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S. HRG. 111–481 

THE ECONOMY AND FRAUD: 

PROTECTING CONSUMERS DURING 

DOWNWARD ECONOMIC TIMES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CONSUMER PROTECTION, 

PRODUCT SAFETY, AND INSURANCE 

OF THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

JULY 14, 2009 

Printed for the use of the Committee on Commerce, Science, and Transportation 

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

JOHN D. ROCKEFELLER IV, West Virginia, Chairman 

DANIEL K. INOUYE, Hawaii 

JOHN F. KERRY, Massachusetts 

BYRON L. DORGAN, North Dakota 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK R. LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas 

CLAIRE MCCASKILL, Missouri 

AMY KLOBUCHAR, Minnesota 

TOM UDALL, New Mexico 

MARK WARNER, Virginia 

MARK BEGICH, Alaska 

KAY BAILEY HUTCHISON, Texas, Ranking 

OLYMPIA J. SNOWE, Maine 

JOHN ENSIGN, Nevada 

JIM DEMINT, South Carolina 

JOHN THUNE, South Dakota 

ROGER F. WICKER, Mississippi 

JOHNNY ISAKSON, Georgia 

DAVID VITTER, Louisiana 

SAM BROWNBACK, Kansas 

MEL MARTINEZ, Florida 

MIKE JOHANNS, Nebraska 

ELLEN L. DONESKI, Chief of Staff 

JAMES REID, Deputy Chief of Staff 

BRUCE H. ANDREWS, General Counsel 

CHRISTINE D. KURTH, Republican Staff Director and General Counsel 

BRIAN M. HENDRICKS, Republican Chief Counsel 

SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT SAFETY, AND 

INSURANCE 

MARK PRYOR, Arkansas, Chairman 

BYRON L. DORGAN, North Dakota 

BARBARA BOXER, California 

BILL NELSON, Florida 

CLAIRE MCCASKILL, Missouri 

AMY KLOBUCHAR, Minnesota 

TOM UDALL, New Mexico 

ROGER F. WICKER, Mississippi, Ranking 

OLYMPIA J. SNOWE, Maine 

JIM DEMINT, South Carolina 

JOHN THUNE, South Dakota 

JOHNNY ISAKSON, Georgia 

DAVID VITTER, Louisiana 

(III) 

C O N T E N T S 

Page 

Hearing held on July 14, 2009 ............................................................................... 1 

Statement of Senator Pryor .................................................................................... 1 

Statement of Senator Klobuchar ............................................................................ 2 

Statement of Senator Wicker .................................................................................. 49 

Prepared statement .......................................................................................... 49 

Statement of Senator Nelson .................................................................................. 52 

Statement of Senator McCaskill ............................................................................. 53 

Article by Cybele Weisser, dated July 20, 2009, from Time magazine, 

entitled ‘‘Reverse Mortgages’’ ....................................................................... 56 

WITNESSES

Hon. Chris Koster, Attorney General, State of Missouri ..................................... 3 

Prepared statement .......................................................................................... 5 

David Vladeck, Director, Bureau of Consumer Protection, Federal Trade Commission .................................................................................................................. 7 

Prepared statement .......................................................................................... 9 

Charles Bell, Director of Programs, Consumers Union ........................................ 19 

Prepared statement .......................................................................................... 21 

Sally Greenberg, Executive Director, National Consumers League .................... 31 

Prepared statement .......................................................................................... 34 

Timothy J. Muris, Foundation Professor, George Mason University School 

of Law and of Counsel, O’Melveny & Myers LLP ............................................. 38 

Prepared statement .......................................................................................... 40 

APPENDIX

Hon. Tom Udall, U.S. Senator from New Mexico, prepared statement .............. 67 

Response to written questions submitted by Hon. Tom Udall to: 

Sally Greenberg ................................................................................................ 67 

David Vladeck ................................................................................................... 69 

(1) 

THE ECONOMY AND FRAUD: 

PROTECTING CONSUMERS DURING 

DOWNWARD ECONOMIC TIMES 

TUESDAY, JULY 14, 2009 

U.S. SENATE, 

SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT

SAFETY, AND INSURANCE, 

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:05 a.m. in room 

SR–253, Russell Senate Office Building, Hon. Mark Pryor, Chairman of the Subcommittee, presiding. 

OPENING STATEMENT OF HON. MARK PRYOR, 

U.S. SENATOR FROM ARKANSAS 

Senator PRYOR. I call this hearing of the Consumer Protection, 

Product Safety, and Insurance Subcommittee of the Senate Committee on Commerce, Science, and Transportation to order. 

I want to welcome all of our witnesses today and thank you all 

for your testimony and your efforts in being here today. 

We’re here to receive testimony on the trends in consumer frauds 

and scams related to the recession. This hearing will examine a variety of frauds that are exploiting the financial hardships of consumers during the current economic downturn. We’ll further explore what the FTC is, or should be doing, to protect and insulate 

consumers from these trends. 

For the last several financial quarters, I’ve noticed an increase 

in the press reports on organized consumer fraud scams as the recession has deepened. And on July 1, 2009, the Federal Trade Commission announced a crackdown on scams playing on consumer 

fears about the economy. It’s called ‘‘Operation Shortchange.’’ And 

the FTC has initiated 15 actions to stop consumer fraud, such as 

Get Rich Quick and Easy Debt Relief schemes. The FTC partnered 

with the Department of Justice, which initiated 44 actions, 13 

states and the District of Columbia. 

Clearly, consumers are at risk of being swindled during this 

time, and they absolutely cannot afford to be bilked out of their 

savings and make disastrous financial decisions due to deceptive 

practices and fraud. 

Our staff today has put together a great panel. We have the Attorney General of the State of Missouri, Chris Koster. And Chris 

is one of the great leaders in consumer protection from around the 

2 

country. And, General Koster, it’s great to have you here today, 

and thank you. 

We also have David Vladeck, who’s the Director of the Bureau 

of Consumer Protection in the Federal Trade Commission. We have 

Chuck Bell, who’s the Director of Programs at Consumers Union. 

We have Sally Greenberg, who is the Executive Director of National Consumers League, and Tim Muris, the Foundation Professor at George Mason University, former FTC Chairman. It’s 

great to have you all here. 

What we’re going to do is, we’re going to do brief opening statements. We know at least one of our Senators has to race back to 

the Judiciary Committee here momentarily. And then we’ll ask the 

panel for their opening statements. And we’re going to keep ours 

to 5 minutes or less, and then we will get right to the panel, and 

we’d ask the panel to keep theirs to 5 minutes, if possible. 

Senator Nelson, do you have an opening statement? 

And, by the way, Senator Wicker is on the way, and should be 

here shortly, and he would like to make an opening statement. 

Senator McCaskill? 

Senator MCCASKILL. I will just wait and ask questions. 

Senator PRYOR. Questions, great. 

Senator MCCASKILL. Thank you, Mr. Chairman. 

Senator PRYOR. Senator Klobuchar, I know you need to run back 

to the Judiciary Committee. Would you like to make an opening 

statement? 

STATEMENT OF HON. AMY KLOBUCHAR, 

U.S. SENATOR FROM MINNESOTA 

Senator KLOBUCHAR. Well, yes, I would. And thank you so much, 

Mr. Chairman, for holding this important hearing at this difficult 

economic time. When I was a prosecutor, something that a number 

of us have done up here, one of the things that I would always notice was, when the economic times were tough, you’d see more and 

more scam artists. The other interesting part was, sometimes people would have been committing scams for years, but it was only 

when the economy went down that it was discovered because people started looking at their bank accounts or they couldn’t make 

mortgage payments. So, you actually have this double whammy of 

people starting to commit more fraud, and then you also have fraud 

being discovered that maybe had been going on for years. So, I 

think it’s very important that we focus on this. 

I did want to start out, Mr. Vladeck, by commending the FTC for 

the work that you’ve done in a case that has been brought in Minnesota involving a violation of antitrust laws with a drug company 

that actually came out of Minnesota. In this case, the prices for a 

little baby’s heart drug were jacked up 18 times simply because the 

company could and because they had the patent for the competing 

drug. It was an outrageous case. And at a hearing just like this, 

I held up a little vial and said to the now-Chairman of the FTC, 

‘‘Well, what should we do about this?’’ I’m brand new at this job, 

and it just seems outrageous. And within a few months, the FTC 

brought a major fraud action in Federal court in Minnesota. So, I 

did want to mention that we’re very appreciative of those efforts. 

3 

Also, the panel here talks about fraud efforts, I hope you’ll focus 

some on, of course, the mortgage fraud issue and anything else that 

can be done. I know the Administration has a proposal to set up 

a special consumer agency to deal with some of the fraud with financial documents. And, while I may not be able to stay for questions, I’ll submit those for the record and would like the panel’s reaction to that. 

I’ve done a bill that Representative Ellison is carrying in the 

House that’s very much based on the Minnesota model, what’s 

worked with mortgage fraud, which is called the Fairness for 

Homeowners Act. And I hope you’ll look at that, as well. 

So, mostly I hope to stay as long as I can. We do have that other 

little hearing going on in the other building. But, I want to thank 

you for your efforts. I think now is the time, more than any, that 

we have to make sure we’re enforcing these laws because people 

are really suffering out there, and predators prey on them when 

there’s not enough money to go around. 

Thank you very much. 

Senator PRYOR. Thank you, Senator Klobuchar. We will be joined 

shortly by at least a couple of other colleagues, it looks like, and 

maybe even more than that, depending on who’s able to get away 

from their other committee obligations. 

What I’d like to do now is go through the panel. I’m going to take 

it a little bit out of order. Since we have a statewide elected official 

here, I wanted to recognize General Koster first and give him 5 

minutes to make his opening, and then I’ll come back to you, Mr. 

Vladeck, and go down the line. 

General? 

