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 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 60,000 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 in 1997
There were also plenty of bogus investments, empty travel and vacation offers, fake scholarship search services and illegal advance fee loans.
While many of the scams found online are simply revised versions of tried and true telemarketing or mail frauds, the Internet itself creates a whole new set of problems for law enforcement and opportunities for criminals. There are millions of people online, with thousands of new users ever 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 attempt to educate consumers on how to spot a scam, but plenty of people find out too late.
In a brought last year by the New York Attorney General, Kevin Lipsitz was charged with consumer fraud in connection with a magazine subscription scam. Lipsitz had sent spam to consumers all across the net and posted to newsgroups using aliases. The messages touted the services and low prices of his own company. At first glance, the e-mails and posts looked like they were testimonials from satisfied customers. Consumers didn't realize that they were from Lipsitz himself. Netizens that purchased magazines through Lipsitz because of the spam never got what they paid for. Unfortunately, it was only after they'd lost their money that many of them called the Internet Fraud Watch for advice.
The Federal Trade Commission has also been extremely active on the Internet, bringing cases against criminals for everything from pyramid schemes to fake business opportunities to a pay-per-call generating modem hijacking scheme.
The Internet is the perfect medium for criminals. 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. 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.
The nature of the Internet also makes directly contacting consumers 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 also 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. Kevin Lipsitz used throw-away accounts (easily created and discarded free accounts) and forged headers to make it appear that his e-mails and posts came from many different people. It's far easier than most people realize for cybercrooks to hide their real identities and locations.
Fraudulent companies aren't the only problem. As two of the top ranked scams show, private sales by one individual to another, either via an auction website or newsgroup or online classifieds, are an especially difficult problem for consumers. Everyone is used to the idea that if there is a problem with a purchase, you just take it back to the store for a refund. People don't realize that if they buy from another private individual, they are probably not covered by the consumer protection laws. Consumers can find it difficult if not impossible to get a refund or replacement for damaged or defective goods. Many consumers have sent money to a person and gotten nothing in return. Usually private sellers require cash, check or money order. Once those are sent, the deal is done. Even with a check, a consumer usually won't find out something's wrong until after a check is cashed. Consumers must realize that they are purchasing items sight unseen and without protections when they purchase from a person and not a company.
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 are not the same as in other countries. You may have certain rights here, but it may be impossible to enforce those when the country is half-way around the world.
Top 20 Company Locations
The twelfth most common company location for scams reported to IFW was any country outside of the US or Canada. Canadian locations took two of the top twenty slots.
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 20 Consumer Locations
The states with the largest populations, of course, rank highest. But foreign nationals come in at number eight. And many smaller and/or predominantly rural states are in the top twenty. Netizens can be found in all 50 states and across the globe.
Consumer Ages
We've also found they can be of any age. Recently, we began tracking the age of consumers reporting fraud, for statistical purposes only. Almost 34% of those consumers were in their 40's, almost 24% were in their 30's and about 17% were in their 50's and the same number in their 20's. But IFW has received reports from consumers as young as 17 and as old as 78. 5% of our reports came from consumers in their sixties and 2% from consumers in their seventies.
Not only do consumers come from all walks of life, but they're paying for things in many different ways.
Top Payment Methods
Most alarmingly, checks and money orders were the most common methods of payment. Even worse, cash is the fourth most common payment method. Cash payment allow crooks to maintain their anonymity. And checks or money orders don't offer the same protections that a credit card does. Once a check or money order is cashed, that's it. Relatively few people reported paying by credit card, which is ironic considering that consumers have more protection in the event of fraud, deception or non-delivery of goods with credit cards than with the other payment methods. You can always dispute the charge. For this reason, we encourage consumers to use their credit cards whenever they make a significant payment for goods or services, regardless of the medium used to promote the item.
Many consumers are worried about giving out a credit card number online. Today's secured transmission provide for a safe payment method. A consumer shouldn't worry about the transmission, as long as it's secure. What the consumer should worry about is the merchant. It doesn't matter how secure the transmission is if the consumer just transmitted a credit card number to a crook. A consumer needs to know how to tell a legitimate merchant from a crook.
Creating clear legal ground rules for Internet commerce and the enforcement of those rules are crucial, but public education must be a major component of any effort to curb Internet fraud. Consumers need to know how to check out the offers they see and the companies that make them. They need to learn how to identify the warning signs of fraud in this new medium, how to protect their privacy and how to pay safely. Also, since so many private sales are occurring through Internet auctions, online classified ads, and newsgroups, consumers must realize that private sales usually are not covered by the same consumer protection laws. It's much harder to get a refund or replacement from a private seller than it is from a company.
Businesses and individuals that use the Internet to promote their goods and services must also be educated about their basic responsibilities. Often times a consumer's problem isn't with fraud, it's with poorly thought out business practices.
The National Consumers League has taken a leading role in educating the public about Internet fraud. The National Fraud Information Center/Internet Fraud Watch website (www.fraud.org) provides a wealth of information on safe cybershopping and tips on how to avoid many different types of common scams. The website also has articles warning consumers about new trends, common scams and recent government enforcement actions. Plus consumers can use our links to go directly to other useful resources, such as the Federal Trade Commission or the BBBOnLine program.
I would like to thank Joan Kinney and the American Council on Consumer Interests for providing me the time to speak to you. If any of you would like copies of the charts illustrating our statistics, they are available on our website in the Internet Fraud Watch section. I would be happy to answer any questions at this time.
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