Before the
Federal Trade Commission
Public Workshop: Public/Private Partnerships to Combat Cross Border Fraud

Comment, P035302

By the
National Consumers League
February 7, 2003

Introduction

The National Consumers League (NCL) is a private, nonprofit consumer organization. Founded in 1899, NCL’s mission is to represent and advance the economic and social interests of consumers and workers in the marketplace and the workplace. NCL accomplishes those goals through research, education, and advocacy.

NCL commends the Federal Trade Commission (FTC) for its work in combating cross-border fraud. NCL has a special interest in this issue because it operates the National Fraud Information/Internet Fraud Watch (NFIC/IFW), a toll-free hotline and Web site through which consumers can get advice about telemarketing and online offers and report suspected fraud. In these comments, NCL will describe how this service operates in partnership with government and the private sector, and the trends that we see in cross-border fraud. NCL will also provide information about its Alliance Against Fraud in Telemarketing and Electronic Commerce, an educational coalition. Finally, NCL will describe its work with consumer organizations from other countries on the issue of protecting consumers in cross-border transactions.

National Fraud Information Center/Internet Fraud Watch

In 1992, NCL commissioned a survey by Louis Harris & Associates about telephone-based fraud. Nearly two-thirds of respondents said they would not know where to call to find out if a telephone offer or promotion was legitimate, and one in six admitted that they found it difficult to resist a telephone sales pitch.  Three percent said that they had bought something by telephone in the previous two years in what they now believed was a fraudulent offer.

Concerned about the serious financial and emotional impact of telemarketing fraud, especially on older consumers, and convinced of the need for a central source of advice and assistance, NCL launched National Fraud Information Center, the first toll-free nationwide telemarketing fraud hotline, at (800) 876-7060. Our mission was and remains two-fold: to prevent fraud by helping consumers recognize the danger signs, and to stop fraud by transmitting consumers’ reports about suspected scams to the appropriate agencies. In 1996 the Internet Fraud Watch was added to the program to assist consumers with questions and complaints about online offers. NCL also created a special Web site, www.fraud.org, which offers tips about telemarketing and Internet fraud and an online form to report fraud.

Partnerships with the Private Sector

To create the NFIC/IFW, NCL received initial grants from MasterCard and Citibank. Over the years, other companies, trade associations, and individuals have made donations to support our fraud-fighting efforts. They are motivated not only by concern about the financial toll on fraud victims but the negative impact that fraud has on consumer confidence in shopping by telephone or online. However, as we will discuss under “Challenges,” it is difficult to sustain a program by relying on charitable donations for funding. As noted below in “Fraud Reporting,” NCL also provides assistance to the private sector by supplying certain service providers with information about possible abuses of their services.            

Partnerships with Government

Fraud Prevention

Government agencies share NCL’s concern about preventing fraud, especially since there is no way to assure consumers that they will ever recover their money once they’ve given it to con artists. As the FTC is well aware, it’s even harder to obtain redress from foreign con artists than from those that are located in the US.

Not all consumers are comfortable contacting a government agency, and as our survey showed, many aren’t sure which agency to contact. In creating the NFIC/IFW, NCL recognized it could use its position as a trusted source of information to provide advice to consumers about the offers and promotions they receive. Our skilled counselors help consumers recognize the danger signs of fraud, such as promises of: big profits for little work; guaranteed loans and credit even if consumers have bad credit records; and huge returns on investments with little or no risk. Some scams are more subtle or elaborate than others, requiring detailed understanding of how they work. Our counselors have that knowledge. In addition to the one-on-one telephone counseling that NCL provides, there are extensive tips about the most common telemarketing and Internet scams on the www.fraud.org Web site.

In 2002, our counselors handled nearly 20,000 calls from consumers and the Web site received more than 15 million “hits.” By providing advice and educational information, NCL has helped millions of consumers avoid losing money to fraudulent telemarketing and online schemes.      