STATEMENT OF HON. CHRIS KOSTER, ATTORNEY GENERAL, 

STATE OF MISSOURI 

Mr. KOSTER. Thank you, Mr. Chairman and Members of the 

Committee. 

I’ll focus my comments today on what we are seeing in Missouri 

of particular interest and threats to our citizens. And the threat is 

this. Companies and individuals who specialize in servicing or 

preying upon consumers who have a significant credit card debt or 

unsustainable mortgage are running amuck in our state. 

Foreclosure consultants and debt settlement firms claim to consumers that they can cut principal in half, reduce monthly payments by hundreds of dollars, or eliminate debt altogether. And 

they claim that this process can be virtually pain free. All that’s 

required of a consumer is a few thousand dollars in up-front fees 

so that the companies may utilize their special expertise. Consumers in our state are led to believe these settlement companies 

know the secrets of negotiating away a consumer’s debt. 

Unfortunately, the real secret here is that these companies are 

offering services that consumers can largely do for themselves or 

that nonprofit counselors will perform free or for a modest fee. 

Moreover, one of the primary strategies relied upon by these debt 

settlement and mortgage companies is to convince consumers to 

stop payments altogether and to stop communications with his or 

her creditors, which, of course, leads to long-term damage to the 

consumer’s credit rating and hundreds, if not thousands, of dollars 

4 

in additional debt and fees. In the end, to the extent these companies provide any service at all, debt settlement and mortgage modification companies often offer a service that leaves consumers no 

better off than where the consumer started. Real people are being 

harmed by these companies. 

In Missouri, our complaint unit has seen a sharp increase in the 

volume of complaints related to foreclosure rescue scams. In 2007 

and 2008 combined, our office had a total of 25 complaints. However, in just the first 6 months of 2009, we’ve already received 

more than three times as many complaints as we saw in 2007 and 

2008 combined. For debt settlement complaints, there has been a 

similar spike. 

Consumers are being lured by these debt settlement companies 

and foreclosure consultants by outrageously deceptive advertising 

techniques, including techniques that seek to co-op the authority of 

the Federal Government. Tens of thousands of direct-mail pieces 

are being distributed that purport to distribute money from the 

Economic Stimulus Act of 2008. These advertisements typically are 

replete with federal seals from the Housing and Urban Development or the Federal Housing Administration and logos that generally appear to be from the Federal Government. Eagles and flags 

abound on these advertisements. Unfortunately, too many consumers are being fooled by this, and those that are fooled are in 

the most desperate financial straits. 

Where do we go from here? I would raise for your committee’s 

consideration the following ideas. 

First, most attorney generals would, I believe, support a federal 

ban on up-front fees related to mortgage rescue and debt settlement firms. In Missouri, we’ve seen so many examples of settlement companies that either never earn the fees that they charge 

up front or simply pocket the up-front fee and disappear altogether. 

Second, do not shy away from applying the same up-front fee restrictions to lawyers and law firms who specialize in debt settlement work, although a caveat may need to be drawn around certain bankruptcy court practices. What is good for the goose is ultimately good for the gander. 

Third, I would continue to provide the FTC with additional tools 

against settlement companies that claim the imprimatur of the 

Federal Government. The use of government symbols and logos in 

ads, the strong inference that these solicitations are coming from 

HUD or from the Federal Housing Administration, or the claim 

that the solicitation has been sent directly as a result of the Economic Stimulus Act, should be stopped. These advertisements are 

gross deceptions and should be punished as such. 

Finally, continue to restrict advertisements and solicitations 

around reverse mortgages, and particularly sale-leaseback arrangements. In Missouri, advertisements for these products are increasingly frequent and increasingly bold. 

I encourage the Committee to consider bright-line enforcement 

measures. And I thank you for your time today. 

[The prepared statement of Mr. Koster follows:] 

5 

PREPARED STATEMENT OF HON. CHRIS KOSTER, ATTORNEY GENERAL, STATE OF MISSOURI

Thank you, Mr. Chairman, 

I appreciate your bringing attention to the problems we are seeing across the Nation from scams and fraudulent activities borne directly from the recession. I will 

focus my comments today on what we in Missouri see as a particular threat to people impacted by the economic downturn—companies and individuals who specialize 

in servicing, some might say preying on, consumers who have significant credit card 

debt, and/or an unsustainable mortgage. 

Foreclosure Consultants and Debt Settlement Firms offer to cut principal in half, 

reduce monthly payments by hundreds of dollars, or eliminate debt altogether. And, 

they claim the process is virtually pain free. 

All that is required is a few thousand dollars in up-front fees so they may utilize 

their ‘‘expertise’’ to ‘‘help’’ the consumer—as they supposedly know the ‘‘secrets’’ to 

negotiating with the credit card companies. 

The unmentioned secret is that these companies are offering a service that the 

consumer could do for himself; or that non-profit credit counselors will perform for 

free or a modest fee. 

And these companies’ strategies rely on the consumer stopping all payments to 

and communications with his or her creditors. 

It is this final aspect that leads to long-term damage to the consumer’s credit rating and hundreds or thousands of dollars in additional fees. In fact, to the extent 

that these companies provide the service at all, they often obtain a debt settlement 

or mortgage modification that is no better than where the consumer started, partly 

because of these additional fees and interest. 

Real people are being harmed by these companies. The Complaint Unit in my office has seen a sharply increasing volume of complaints regarding foreclosure rescue 

scams: from 16 complaints in 2007 to 9 complaints in 2008 to 84 complaints thus 

far in 2009. 

For debt settlement, there has been a similar spike: from 78 complaints in 2007 

to 109 complaints in 2008 to 105 complaints thus far in 2009. 

To further complicate matters, both debt settlement firms and foreclosure consultants are using deceptive advertising. Much of what we are seeing seeks to co-opt 

the authority of the Federal Government and these advertisements are ubiquitous. 

Thousands of direct mail pieces are distributed every day across the country offering debt settlement or foreclosure relief purporting to use money from the ‘‘Economic Stimulus Act of 2008 [or 2009].’’ The references are to Federal programs that 

have nothing to do with the consumer targeted—for example, the Economic Stimulus Act of 2008 increased the size of loans that the Federal Housing Administration could insure; but this adjustment had nothing to do with whether a person with 

a $150,000 loan could refinance. 

The advertisements typically are replete with Federal seals from the Department 

of Housing and Urban Development and the Federal Housing Administration, and 

logos that generally appear to be from the Federal Government. Eagles and flags 

grace these advertisements. 

In fact, I personally received an offer for enrollment in a ‘‘Payment Reduction Program’’ that was ‘‘created in conjunction with the Government Economic Stimulus 

Act of 2008.’’ The advertisement looked like it came from the Federal Government 

in that it was a ‘‘Form 008–S’’ and the subject line read ‘‘H.R. 5140 Government 

Economic Stimulus Act of 2008.’’ 

Luckily my University of Missouri law school education taught me to examine the 

fine print, which was located at the far bottom of the letter and revealed the letter 

to be an ‘‘advertisement’’ and that the offer was not ‘‘being made by any agency of 

the government.’’ 

Unfortunately, too many consumers are fooled by these tactics. 

We could afford to be more tolerant of these schemes if they didn’t prey on those 

with so few resources. 

Missouri takes seriously enforcement of laws that were enacted to address these 

issues: the Missouri Merchandising Practices Act, the Missouri Foreclosure Consultant Act, and the Missouri Credit Services Organization Act. Our state’s ban on upfront fees for foreclosure consultants and credit repair firms represents a particularly effective enforcement tool. 

Missouri polices all manner of fraud, but financial fraud has become a priority, 

and for which Missouri has Zero Tolerance. 

Missouri has a foreclosure consultant statute that, among other things, makes it 

illegal for a foreclosure consultant to take an up-front fee. This ban has been the 

most effective tool in fighting unscrupulous foreclosure consultants. 

6 

These services are often only profitable if the company charges a large up-front 

fee. A ban on such fees not only discourages companies with suspect motives from 

entering the market, but makes proving the enforcement action quite easy, thereby 

enabling swift injunctive relief. 

In addition to several ongoing investigations, the Attorney General’s office recently filed the following case: 

Gateway Mortgage Modifications, LLC: The Attorney General’s Office filed suit 

May 26, 2009, against this company for charging up-front fees for foreclosure 

relief and mortgage modifications. In addition, Gateway did not deliver the services promised, falling short on the promised interest rate reduction for mortgage 

modifications it did obtain (in violation of the Merchandising Practices Act). 

Gateway had about 200 clients at the time the suit was filed. A preliminary injunction has been agreed to and Missouri is seeking restitution for consumers 

and possible civil penalties. 

Missouri also has a credit services organization statute that makes it illegal for 

such individuals to accept an up-front fee. Again, this is an effective way to police 

the credit repair markets because it discourages bad actors from entering the market and is an easily proven violation. 

However, Missouri is also pursuing a deceptive and unfair practices theory under 

the Merchandising Practices Act with respect to debt settlement firms’ advertisements and instruction to consumers not to pay their creditors while the company 

negotiates with those creditors. 

In addition to several ongoing investigations, the Attorney General’s Office recently filed the following case: 

Credit Solutions of America, Inc. On May 28, 2009, Missouri filed suit against 

Credit Solutions of America, Inc. for violations of the Missouri Merchandising 

Practices Act and the Missouri Credit Services Organization Act. Credit Solutions claims it can lower consumers’ monthly payment, resolve debts for 50 

cents on the dollar, and get consumers out of debt within 3 years. In addition, 

Credit Solutions relies on consumers not paying their creditors during the negotiation. Finally, Credit Solutions failed to comply with several portions of the 

Credit Services Organization Act, including the ban on up-front fees. Missouri 

joins New York and Texas in filing suit against Credit Solutions for similar 

practices. 

