed by one individual against another. As these two categories show, private sales by one individual to another, either via an auction website or in a newsgroup or online classifieds, are an especially difficult problem for consumers. Combined, these two categories make-up over three-quarters of the top 10 pie. Two years ago they were not even in the rankings. The numbers of complaints in these categories and the proportion against individuals continue to grow.
The very nature of the Internet makes it the perfect medium for criminals bent on perpetrating a scam. While a consumer may get a telemarketing call and feel that the voice on the other end of the line simply sounds too shady, or visit a store and decide that the products being sold really aren't as great as the ad claimed, there's no such protection online. Anyone can put up a great looking website and the average consumer has difficulty determining which sites are legitimate and which are scams. Plus, when you buy something online, you are essentially buying it sight unseen. If something goes wrong and you've purchased from a legitimate company, then you can always return for a replacement or refund. But, as all of the people who reported problems in the top four scams can tell you, it's not always so easy to get satisfaction from a company or individual you've never really seen.
Directly contacting consumers is also cheaper than ever. A company can send out thousands upon thousands of e-mails for no more than the cost of a mass-mailing program and an Internet access account. It's easy to post messages to hundreds of different newsgroups at once. If such e-mails or posts come from legitimate companies, it's simply an annoyance. But crooks offering phony stock tips or bogus money-making opportunities and forging their header information to mask their identity are a danger to consumers. Some scam artists use throw-away accounts (easily created and discarded free accounts) and forged headers to make it appear that testimonial e-mails and posts came from many different people instead of from the crook himself. It's far easier than most people realize for cybercrooks to hide their real identities and locations.
And have you ever tried to get a refund from another continent? On the Internet national boundaries are meaningless. Crooks can be located on the other side of the planet or right down the street. It's all the same online. Consumers must also realize that consumer protection laws in the US or Canada are not the same as in other countries. You may have certain rights here, but it may be impossible to enforce those when the company is half-way around the world.
Top 10 Company Locations for January - June, 1998
Tied for the tenth most common location of companies are a Canadian province and nations other than the US or Canada. The rankings have changed since last year. The top 10 locations reported to the Internet Fraud Watch are no longer entirely within the United States. Online fraud is growing to all corners of the globe, just as is the Internet itself grows.
Crooks aren't the only people on the Internet from around the globe. Victims of Internet fraud can also be found everywhere in the United States and abroad.
Top 10 Consumer Locations
Ages of Victims for January - June, 1998
Not only do consumers come from all walks of life, but they're paying for things in many different ways.
Top Payment Methods for January - June, 1998
Why is this? Businesses across the globe have bombarded consumers with messages both online and off that doing business online is safe. That it is okay to give out a credit card number to a secured website. In fact, IFW has not received a single complaint of someone’s credit card number being stolen while it was being transmitted to a legitimate merchant. We have heard of plenty of consumers who got scammed after giving their account number to a crook, but that’s a different story. But, consumers appear to be inherently conservative. They prefer to pay in ways they already know, such as mailing a check or money order or giving out a credit card number over the phone. If given a choice between online payments and old-fashioned mail, most consumers we hear from are choosing the mail.
Top 5 Couriers Used for January - June 1998
While scams online are both new and old, the Internet itself creates a whole new set of problems and opportunities for law enforcement and for criminals. There are millions of people online, with thousands of new users every day. Each one of these consumers is a potential victim. Once online, consumers are bombarded with unsolicited commercial e-mail (spam) advertising everything from legitimate services to fraudulent investment schemes. Websites abound offering both legitimate and fraudulent products and services. Consumers often find it difficult to determine which site is truly legitimate and which one is trying to steal their hard-earned cash. Internet Fraud Watch and other groups are trying to educate consumers on how to spot a scam, but plenty of people find out too late.
Those victims are not without support. Federal and state law enforcement agencies have been extremely active on the Internet. In Operation Trip-Up alone, the FTC and 12 other law enforcement agencies brought 36 separate actions against travel-related scams. During FTC sponsored surf days, agencies from all across the globe surf the Internet looking for possible fraud. Many US state attorneys general offices have established special task forces to handle Internet fraud in all its manifestations. Even some local police forces in the US have established computer crime squads. Law enforcement agencies are using the power of the Internet to bring criminals to justice.
We know what the state of Internet fraud was; and, we know where it is. Now, where is it going and what can we do to protect consumers in the future? In terms of practical form, the traditional consumer protections should continue to apply. Generally there is no differentiation between traditional commerce and electronic commerce, at least as consumer protection laws are being enforced in the United States. The Federal Trade Commission has interpreted its enabling legislation as allowing it to regulate E-commerce and it has interpreted its rules concerning such things as fair marketing practices and mandatory disclosures as applying to the Internet. However, this creates several new questions. Whose laws are applicable? How are these laws and regulations to be enforced? And what constitutes compliance?
So far, it appears that many US governmental agencies are operating under the assumption that the location of the consumer and not of the company determines the applicable jurisdiction. This method would be the most advantageous to the consumer. While it is reasonable to expect people to know their rights within their own country, it is not reasonable to expect people to know their rights in all countries. From the point of view of companies, if they are uncomfortable doing business with consumers in other jurisdictions, then they can simply limit sales to their own country. Many groups in the US have also stated the opinion that a company’s specifying the applicable jurisdiction should not deprive a consumer of their rights within their own country. However, it is not as simple as that. It may be that the enforcement agencies of the consumer’s country have jurisdiction, but as law enforcement agencies are already experiencing enforcement requires cooperation between the governments of both countries involved. How that enforcement occurs is something that is therefore best left for the respective countries to decide.
Finally, I would like to thank the Global Internet Liberty Campaign for inviting me to participate in this panel and speak with you all today. I would also like to thank all of you for coming to this conference. At the appropriate time I would be happy to answer any questions you may have concerning my presentation. Once again, thank you.
NFIC is a project of the National Consumers League. All rights reserved. © 1998.