Fraud Reporting

Helping consumers report suspected fraud to the appropriate agencies is the second vital part of our mission. In many cases, there are multiple agencies at different levels of government that would be interested in receiving information about suspected telemarketing or Internet scams. Rather than simply referring consumers, NCL transmits the information, with their permission, to the appropriate agencies.

There are two components to our fraud-reporting service. First, we upload all new “fraud incident reports” that we receive on a weekly basis to the FTC’s Consumer Sentinel database, which can be queried by law enforcement agencies. Second, through our “FAST” system, we electronically transmit individual fraud incident reports to selected federal, state and local agencies as soon as they are entered into our system. This alerts agencies quickly to problems about which they may not be aware and consumers who need their help. In 2002, we received more than 41,000 reports about telemarketing and Internet fraud.     

In developing the “FAST” system, it was important to ensure that agencies were actually willing to receive consumers’ fraud reports, so we asked them to “opt in” to the system. We also needed to confirm that the type of complaints we would provide would be appropriate. While the FTC wants to receive all telemarketing and Internet fraud reports, a state attorney general typically wants only those reports in which the consumer or the company is located in that state. A specialized agency such as the Securities and Exchange Commission wants only those complaints that fall within the its subject area; the Postal Inspection Service wants information about incidents in which use of the mail was involved. Our system is designed to meet agencies’ needs. When we receive a consumer’s fraud incident report, it is automatically transmitted to the appropriate agencies based on the criteria that they have pre-set.

Because many telemarketing scams originate in Canada, NCL also approached Canadian agencies. More than 200 agencies at all levels of government in the US and Canada currently receive fraud reports from our system. In addition, NCL transmits fraud reports to credit card issuers and courier companies when their services appear to have been used as part of the scams. In these instances, the consumers’ identifying information is removed, since it is not necessary for the purpose of alerting these companies to a possible problem with users of their services. Because law enforcement agencies generally prefer that complaints that may be under investigation remain confidential, we do not provide information about specific companies that have been reported to us to the media or the general public.

Submitting consumers’ fraud incident reports to the Consumer Sentinel database requires uniformity in terms of what information is requested from consumers and how that information is categorized and coded. When changes are needed, NCL works cooperatively with the FTC in that regard. For instance, when we became aware of online auction fraud, we suggested to the FTC that a new category be added under Internet fraud to track those types of scams.

NCL periodically surveys its government partners to determine how our services can be improved. For example, in response to a survey suggestion a few years ago, we created a daily log that goes out to recipients of our fraud reports showing what other agencies have received the same reports and the contact information at those agencies. This enables investigators and prosecutors to coordinate their efforts.    

Cross-border Nature of Telemarketing and Internet Fraud

We have noted an increase in cross-border telemarketing and Internet fraud. For example, in 1995, Canadian companies represented 2.8 percent of those reported to us by consumers in connection with telemarketing fraud; 2.5 percent were in other countries outside of the US and Canada.  By 2002, Canada represented 12 percent of companies reported, while other countries accounted for 4.5 percent.

In 1997, the first full year of our Internet Fraud Watch program, Canada accounted for 4.2 percent of companies reported; by 2002 it was 10 percent. Companies in other countries rose during that time period from 2 percent to 4.4 percent.

In some categories of fraud, the percentage of foreign companies is much higher than average. For example, in the telemarketing fraud reports we received in 2002, 94 percent of advance fee loan scams, 78 percent of solicitations for lotteries or lottery clubs, and 45 percent of fraudulent prize or sweepstakes promotions involved companies located outside of the US. One hundred percent of Nigerian money offers, which were among the top ten scams in both telemarketing and Internet fraud in 2002, came from foreign countries.         

Challenges

The biggest challenge to operating a program such as the NFIC/IFW is funding. As a nonprofit organization, NCL is essentially providing a public service without revenue from taxes or fees. Charitable funding is often geared toward starting new programs, not sustaining them once they’re up and running. Another challenge is meeting the constant need to upgrade hardware and software in order to make our operations as efficient as possible. We have received grants from the US Department of Justice to help us improve the services that we provide to consumers and law enforcement agencies.