Missouri has used its Merchandising Practices Act to crack down on the deceptive 

use of Federal Government logos and programs. Missouri has also targeted companies making misleading references to consumers’ lenders. Missouri has investigated 

more than a dozen companies, reached settlement with several, and brought two 

cases: 

• Goldstar Home Mortgage: The Attorney General’s Office filed suit April 20, 2009 

against this company, which sent direct-mail letters to consumers with the consumers’ own bank name at the top of the letter, making it appear that the consumers’ bank was encouraging them to refinance. 

• Oxford Lending Group: The Attorney General’s Office filed suit April 20, 2009 

against this company, which made deceptive representations regarding the 

‘‘Economic Stimulus Act of 2008’’ in its mailing, to appear that consumers had 

a special opportunity to refinance, and using the HUD (U.S. Department of 

Housing and Urban Development) label and name to mislead the recipient that 

the letter was related to the Federal Government. 

But, the most powerful tool to combat the appeal of the schemes is education. 

The consumer complaint hotline, along with the Attorney General’s website, is 

where Missouri consumers can let my office know about unscrupulous practices. In 

addition to a mediation procedure whereby investigators seek to resolve individual 

complaints, the complaint hotline allows Missouri to stay on the leading edge of 

what scams are out there and address them quickly. 

Similarly, the Consumer Corner Blog on the Attorney General’s website allows the 

Attorney General’s consumer protection division to alert consumers as to what 

scams are out there and what they can do about them. 

My website provides links that allow consumers to sign up for the no call list, 

which precludes most telemarketers from calling the consumer. This can prevent 

some scammers from ever pitching their product. The Missouri No Call List is a 

model for other states. 

Further, my website has, on its front page, an Action Center, which has shortcut buttons for several categories of complaints, including Mortgage Fraud, Consumer Complaints, No Call, and Search of Complaints against Businesses. These 

7 

buttons reflect some of the priorities of the Missouri Attorney General’s office in 

fighting scams; in fact, the buttons placed in the action center reflect what Missourians are telling the Attorney General regarding priorities for enforcement. 

In addition, consumers can search businesses on my website to see whether those 

businesses have received any consumer complaints. We also publicize scams with 

the news media, in an attempt to get out the warnings as broadly as possible. 

Finally, particularly given the foreclosure crisis, consumers need to know what 

help is available for free. For those in a distress position, the Federal Government 

has a website, www.makinghomeaffordable.gov, which can answer questions regarding refinancing or loan modifications. And, the Better Business Bureau or my office 

may be able to help direct the consumer to legitimate organizations that can help 

them with mounting debt or an adjusting mortgage. 

In my 6 months as Missouri’s Attorney General, I have been continually amazed 

at the lengths individuals will go in an attempt to scam innocent people out of their 

money. I am certain it has always been so; I saw it in my 10 years as a county 

prosecutor. But these tough economic times, with desperate consumers needing help 

and an array of new government programs, seem the perfect climate for frauds and 

scams to thrive. False hope is notoriously easy to provide. 

I encourage your committee to consider any additional enforcement measures at 

the Federal level to make people using these fraudulent tactics think twice, and to 

give us as strong of tools as possible to go after them once they have perpetrated 

their scams. Thank you for your time. 

Senator PRYOR. Thank you, General. 

Next, we’ll have David Vladeck, Director of Bureau of Consumer 

Protection, Federal Trade Commission. 

Mr. Vladeck? 

STATEMENT OF DAVID VLADECK, DIRECTOR, BUREAU OF 

CONSUMER PROTECTION, FEDERAL TRADE COMMISSION 

Mr. VLADECK. Good morning, Chairman Pryor, Ranking Member 

Wicker, and Members of the Subcommittee. I’m David Vladeck. I’m 

the new Director of the Bureau of Consumer Protection at the Federal Trade Commission. I appreciate the opportunity to appear before you this morning. 

We are doing what we can to protect consumers from fraud during this economic downturn. I want to make clear that, although 

the written testimony that we’ve submitted reflects the views of the 

Commission, my oral remarks and any remarks I make in response 

to questions set forth my own views and are not necessarily those 

of the Commission. 

The story nationwide is no different than the one in Missouri. 

Rising unemployment, shrinking credit, record-setting foreclosures, 

and disappearing retirement accounts are causing tremendous anxiety among American consumers about their ability to make ends 

meet. The downturn in the economy has had a severe impact on 

American consumers. The unemployment rate now hovers around 

10 percent, and the national foreclosure rate is now over 12 percent. To con artists, today’s challenging economy presents a golden 

opportunity to exploit consumers’ fears and bilk them out of money. 

The FTC is moving aggressively to stop them. 

For instance, as General Koster mentioned, the troubling economic times have given rise to unscrupulous home rescue companies preying on those at risk of losing their homes through foreclosure. In the last year alone, the FTC has brought 14 cases to 

protect consumers from mortgage, loan modification and foreclosure 

rescue scams. There is more to come. We are stepping up our efforts to enforce the law against opportunists victimizing people facing foreclosure. Tomorrow, the FTC will announce another sweep, 

8 

in addition to Operation Short Change, this one focusing, in part, 

on mortgage rescue scams in a coordinated Federal and State law 

enforcement effort. 

The FTC’s mission goes beyond foreclosure fraud. Thousands of 

people have been swindled out of millions of dollars by scammers 

exploiting the economic downturn. The scams promise jobs, access 

to free government money, or the chance to earn money working 

from home. These promises deliver nothing. They raise people’s 

hopes and then drive them deeper into the hole. 

Two weeks ago, as the Chairman mentioned, we announced ‘‘Operation Short Change,’’ a law enforcement sweep we undertook, 

along with the Department of Justice and 14 states, including, I’m 

proud to say, the State of Missouri, involving over 120 law enforcement actions nationwide. The FTC filed 15 cases against scams 

that preyed on the unemployed, scams that exploited the entrepreneurial spirit of individuals looking to start their own businesses, 

scams that used a false promise of free government grants, and 

scams that promised to deliver much needed creditor debt relief, 

but instead delivered more debt. 

The perpetrators of these frauds used the telephone, the Internet, the television, and print ads to deceive people about what they 

could do for them, what doors they could open, and how much they 

could make, and they did it by extracting money from their consumers’ accounts in a variety of ways. 

I want to give you just three examples of what we have alleged 

in some of our complaints. 

Job Safety USA promised job hunters maintenance and cleaning 

jobs, but it was the defendants who took the consumers to the 

cleaners, tricking them to pay about $100 for a credential that 

would entitle them to a job. The credential was a sham and the 

jobs did not exist. 

Grants For You Now seized on the stimulus package as the basis 

of its economic model. It promised access to, or expertise in, getting 

free government grants to pay personal expenses. It lied, plain and 

simple. I assure you, there is no free government stimulus money 

to pay down personal debts or to remodel homes. 

Mutual Consolidated Savings added insult to injury by using 

invasive robocalls, which themselves are illegal, to offer phony lifelines to people hoping to reduce their debt burden by negotiating 

lower interest rates with their creditors. 

Other defendants in Operation Short Change trick people into 

disclosing their personal financial information, resulting in months 

of unauthorized charges, or stole money from online consumers 

through unauthorized charges and debits for supposed membership 

service. 

The Commission moved aggressively in these cases, seeking and 

obtaining ex parte temporary restraining orders with asset freezes, 

where possible. We are seeking a permanent halt to each of these 

operations, as well as the return of these ill-gotten gains to the 

people who were fleeced. 

Now, at the FTC, we’re about tough enforcement, but we would 

rather have no one fall victim to these scams in the first place. A 

critical component of our mission is to reach out to consumers and 

9 

1The views expressed in this statement represent the views of the Commission. My oral presentation and responses to questions are my own and do not necessarily reflect the views of the 

Commission or any individual Commissioner. Commissioner Kovacic dissents from portions of 

the testimony explained in notes 4 and note 43. 

to warn them about these scams. An educated consumer is our first 

line of defense. 

We have produced a video, and I’d like to show you a portion of 

it now, which features a former telemarketer of a fraudulent business opportunity explaining exactly how he was able to lure people 

to part with their money. Here’s a preview: 

[Video presentation.] 

Mr. VLADECK. I should point out that Mr. Vitale was convicted 

and spent over 3 years in jail for his telemarketing fraud. 

We’re grateful to the Committee for its continued support of our 

work and our mission. We’re doing the best we can with the tools 

that are available to us. With greater resources and stronger statutory authority, we could do even a better job in protecting American consumers like Beverly Stewart. 

Beverly Stewart is a single mother of two who is out of work and 

determined to find a job. She fell prey to an employment scam. Ms. 

Stewart had the courage to come forward and report the scam to 

the Federal Trade Commission, and our investigation into Job 

Safety USA, one of the scams I just mentioned, was launched because of Ms. Stewart’s complaint. 

Here’s her story, in her own words: 

[Video presentation.] 

Mr. VLADECK. Informed consumers may be our best line of defense, but consumers who have been scammed, who have the courage to come speak to us and report these violations are our best 

friends. We would not have been able to initiate our enforcement 

proceeding against Job Safety USA without complaints like Ms. 

Stewart’s. 

Thank you very much for giving me this opportunity to testify 

before you this morning. I’d be glad to answer any questions you 

might have. 

Thank you. 

[The prepared statement of Mr. Vladeck follows:] 

PREPARED STATEMENT OF DAVID VLADECK, DIRECTOR, 

BUREAU OF CONSUMER PROTECTION, FEDERAL TRADE COMMISSION

Chairman Pryor, Ranking Member Wicker, and members of the Subcommittee, I 

am David Vladeck, Director of the Bureau of Consumer Protection at the Federal 

Trade Commission (‘‘Commission’’ or ‘‘FTC’’).1 I appreciate the opportunity to appear 

before you today to examine the types of fraud the Commission has seen during the 

economic downturn, describe the Commission’s anti-fraud law enforcement program, 

and recommend changes in the law and resources the Commission needs to enhance 

the FTC’s ability to protect consumers. During these difficult economic times, the 

Commission is on the job, enforcing the law, and working with a heightened urgency. This testimony will highlight Operation Short Change, a law enforcement 

sweep the Commission recently announced that has targeted entities defrauding 

American consumers hit by the economic downturn. 

Job losses, foreclosures, and dwindling retirement accounts are forcing increasingly more Americans to search for ways to make ends meet. Opportunistic 

fraudsters have quickly adapted their schemes and sales pitches to take advantage 

of consumers during the economic downturn, with some capitalizing on the economic 

stimulus package. They use come-ons that offer the lure of free government grant 

money, guaranteed job placement, investments promising recession-proof income, acVerDate Nov 24 2008 11:53 Jun 15, 2010 Jkt 055982 PO 00000 Frm 00013 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\55982.TXT SCOM1 PsN: JACKIE
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2The FTC has broad law enforcement responsibilities under the Federal Trade Commission 

Act (‘‘FTC Act’’), 15 U.S.C. 41, et seq. The statute provides the agency with broad jurisdiction 

over most economic sectors. Certain entities or activities, however, such as banks, companies 

engaged in common carrier activity, and companies engaged in the business of insurance, are 

wholly or partly exempt from FTC jurisdiction. In addition to the FTC Act, the agency has enforcement responsibilities under more than 50 other statutes and more than 30 rules governing 

specific industries and practices. 3Press Release, Federal Trade Commission, FTC Cracks Down on Scammers Trying to Take 

Advantage of the Economic Downturn (July 1, 2009), available at http://www.ftc.gov/opa/ 

2009/07/shortchange.shtm. 4 Commissioner Kovacic dissents from the Commission’s endorsement of authority to use, for 

promulgating all rules respecting unfair or deceptive acts or practices under the Federal Trade 

Commission Act, the notice and comment procedures of the Administrative Procedure Act. While 

other agencies have the authority to issue significant rules following notice and comment procedures, the Commission’s rulemaking authority is unique in its range of subject matter (unfair 

or deceptive acts or practices) and sectors (reaching across the economy, except for specific, albeit significant, carve-outs). Except where Congress has given the Commission a more focused 

mandate to address particular problems, beyond the FTC Act’s broad prohibition of unfair or 

deceptive acts or practices, Commissioner Kovacic believes it prudent to retain procedures beyond those encompassed in the APA. However, he would be willing to consider whether all the 

procedures currently required to issue, repeal, or amend these rules are necessary. 

Commissioner Kovacic also dissents from the Commission’s endorsement of across-the-board 

civil penalty authority. The existing consequences attendant to a finding that an act or practice 

is unfair or deceptive under the FTC Act include an administrative order (whose violation would 

then subject the respondent to civil penalties) or a court-issued injunction (which can contain 

such equitable remedies as redress and disgorgement). In his view, these are generally appropriate remedies, and they are consistent with the goal of developing FTC law to develop new 

doctrine and to reach new and emerging problems. The routine availability of civil penalties, 

even if subject to a scienter requirement, would in his view risk constraining the development 

of doctrine, much as judicial concerns about the availability of private litigation with mandatory 

treble damages appear to be constraining the development of antitrust doctrine. See, e.g., Bell 

Atlantic Corp. v. Twombly, 550 U.S. 544, 558–59 (2007). Commissioner Kovacic would prefer 

that Congress grant more targeted authority to seek civil penalties, particularly in matters 

where existing remedies are likely to be inadequate. See Prepared Statement of the Federal 

Trade Commission on the Commission’s Work to Protect Consumers and to Promote Competition, and on a Bill to Reauthorize the Commission before the Senate Committee on Commerce, 

Science, and Transportation, Apr. 8, 2008, available at http://www.ftc.gov/os/testimony/ 

P034101reauth.pdf. 5See Bureau of Labor Statistics Data (June 5, 2009), available at http://www.bls.gov/ 

news.release/empsit.nr0.htm. 6See Mortgage Bankers Association, Delinquencies and Foreclosures Continue to Climb in Latest MBA National Delinquency Survey (May 28, 2009), available at http://www.mortgage 

bankers.org/NewsandMedia/PressCenter/69031.htm. According to the Mortgage Bankers Association’s first quarter 2009 National Delinquency Survey, 12.07 percent of loans are either in 

foreclosure or delinquent by at least one payment. This is an increase over fourth quarter 2008, 

and is the highest rate ever recorded in the MBA national delinquency survey. 

cess to credit cards, or debt relief services. These and other schemes have defrauded 

hundreds of thousands of consumers out of millions of dollars, and have been the 

focus of the Commission’s ongoing law enforcement program 2 and consumer outreach efforts. Just 2 weeks ago, the Commission announced Operation Short 

Change,3 a law enforcement sweep targeting fraudulent schemes designed to profit 

from the economic downturn. Together with fourteen state partners, the Department of Justice, and other agencies prosecuting criminal law violations, the Commission announced more than 120 law enforcement actions. 

Today’s testimony highlights the agency’s current experience with and efforts to 

combat fraud exploiting the economic stimulus program and other fraudulent 

schemes preying on financially-distressed consumers. The testimony also describes 

the Commission’s anti-fraud law enforcement program, with an overview of the tools 

and strategies the Commission uses to further its critical consumer protection mission. Finally, the Commission makes four important recommendations to improve 

the Commission’s ability to protect consumers from scams and deter would-be 

fraudsters, including: (1) increasing resources committed to tackling fraud; (2) authorizing the agency to employ notice and comment rulemaking procedures for unfair or deceptive acts and practices under the FTC Act; (3) expanding the FTC’s authority to seek civil penalties in its own right in Federal court; and (4) giving the 

FTC the authority to challenge practices that aid or abet violations of the FTC Act.4

I. Financial Distress Fraud 

The downturn in the economy has had a severe impact on American consumers. 

The unemployment rate in the United States is now 9.4 percent,5 and the national 

foreclosure rate is over 12 percent.6 With Operation Short Change, the Commission 

struck back at scams that are targeting consumers during the current economic 

11 

7The Commission has actively pursued cases against fraudsters who falsely represented that 

they were affiliated with or endorsed by the U.S. Postal Service, and that postal jobs were available in areas where their ads appeared. In one recent case filed against U.S. Work Alliance, 

the Commission charged a nationwide marketing operation with allegedly violating Federal law 

by deceiving consumers into buying $120 to $140 worth of materials they thought would help 

them get Federal postal jobs. FTC v. U.S. Work Alliance, Inc., No. 08–CV–2053–WSD (N.D. Ga. 

June 19, 2008) (complaint). 8For a compelling illustration of how this type of scam harms consumers, see the statement 

made by Beverly Steward, a consumer who spoke during the FTC’s press conference announcing 

Operation Short Change, available at http://htc–01.media.globix.net/COMP008760MOD1/ftcl web/FTCindex.html#Julyl1l09. 9When the Commission discovers an entity is engaged in outright fraud, it uses aggressive 

law enforcement tools to bring the perpetrators to justice. After assembling a case against a suspected fraud, the Commission often applies to a Federal district court for an ex parte temporary 

restraining order to halt the deceptive conduct and an asset freeze to preserve the possibility 

of returning money to consumer victims. Indeed, in many of the telemarketing and business opportunity cases the Commission has brought, such as those described herein, staff has sought 

and Federal courts have entered temporary restraining orders or preliminary injunctions. 10FTC v. John Beck Amazing Profits, LLC, No. 09–CV–4719 (C.D. Cal. June 30, 2009) (complaint). 

downturn. The Commission’s recently filed cases fall into five broad categories of familiar fraud: (1) phony income-generating opportunities, (2) job placement scams, (3) 

government grant scams, (4) credit-related scams, and (5) mortgage loan modification scams. The Commission’s program to combat these types of fraud centers 

around its enforcement of Section 5 of the Federal Trade Commission Act (‘‘FTC 

Act’’), which prohibits unfair or deceptive acts or practices affecting commerce. 15 

U.S.C. § 45(a). 

A. Phony Job Placement Schemes 

In a time of economic distress with many Americans out of work, con-artists see 

the opportunity to take advantage of those seeking simply to earn an honest day’s 

wage. Recognizing that out of work Americans can least afford to fall victim to 

scams, the Commission aggressively pursues employment scams.7 As part of Operation Short Change, the Commission charged that Wagner Borges, operating as Job 

Safety U.S.A., targeted consumers who were searching for jobs as janitors and/or 

maintenance workers, using classified advertisements online and in newspapers.8

The complaint alleges that the defendant told job seekers that the only thing standing between them and a new job making ‘‘$11–$15/hour + benefits’’ was a five-digit 

‘‘certificate registration number’’ or ‘‘CRN.’’ In truth, the CRN was a ruse used by 

Borges, allegedly to trick consumers to pay him $98 for a worthless credential that 

did not lead to the job described. The Commission sought and obtained an ex parte 

temporary restraining order with an asset freeze to put an immediate end to 

Borges’s scheme.9

B. Fraudulent Income-Generating Opportunities: Work-At-Home, Investment, and 

Business Opportunities 

Most Americans are not looking for ways to get rich quick, but in times of economic distress, they often are looking for ways to supplement their income. Opportunists are quick to exploit the entrepreneurial spirit of Americans by hawking expensive business opportunities that purportedly will generate significant earnings. 

Typical business opportunity fraud involves the sale of vending machine routes or 

distributorships; medical billing scams; envelope stuffing scams; jewelry or craft assembly; and countless others. To convince people that the opportunity is worth the 

investment, hucksters sometimes give prospective purchasers the names of shills— 

phony references of prior customers who are purportedly experiencing significant 

success with the business opportunity. 