However, we are struggling to pay the salaries of our fraud center personnel, communications costs, and other expenses. Last year, we were forced to reduce our staff, which has had a significant impact on the number of calls we can handle. At the same time, the number of fraud reports we receive is increasing. In order to continue our partnerships with the agencies and businesses that benefit from the fraud prevention and reporting services we provide, we need their financial support.                                

Alliance Against Fraud in Telemarketing and Electronic Commerce

In 1989, NCL formed the Alliance Against Fraud in Telemarketing. Reflecting changes in the marketplace, the name was recently changed to Alliance Against Fraud in Telemarketing and Electronic Commerce (AAFTEC). The AAFTEC is a coalition of people from federal, state and local government agencies in the US and Canada, consumer groups, labor organizations, trade associations, and businesses that are united in their commitment to combating telemarketing and Internet fraud by educating themselves and their customers, clients, and constituents. Members meet on a quarterly basis to listen to speakers and share information. The AAFTEC also publishes a quarterly electronic newsletter and transmits alerts to members about new scams. Cross-border fraud has been the subjects of many meetings and articles. The AAFTEC also has produced brochures, radio public service announcements, and other materials to help educate consumers about the dangers of fraud.

Trans Atlantic Consumer Dialogue

The Trans Atlantic Consumer Dialogue (TACD) is a coalition of consumer organizations in the US and European Union (EU) that provides input to the US and EU governments on cross-border trade issues. As co-chair of the TACD Internet Working Group, NCL spearheaded a resolution last year on “Protecting Consumers from Fraud and Serious Deception Across Borders.” Recognizing that the virtual marketplace has no geographic boundaries, the TACD urged the US and EU governments to support efforts by the Organization for Economic Cooperation and Development (OECD) to formulate guidelines that will encourage countries to take the necessary steps, both internally and in cooperation with each other, to provide effective consumer protection and redress in cross-border transactions. The resolution can be found at http://www.tacd.org/cgi-bin/db.cgi?page=view&config=admin/docs.cfg&id=179.

The TACD has adopted other resolutions relating to cross-border transactions. For example, the TACD has called for strong, uniform legal dispute rights when payment cards are used in ecommerce as a way of improving consumer confidence and ensuring that consumers have some recourse if they have problems. That resolution can be found at http://www.tacd.org/cgi-bin/db.cgi?page=view&config=admin/docs.cfg&id=95.

Another resolution describes the important role that alternative dispute resolution programs can play in complaints about cross-border online purchases. It sets out the core principles that should be considered in developing and operating such programs. This resolution can be found at http://www.tacd.org/cgi-bin/db.cgi?page=view&config=admin/docs.cfg&id=41.

In addition, there are a number of resolutions on the www.tacd.org Web site regarding jurisdiction for cross-border disputes. TACD members believe that consumers should never be deprived of the ability to take action in their home jurisdictions when they believe that their rights have been violated.         

Conclusion

Consumer organizations play a crucial role in preventing cross-border fraud by educating people about how to avoid it. Furthermore, since consumer organizations routinely receive calls, letters, and emails from people who need assistance with their problems, they can help to ensure that information involving cross-border fraud goes to the appropriate places. Governments and the private sector should work with consumer organizations to educate the public and develop efficient and effective systems for sharing information about combat cross-border fraud.

Consumers expect their governments to protect them from fraud, and that companies with which they do business will not facilitate fraud. Failure to adequately address the problem of cross-order fraud damages consumer confidence in government and in the global marketplace. We look forward to continuing to working in partnership with the FTC and others to stop fraudulent marketers from taking advantage of consumers across borders.

Respectfully submitted:

Susan Grant
Vice President for Public Policy
Director, NFIC/IFW
National Consumers League
1701 K Street NW, Suite 1200
Washington, DC 20006
(202) 835-3323