The economic downturn has presented opportunities for those who would seek to 

capitalize on the misfortune of Americans who have seen their jobs disappear or 

their incomes slide. As part of Operation Short Change, the FTC sued two fraudulent schemes using the home foreclosure crisis as fodder for their scams. First, the 

Commission alleges that Family Products, LLC runs infomercials pitching moneymaking programs that are supposedly easy for consumers to replicate.10 In one of 

these, the John Beck Free and Clear Real Estate System, defendants mention the 

high foreclosure rate our country has experienced, exploiting the crisis to pitch a 

program for acquiring abandoned properties for ‘‘pennies on the dollar.’’ Like many 

business opportunity scams, the defendants allegedly used false testimonials to convince consumers that they could earn substantial sums of money using their programs. The Commission’s June 30 complaint aims to halt the scheme and return 

12 

11FTC v. Freedom Foreclosure Prevention Services, LLC, No. 09–CV–1167–PHX–PJM (D. Ariz. 

June 1, 2009) (complaint). 12FTC v. Infusion Media, Inc., No. 2:09–CV–01112–RCJ (June 22, 2009) (complaint). 13Press Release, Federal Trade Commission, FTC Warns Consumers About Economic Stimulus Scams (March 4, 2009), available at http://www.ftc.gov/opa/2009/03/stimulusscam.shtm. 14FTC v. Paul Navestad, No. 09–CV–6329T (W.D.N.Y. June 25, 2009) (complaint). 

money to consumers, who paid more than $300 million for the defendants’ fraudulent money-making opportunities. 

Second, the FTC sued an Arizona-based scam taking advantage of consumers, including unemployed real estate agents and mortgage brokers trying to earn a living, 

and homeowners at risk of foreclosure.11 The complaint filed against Freedom Foreclosure Prevention Services, LLC (‘‘Freedom Foreclosure’’) and its principals alleges 

that they falsely claimed that business opportunity purchasers—after paying a fee 

of approximately $1,500—could easily earn $10,000 per month by referring homeowners for Freedom Foreclosure’s loss mitigation services. In fact, the Commission 

charged, homeowners who turned to Freedom Foreclosure for help routinely lost 

their homes to foreclosure, and none of Freedom Foreclosure’s 2,500 consultants 

earned the income they were promised for purportedly ‘‘helping’’ consumers out of 

foreclosure. On June 1, a Federal district court granted the Commission’s request 

for an ex parte temporary restraining order with a freeze on the defendants’ assets, 

and the Court later entered a stipulated preliminary injunction. 

Other investment scams, such as the one the Commission alleged against an entity using the name Google Money Tree, simply lure consumers into divulging their 

financial account information. Google Money Tree, the FTC alleges, advertised a 

low-cost kit ($3.88) that supposedly would enable consumers to earn more than 

$100,000 in 6 months.12 The defendants allegedly failed to disclose adequately that 

the small fee triggered recurring $72.21 monthly charges for consumers. The Commission charged that by prominently displaying the Google name and logo, and disclosing only a nominal charge, the defendants convinced consumers that submitting 

their credit card or debit card account information would be a low risk venture. In 

truth, the complaint alleges, the defendants’ supposed kit does not generate substantial earnings, defendants have no affiliation with Google, and they buried material terms and conditions of their offer in fine print and inconspicuously-placed 

hyperlinks. On June 23, a Federal court granted the FTC’s ex parte motion for a 

temporary restraining order to halt the scheme and freeze the defendants’ assets. 

C. Government Grant Scams 

Con-artists have sought to exploit the American Recovery and Reinvestment Act 

of 2009 by selling purported access to or expertise in obtaining free government 

grants. The FTC searched the Internet to identify those websites promoting ways 

to obtain a piece of the economic stimulus package, and in March 2009, held a press 

conference to warn consumers to beware of such scams.13 The event was highly successful at generating media coverage that reached consumers, as the story was 

picked up by national and regional media outlets. The FTC warned specifically of 

websites promising government grant money for any reason, even paying bills, and 

those that brazenly use the image of President Obama to add legitimacy to their 

misrepresentations. These scams ask consumers simply to provide personal information or send a very small payment to get information on how to get free government 

grant money. But, any financial account information in the hands of scam artists 

can be very costly for consumers. The Commission alerted consumers that whatever 

a website may say, the Federal Government does not award grants to individuals 

to pay personal expenses or bills, and the official source for information on available 

Federal Government grants is at www.grants.gov, a free website operated by the 

U.S. Department of Health and Human Services. 

As part of the Commission’s efforts, it reached out to industry for help in pulling 

down ads for such scams. At our request, major online ad networks have agreed to 

screen out ads touting the economic stimulus as providing grant opportunities for 

individual consumers. For instance, after being contacted about this problem, 

Facebook voluntarily pulled off the offending ads. We want to commend these networks for their help. The Commission also issued an alert to consumers to beware 

of scams relating to the economic stimulus package, stating particularly that the 

promise of stimulus money in return for a fee or financial information is always a 

scam. 

With Operation Short Change, the Commission aggressively targeted and pursued 

con-artists making bogus offers of free government grant money. After a painstaking 

investigation, on June 25, the Commission alleged that defendants operating as 

‘‘Cash Grants Institute’’ 14 placed robocalls containing prerecorded messages to conVerDate Nov 24 2008 11:53 Jun 15, 2010 Jkt 055982 PO 00000 Frm 00016 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\55982.TXT SCOM1 PsN: JACKIE
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15FTC v. In Deep Services, Inc., No. EDCV–09–1193–SGL (PGWx) (June 22, 2009) (complaint). 16FTC v. Group One Networks, Inc., No. 8:09–CV–0352–T–26–MAP (M.D. Fla. Feb.25, 2009) 

(complaint). 17FTC v. MCS Programs, LLC, No. C09–5380RBL (W.D. Wash. June 25, 2009) (complaint). 18See FTC v. Edge Solutions, Inc. of New York, No. CV–07–4087–JG–AKT (E.D.N.Y. Aug. 7, 

2008) (stipulated order and judgment for permanent injunction). 

sumers throughout the United States, advertising ‘‘free grant money available from 

Federal, state and local governments.’’ The complaint describes the numerous techniques the defendants allegedly used to create a false aura of legitimacy, such as 

placing pre-recorded calls purportedly coming from the Cash Grant Institute in 

Washington, D.C., using a website which includes images of President Obama and 

the U.S. Capitol building, and brazenly advertising a website as the ‘‘source of free 

money from the government.’’ The Commission charged that the defendants did not 

provide grants; instead, they just transferred consumers to other websites purportedly providing grant-related services. 

Other scams wave the promise of free government grant money as a lure to obtain 

consumers’ financial account information and initiate recurring charges. In a case 

filed June 23, again, after an intensive investigation, the Commission alleged that 

website operators, using names like Grants for You Now,15 represented that consumers who purchased their product would be likely to receive a government grant. 

One website, ornamented with the image of a suitcase bursting with money and 

boldly identifying specific Federal Government grants for housing and education, 

proclaimed that ‘‘anyone who needs money for’’ paying off debt, home repair, and 

personal expenses can ‘‘benefit.’’ Instead, the complaint charges, consumers who 

purchased the defendants’ software program unwittingly enrolled in a negative option continuity program, subjecting them to recurring monthly charges of nearly 

$100. In both cases, the Commission acted aggressively to put an immediate end 

to the fraud, seeking and obtaining ex parte temporary restraining orders and asset 

freezes from Federal district courts. 

D. Credit-Related Frauds 

With the tightening of credit in the marketplace, telemarketers and online sellers 

of advance-fee credit cards are aggressively targeting consumers. Consumers with 

poor credit histories are enticed with offers guaranteeing loans or general-purpose 

credit cards regardless of their credit histories. Often, the sales pitch includes false 

claims that the seller reports to the major credit bureaus and that the credit program will help the consumer build his credit. Consumers who pay a fee in advance 

to receive the purported credit card often discover that all they have received in return is either a stored value or debit card or a catalog card that can be used only 

to purchase merchandise from a particular paper or online catalog. 

This past February, as part of Operation Short Change, the Commission sued 

Group One Networks, a network of companies allegedly engaged in a telemarketing 

scheme to trick consumers into paying hundreds of dollars for credit cards that 

could only be used to purchase goods from a limited number of online catalog 

websites.16 The Commission charged that as part of the scheme, defendants allegedly obtained the financial account information of consumers who filled out online 

payday loan applications and, without the consumers’ knowledge or consent, 

charged them for a worthless credit card membership. Moving aggressively to halt 

these alleged law violations, the Commission sought and obtained an ex parte temporary restraining order, and later a preliminary injunction. 

Another scheme affecting consumers with credit problems is debt relief services. 

On June 25, the Commission sued Mutual Consolidated Savings,17 a company that 

allegedly placed pre-recorded or ‘‘robocalls’’ to market a supposed ‘‘rapid debt reduction’’ program. The defendants allegedly told consumers they would generate thousands of dollars in savings by negotiating interest rate reductions with their credit 

card companies, and they promised a refund of the $690 to $899 fee if they failed. 

The FTC alleged that defendants did fail, often refusing to refund consumers and 

leaving them even deeper in debt. The Commission sought and obtained an ex parte 

temporary restraining order and an asset freeze on June 26. 

Debt settlement companies also offer debt relief to consumers, promising for a fee 

to obtain a lump sum settlement from the creditor of the consumer’s credit card 

debt. These companies typically promise that they will negotiate with creditors to 

obtain settlements for amounts less than the full balance that the consumer owes. 

The FTC has brought a number of lawsuits against for-profit debt settlement companies that do not deliver on their promises.18 In some of these cases, the companies 

allegedly deceived consumers who were seeking help with their credit card bills into 

paying large up-front fees for debt relief services that were never provided. Some 

14 

19See Federal Trade Commission, Debt Settlement Workshop (Sept. 25, 2008), Transcript, 

available at http://www.ftc.gov/bcp/workshops/debtsettlement/OfficialTranscript.pdf. 20FTC v. Data Medical Capital, Inc., No. SA–CV99–1266AHS (C.D. Cal. filed May 27, 2009); 

FTC v. Dinamica Financiera LLC, No. CV09–3554MMM (C.D. Cal. filed May 19, 2009); FTC 

v. One or More Unknown Parties Misrepresenting Their Affiliation With the Making Home Affordable Program, No. CV–09–894 (D.D.C. filed May 14, 2009); FTC v. Federal Loan Modification Law Center, LLP, No. SACV09–401 CJC (C.D. Cal. filed Apr. 3, 2009); FTC v. Thomas 

Ryan, Civil No. 1:09–00535 (D.D.C. filed Mar. 25, 2009); FTC v. Home Assure, LLC, Case No. 

8:09–CV–00547–T–23T–SM (M.D. Fla. filed Mar. 24, 2009); FTC v. Hope Now Modifications, No. 

1:09–cv–01204–JBS–JS (D.N.J. Mar. 17, 2009); FTC v. New Hope Property LLC, No. 1:09–cv– 

01203–JBS–JS (D.N.J. Mar. 17, 2009); FTC v. National Foreclosure Relief, Inc., No. SACV09– 

117 (C.D. Cal. Feb. 2, 2009); FTC v. United Home Savers, LLP, No. 8:08–cv01735–VMC–TBM 

(M.D. Fla. Sept. 3, 2008); FTC v. Foreclosure Solutions, LLC, No. 1:08–cv01075 (N.D. Ohio April 

28, 2008); FTC v. Mortgage Foreclosure Solutions, Inc., No. 8:08–cv388–T–23EAJ (M.D. Fla. Feb. 

26, 2008); FTC v. National Hometeam Solutions, Inc., No. 4:08–cv–067 (E.D. Tex. Feb. 26, 2008); 

FTC v. Safe Harbour Foundation, No. 08 C 1185 (N.D. Ill. Feb. 25, 2008). 21See FTC v. Thomas Ryan, Civil No. 1:09–00535 (HHK) (D.D.C. filed Mar. 25, 2009). 22FTC v. Hope Now Modifications, No. 1:09–cv–01204–JBS–JS (D.N.J. filed Mar. 17, 2009); 

FTC v. New Hope Property LLC, No. 1:09–cv–01203–JBS–JS (D.N.J. filed Mar. 17, 2009). In 

these two cases, the court issued temporary restraining orders and asset freezes against the defendants. Both defendants later agreed to stipulated preliminary injunctions. 23FTC v. One or More Unknown Parties Misrepresenting Their Affiliation with the Making 

Home Affordable Program, No. CV–09–894 (D.D.C. May 14, 2009) (complaint). 24See FTC v. Federal Loan Modification Law Center, LLP, Case No. SACV09–401 CJC (C.D. 

Cal. filed Apr. 3, 2009). See also Press Release, Federal and State Agencies Crack Down on Mortgage Modification and Foreclosure Rescue Scams (Apr. 6, 2009), available at http:// 

www.ftc.gov/opa/2009/04/hud.shtm. 25 74 Fed. Reg. 26,118 (June 1, 2009). 

of the companies also falsely promised consumers that not paying their creditors 

would not hurt their credit ratings, and that purchasing their services would stop 

debt collectors from calling them. In addition to taking these law enforcement actions, the FTC last year convened a workshop to learn more about the debt settlement industry and develop solutions to the consumer protection problems they 

cause.19

E. Loan Modification and Foreclosure Rescue Services 

With the rapid increase in mortgage delinquencies and foreclosures, the FTC has 

stepped up its efforts to protect consumers from mortgage loan modification and 

foreclosure rescue scams. In a little over a year, the FTC has brought 14 cases targeting these scams,20 and is currently engaged in additional non-public investigations of providers of loan modification and foreclosure rescue services. 

The FTC’s law enforcement actions in this area typically have alleged the following: First, the defendants used terms like ‘‘guarantee’’ and ‘‘97 percent success 

rate’’ to mislead consumers about the effectiveness of the services they provide. Second, they charged up-front fees for their services. Last, after collecting the fee, the 

defendants did little or nothing to help consumers obtain a loan modification or stop 

foreclosure. Such operations not only defraud financially-distressed consumers out 

of desperately needed funds but also may lead them to forgo viable options to help 

them with their mortgage payments, such as getting assistance from a non-profit 

housing counselor, or discussing their payment problems with their servicer and 

continuing their payments. 

Sometimes, the defendants allegedly have used copycat names or look-alike 

websites to misrepresent that they are affiliated with a non-profit or government 

entity.21 The Commission, for example, recently filed two actions alleging that defendants used similar sounding names and other claims to misrepresent that they 

were part of the legitimate Hope Now Alliance of housing counselors and mortgage 

servicers.22 Similarly, the Commission recently filed an action alleging that defendants misrepresented that they were affiliated with the Administration’s ‘‘Making 

Home Affordable’’ programs.23 Defendants also sometimes allegedly misrepresent 

that Members of Congress or other government officials endorse their services or 

products.24

In addition to bringing law enforcement actions, the FTC has commenced a rulemaking to address unfair and deceptive acts and practices related to loan modification and foreclosure rescue services. Any proposed rules that the FTC would issue 

as part of this rulemaking would apply only to entities within the FTC’s jurisdiction 

under the FTC Act, which excludes banks, thrifts, and Federal credit unions, among 

others. The Commission issued its advanced notice of proposed rulemaking on June 

1, 2009, and the public has 45 days in which to file comments in response to this 

notice.25 Because of the serious risks to consumers in the current financial crisis, 

15 

26Telemarketing Sales Rule, 16 C.F.R. Part 310; Business Opportunity Rule, 16 C.F.R. Part 

437. 27 In 1994, Congress enhanced the Commission’s legal arsenal against fraud by enacting the 

Telemarketing and Consumer Fraud and Abuse Prevention Act (the ‘‘Telemarketing Act’’), 15 

U.S.C. §§ 6101–6108, which directed the Commission to issue a trade regulation rule defining 

and prohibiting deceptive or abusive telemarketing acts or practices. Accordingly, the Commission promulgated the TSR in 1995, which is codified in the Code of Federal Regulations, 16 

C.F.R. Part 310. 28 In December 2002, the Commission adopted amendments to the TSR that, among other 

things, established the National Do Not Call Registry, prohibited call abandonment, required 

(where feasible) transmission of Caller ID identifying information, and established important 

new safeguards in situations where telemarketers use preacquired account information. 68 Fed. 

Reg. 4580 (Jan. 29, 2003). The TSR also was recently amended to, among other things, bar telemarketing calls that deliver pre-recorded messages (so-called ‘‘voice blasting’’ or ‘‘robo calls’’), unless the consumer previously has agreed to accept such calls from the seller. Those amendments 

will become fully effective in September 2009. TSR Final Rule Amendments, 73 Fed. Reg. 51164 

(Aug. 29, 2008). 29Prior to the enactment of the TSR, the Commission brought 110 telemarketing cases pursuant to Section 5 of the FTC Act, which prohibits ‘‘unfair or deceptive acts or practices in or affecting commerce.’’ 15 U.S.C. § 45(a). 30 ‘‘Operation Tele-PHONEY’’ http://www2.ftc.gov/opa/2008/05/telephoney.shtm. The following is a sampling of some of the sweeps that the FTC and its law-enforcement partners have 

conducted over the past several years: ‘‘Dialing for Deception,’’ http://www.ftc.gov/opa/2002/ 

04/dialing.shtm (a sweep by the FTC that targeted telemarketing fraud in connections with inbound telephone calls); ‘‘Ditch the Pitch,’’ http://www.ftc.gov/opa/2001/10/ditch.shtm (a sweep 

targeting fraudulent out-bound telemarketing brought by the FTC and 6 states); ‘‘Operation No 

Credit,’’ http://www.ftc.gov/opa/2002/09/opnocredit.shtm (43 law enforcement actions, including criminal indictments, targeting a wide range of credit-related fraud brought by the FTC, the 

DOJ, the U.S. Postal Inspection Service, and 11 state and local authorities); ‘‘Operation Protection Deception,’’ http://www.ftc.gov/opa/2000/10/protectdecpt.shtm (a sweep against telemarketers of fraudulent ‘‘credit card protection’’ services with extensive assistance from 5 states 

and the Federal Bureau of Investigation (‘‘FBI’’)); ‘‘Senior Sentinel,’’ http://www.ftc.gov/opa/ 

1995/12/sen.shtm (a sweep targeting telemarketers who defraud the elderly coordinated by the 

DOJ and FBI, with 5 civil cases brought by the FTC, that led to hundreds of arrests and indictments across the country); ‘‘Project Telesweep,’’ http://www.ftc.gov/opa/1995/07/scam.shtm 

(nearly 100 cases filed by the FTC, DOJ and 20 states targeting business opportunity fraud 

often promoted through slick telemarketing). 

the FTC will proceed as expeditiously as practicable in conducting this rulemaking 

proceeding as a complement to its vigorous law enforcement efforts. 

II. Sustained FTC Enforcement and Other Activities Targeting Fraud 

In addition to the law enforcement activities described above, the Commission also 

targets fraud by enforcing the Telemarketing Sales Rule and the Business Opportunity Rule.26 With these rules, the Commission’s anti-fraud law enforcement program reaches fraud perpetrated through telemarketing, print advertising, and, with 

ever increasing frequency, online. 

A. Enforcement of the Telemarketing Sales Rule 

The Commission has developed a robust law enforcement program against fraudulent telemarketers. Since the 1996 promulgation of the Telemarketing Sales Rule 

(‘‘TSR’’),27 which now includes the privacy protections of the National Do Not Call 

(‘‘DNC’’) Registry,28 the Commission has initiated 271 telemarketing cases aimed at 

halting various telemarketing frauds, such as unauthorized debiting of consumers’ 

financial accounts, as well as the deceptive sales of various goods and services, including work-at-home opportunities, advance-fee credit cards, government grants, 

sweepstakes and prize promotions.29 The Commission’s efforts have broadly targeted not only fraudulent telemarketers, but also the third-parties that assist them. 

Many of the Commission’s actions have been brought as part of coordinated law enforcement sweeps of the telemarketing industry, such as Operation Tele-PHONEY, 

which included 180 actions by state, Federal, and international law enforcement 

agencies to crack down on telemarketing fraud.30 Many cases against deceptive telemarketers also allege violations of the Do Not Call or related privacy protection provisions of the TSR. Twenty-eight cases have alleged only violations of Do Not Call 

and/or other privacy provisions of the TSR. Ultimately, almost all of these cases resulted in permanent injunctions against the defendants which severely restricted or 

banned defendants’ deceptive or abusive marketing sales practices. The pursuit of 

these cases by the Commission has resulted in orders providing for over $540 million in consumer restitution or, where that was not practicable, disgorgement to the 

U.S. Treasury. During this period, through cases filed on its behalf by the U.S. DeVerDate Nov 24 2008 11:53 Jun 15, 2010 Jkt 055982 PO 00000 Frm 00019 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\55982.TXT SCOM1 PsN: JACKIE
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31 Civil penalty actions are filed by the Department of Justice (‘‘DOJ’’) on behalf of the FTC. 

In general, under the FTC Act, the Commission must notify the Attorney General of its intention to commence, defend, or intervene in any civil penalty action under the Act. 15 U.S.C. 

§ 56(a)(1). DOJ then has 45 days, from the date of the receipt of notification by the Attorney 

General, in which to commence, defend or intervene in the suit. Id. If DOJ does not act within 

the 45-day period, the FTC may file the case in its own name, using its own attorneys. Id. 32 Until 2007, business opportunities were covered under the original Franchise Rule, 16 

C.F.R. Part 436. In 2007, the Commission amended Part 436 to apply only to business format 

franchises, and created Part 437 to cover business opportunities. Final Rule on Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunities, 72 Fed. Reg. 

15444 (March 30, 2007). The Business Opportunity Rule is identical to the corresponding portions of the original Franchise Rule except that it deletes the definitional elements and references regarding business format franchising that are now covered by the amended Franchise 

Rule. Id. 

The Business Opportunity Rule, Part 437, is currently under regulatory review and is in the 

process of being amended. See Notice of Public Workshop on the Business Opportunity Rule, 74 

Fed. Reg. 18712 (April 24, 2009). Among other things, the proposed amendments would expand 

the scope of the rule to cover entities that previously were not covered under the Franchise 

Rule, such as many work-at-home schemes. The amendments also would simplify the disclosure 

document that sellers are required to provide prospective purchasers. 33 E.g., Project Fal$e Hope$ (2006); Project Biz Opp Flop (2005); Project Busted Opportunity (2002); Project Bizillion$ (1999); Operation Money Pit (1998); Project Vend Up Broke (1998); 

Project Trade Name Games (1997); Operation Missed Fortune (1996); and Project Telesweep 

(1995). In addition to joint law enforcement sweeps, Commission staff has also targeted specific 

business opportunity ventures such as envelope stuffing (Operation Pushing the Envelope 2003); 

medical billing (Operation Dialing for Deception 2002, and Project Housecall 1997); seminars 

(Operation Showtime 1998); Internet-related services (Net Opportunities 1998); vending (Project 

Yankee Trader 1997); and 900 numbers (Project Buylines 1996). 34The Business Opportunity Rule requires sellers to make numerous disclosures to consumers, such as, among other things, the seller’s litigation history, a list of prior purchasers 

of the business opportunity, the seller’s refund and cancellation policy, and if the seller makes 

a claim about likely earnings, the basis for that claim. 16 C.F.R. Part 437.1(a)(4), (7), (16)(iii); 

437.1(b)(3). 

partment of Justice,31 the Commission has obtained civil penalty orders and equitable monetary relief totaling nearly $31 million. 

B. Enforcement of the Business Opportunity Rule 

Like its telemarketing anti-fraud program, since 1981, the Commission has had 

a vigorous program to pursue fraudulent purveyors of business opportunities, scams 

which can cost individual consumers thousands of dollars. The Commission uses 

Section 5 of the FTC Act to pursue business opportunity fraud, often charging violations of the Business Opportunity Rule (formerly, the Franchise Rule), as well.32

Since 1981, the Commission has initiated over 262 actions to halt business opportunity schemes promising money through vending machine routes, medical billing, 

rack display, Internet kiosk, 900-number ventures, envelope stuffing, and many 

other schemes. 

The Commission routinely works cooperatively with other Federal and state law 

enforcement agencies to combat business opportunity fraud, often leading sweeps of 

the industry. Since 1995, the Commission has conducted more than 15 business opportunity sweeps to combat persistent business opportunity fraud.33 These sweeps 

bring public attention to these types of fraud and heighten consumer awareness of 

how to avoid losing money in these schemes. Through the Business Opportunity 

Rule itself, which requires that sellers make certain pre-sale disclosures to prospective purchasers, the Commission aims to put material information into consumers’ 

hands before they make a hefty investment in a business opportunity.34

The Commission values the cooperative relationships it has fostered with the 

states and other Federal agencies. Although the Commission does not have criminal 

law enforcement authority, it recognizes the importance of criminal prosecution to 

deterrence and consumer confidence. Accordingly, the Commission routinely refers 

matters appropriate for criminal prosecution to Federal and state prosecutors 

through its Criminal Liaison Unit (‘‘CLU’’). Since October 1, 2002, 349 people have 

been indicted and 238 have been convicted in criminal cases that arose from referrals made by CLU, including cases where an FTC attorney was designated a Special 

Assistant U.S. Attorney to help with the criminal prosecution. 

C. Consumer and Business Education 

In addition to the Commission’s law enforcement activities, the agency reaches 

out to consumers to give them the tools they need to recognize and avoid fraud. In 

response to the recent economic downturn, the FTC developed several initiatives to 

help people manage their financial resources, avoid fraud, and be aware of emerging 

17 

35 Available at http://www.ftc.gov/multimedia/video/scam-watch/fraud-inside-look.shtm. 36 Reports of the results of those two surveys, ‘‘Consumer Fraud in the United States: An FTC 

Survey, FTC Staff Report,’’(Aug 2004) (‘‘2003 Survey’’) and ‘‘Consumer Fraud in the United 

States: The Second FTC Survey, FTC Staff Report,’’(Oct 2007) (‘‘2005 Survey’’) are available at 

http://www2.ftc.gov/reports/consumerfraud/040805confraudrpt.pdf and http://www2.ftc.gov/ 

opa/2007/10/fraud.pdf, respectively. 37Panelists and presenters at the Fraud Forum included 20 representatives from 16 Federal, 

state, and international law enforcement or consumer protection agencies. 

scams. We share our consumer education materials with state attorney general offices and various local organizations to help get the word out to the public. 

For instance, with Operation Short Change, the Commission developed and released a video to educate the public on business opportunity fraud.35 The video features a former con-artist, Jim Vitale, describing the tools of the trade, including the 

techniques he used to rush consumers into sending their money. It provides a sobering glimpse into the lives of two individuals who lost money in business opportunity 

scams, and it gives consumers concrete advice on what they should do before investing in a business opportunity. 

In conjunction with a Federal-state crackdown on mortgage foreclosure rescue 

scam operators, the FTC produced a toolbox of mortgage-related resources for homeowners in distress; they are featured on a new web page at www.ftc.gov/ 

MoneyMatters. Indeed, groups including NeighborWorks America, and the Homeowners Preservation Foundation—a nonprofit member of the HOPE NOW Alliance 

of mortgage industry members and U.S. Department of Housing and Urban Development-certified counseling agencies—are distributing FTC materials directly to 

homeowners at borrower events across the country, on their websites, in their statements, and even on the phone: when people call the Nation’s major mortgage 

servicers, they hear about the tell-tale signs of a mortgage foreclosure scam while 

they are on hold. Next month, the agency will distribute to thousands of community 

organizations, HUD-certified housing counselors, and state attorneys general across 

the Nation copies of a new video featuring the stories of real people who are working with legitimate counselors to save their homes from foreclosure. 

The agency has focused outreach efforts on a number of other issues faced by people in economic distress, including stimulus scams, rental scams, church ‘‘opportunity’’ scams, offers for bogus auto warranties, and solicitations for phony charities 

that play on the public’s concern for the welfare of our military troops and public 

safety personnel, especially at a time when budgets are shrinking. 

Finally, in an effort to stem the number of false or misleading claims that consumers see, the agency has a publication for publishers and broadcasters to alert 

them to the kinds of claims—extravagant earnings promises, for example—that can 

signal a rip-off. The Commission also offers sample public service announcements 

that newspapers can run in the business opportunity section of their classified section to remind readers to do their homework before buying a business opportunity. 

D. Research and Policy Development 

To complement its law enforcement and educational initiatives, the Commission 

regularly conducts research to stay abreast of marketplace developments, and ensure the agency is best situated to prevent, deter, and halt consumer fraud. Toward 

these ends, the Commission has conducted two consumer fraud surveys, in 2003 and 

2005, seeking to quantify fraud in the United States, and will continue to conduct 

research in 2010.36

More recently, to examine consumer fraud in depth, the Federal Trade Commission staff held a two-day Fraud Forum on February 25 and 26, 2009. In addition 

to Federal, state and international law enforcers, staff invited consumer advocates, 

business representatives, criminologists and sociologists, all of whom share a keen 

interest in understanding fraud, and identifying ways to more effectively protect 

consumers from fraudulent schemes.37 The purposes of the Forum were both to gain 

a greater understanding of fraud and the ways that fraud artists ply their trades, 

and to harness the collective knowledge and experience of Forum participants to advance anti-fraud initiatives. 

The Forum focused on the dynamics of fraud, including common traits of 

fraudsters and characteristics of victims in order to develop better methods of deterrence and prevention. As a reminder to law enforcement of the threat posed by the 

economic downturn, Jim Vitale, a former con-artist who participated in the forum, 

aptly noted: ‘‘I’d have to say that the potential for business opportunity fraud is 

18 

38Federal Trade Commission, Fraud Forum, Panel 1: Becoming a Scam Artist, Understanding 

the Victim: Exploring the Psychology of Scammers and Victims, at 45–46 (February 25–26, 

2009), transcript available at http://htc–01.media.globix.net/COMP008760MOD1/ftclweb/ 

transcripts/022509lsess1.pdf. Vitale’s input at the fraud forum was leveraged in making the 

educational video released as part of Operation Short Change. See supra note 33. 39 Available at http://www.ftc.gov/opa/2009/06/chicagoround.shtm (press release). 40 Available at http://www.ftc.gov/opa/2009/03/stimulusscam.shtm (press release) and 

http://htc–01.media.globix.net/COMP008760MOD1/ftclweb/FTCindex.html#Marchl4l09 

(webcast of press conference). 41 Available at http://www.ftc.gov/moneymatters. 42These recommendations are discussed in greater detail in the FTC’s April 8, 2008 testimony 

before the House Committee on Energy and Commerce, Subcommittee on Commerce, Trade, and 

Consumer Protection, which is available at http://www2.ftc.gov/os/testimony/P034101 

reauth.pdf. 43Please see Commissioner Kovacic’s dissent in note 4. 44Since the Supreme Court’s ruling in Central Bank of Denver v. First Interstate Bank of Den- ver, 511 U.S. 164 (1994), which cast doubt on the argument that Section 5 of the FTC Act could 

reach ‘‘aiding and abetting’’ another person’s violation, the Commission’s ability to pursue those 

who assist and facilitate unfair or deceptive acts and practices has been compromised. Although 

the Commission has developed alternative ‘‘assistance’’ theories to reach secondary actors, these 

theories may make liability more difficult to prove than if the FTC had specific statutory authority in this area. See, e.g., FTC v. Winstead Hosiery Co., 258 U.S. 483, 494 (1922) (establishing 

the doctrine that providing the means and instrumentalities by which unfair or deceptive practices occur is itself an unfair or deceptive practice in violation of the FTC Act). 45The Telemarketing Act is one statute that specifically gives the FTC express authority to 

pursue aiders and abetters. 15 U.S.C. § 6102(a)(2). Based on this express authority, Section 

310.3(b) of the TSR prohibits providing ‘‘substantial assistance or support to any seller or telemarketer when that person knows or consciously avoids knowing that the seller or telemarketer’’ is engaged in certain practices that violate the Rule. 16 C.F.R. § 310(b). The Commission has included an ‘‘assisting and facilitating’’ allegation in at least two dozen cases since the 

greater now than it would be in a booming economy . . . If the right marketing is 

done, it’s [the] perfect storm.’’ 38

Looking ahead, the Commission will be hosting a roundtable this fall to examine 

consumer protection issues that arise in debt collection proceedings against individual consumers.39

III. Enhancing the FTC’s Fraud-Fighting Tools 

The cases discussed in this testimony are only part of the Commission’s continuous efforts to protect financially-distressed consumers from fraud during the current economic downturn. An effective program depends on communication with the 

public to help the Commission spot fraud, track complaints, and provide Americans 

with tools that will help them avoid falling prey to fraud. Fraud investigations are 

aided by the Commission’s considerable investment in technology, such as Consumer Sentinel, a database of complaints collected from consumers. As noted above, 

the Commission’s law enforcement sweeps provide an opportunity to reach the public through media coverage of law enforcement crack-downs on fraud. And, through 

the use of consumer alerts, such as the Commission’s warning to consumers about 

economic stimulus grant scams (March 2009),40 and consumer education, such as 

the FTC’s website ‘‘Money Matters’’ (March 2009),41 the Commission strives to give 

consumers the most current resources to help them spot and avoid financial scams. 

The agency’s vigorous pursuit of its consumer protection mission, however, is 

hampered by the Commission’s insufficient resources and its limited authority. Increased resources and certain expansions of its legal authority would improve the 

Commission’s ability to act quickly to protect consumers from scams and would 

serve to deter would-be fraudsters and those who assist them.42 To that end, the 

Commission first asks Congress to provide the agency with more resources to increase its law enforcement and consumer protection activities. Second, the Commission recommends that Congress authorize the agency to employ notice and comment 

rulemaking procedures for unfair and deceptive acts and practices under the FTC 

Act. Third, the Commission recommends that Congress authorize the FTC to seek 

civil penalties for violations of Section 5 of the FTC Act and, to promote efficiency 

and expediency, to seek civil penalties in its own right in Federal court without 

being required to refer enforcement of civil penalty proceedings to the U.S. Department of Justice.43

Finally, the Commission believes that an expansion of its authority to include the 

ability to challenge practices that aid or abet violations of the FTC Act, could be 

beneficial to the Commission’s consumer protection law enforcement program.44 Effective law enforcement often requires reaching not only the direct participants in 

unfair or deceptive practices, but also those who support and enable the direct participants to violate the law.45 The need for this authority has become particularly 

19 

TSR was adopted. See, e.g., FTC v. Assail, Inc., No. W03CA007 (W.D. Tex. final orders entered 

Jan. 2005); U.S. v. DirecTV, Inc., No. SACV05 1211 (C.D. Cal. final order entered Dec. 2005); 

U.S. v. Entrepreneurial Strategies, Ltd., No. 2:06–CV–15 (WCO) (N.D. Ga. final order entered 

Jan. 2006). 

clear in the Internet era, in which online frauds involve numerous actors with 

murky and varying roles in complicated channels of distribution. Making it easier 

for the Commission to challenge those who provide assistance to others who are violating Section 5 of the FTC Act could help the agency attack the infrastructure that 

supports Internet fraud, such as in the online scams described above. 

IV. Conclusion 

The economic downturn has shown how quickly and easily opportunists adopt 

schemes to take advantage of individuals in financial distress. The Commission is 

committed to using its law enforcement authority aggressively to bring these 

schemes to a halt, and to continue deploying public alerts and educational materials 

to help consumers avoid being victimized in the first instance. The Commission supports legislation that would help it do more to protect consumers by authorizing it 

to issue consumer protection rules and obtain civil penalties for violations of those 

rules. 

Thank you for providing the Commission with the opportunity to appear before 

the Committee to describe its efforts in this critical area. 

Senator PRYOR. Thank you. 

Our next witness will be Chuck Bell, Director of Programs, Consumers Union. 

STATEMENT OF CHARLES BELL, DIRECTOR OF PROGRAMS, 

CONSUMERS UNION 

Mr. BELL. Good morning, Mr. Chairman and Members of the 

Committee. Thank you very much for holding this hearing on ways 

to protect consumers, during the current economic downturn, 

against deceptive practices, fraud, and scams. 

Consumers Union is the independent, nonprofit publisher of Consumer Reports, with a circulation of 7 million, Consumer Reports 

plus ConsumerReports.org subscribers. As part of our work, we regularly research and report on misleading and deceptive practices 

that affect consumers. We report on scams and fraud, both to alert 

consumers so they can protect themselves, and also to alert law enforcement agencies and policymakers so they can take action to directly curtail and stop these unethical, deceptive, and fraudulent 

practices. 

Over the last several months, we have reported on a variety of 

anticonsumer practices that are affecting financially-distressed 

families which we think are worthy of attention by your committee. 

As the Committee is well aware, this is a very tough time for 

workers and consumers, and, when the economy falters, it’s prime 

time for ploys that claim to help consumers get out of money 

messes. Consumers are at risk for a variety of get-rich-quick 

schemes and financial cons that target them specifically because 

they need fast help and are increasingly desperate. 

While many such frauds exists in both good and bad times, the 

con artists appear to expand their marketing efforts in recessions 

and come up with very clever angles to attract new victims. 

In March, Consumer Reports published ‘‘Financial Traps are 

Flourishing,’’ an article that profiles several very costly financial 

traps that prey on financially-distressed consumers. Some of the financial traps include foreclosure rescue scams, hard-sell reverse 

mortgages, and high debt settlement services. 

20 

Briefly, the foreclosure rescue scams, we profiled an Illinois family who lost their home when a company promising loan modification and rescue services left them high and dry after receiving an 

up-front fee of $1,347. More than 200 Illinois consumers experienced the same problems or similar problems with this firm, according to a complaint by the Illinois Attorney General. We believe 

that the collection of advance fees for loan modification schemes 

and debt settlement is a key problem, and we are currently supporting State legislation in California aimed at prohibiting the collection of advance fees for foreclosure rescue. 

This is a national problem, with a projected 3.5 million mortgage 

foreclosures set to take place this year, so Consumers Union is very 

pleased that the FTC is now using its powers to promulgate rules 

prohibiting or restricting unfair or deceptive acts or practices concerning mortgage servicing and loan modification and rescue 

schemes. 

With respect to hard-sell reverse mortgages, our March article 

also warned consumers against the dangers of hard-sell reverse 

mortgages. Banks and mortgage lenders are targeting seniors, with 

a blitz of television ads to entice them to take equity out of their 

homes through reverse mortgages. In an economy when many families’ savings have plummeted, such offers may, indeed, be attractive, but the lenders often bundle high fees, insurance charges, and 

commissions into the loan and try to aggressively cross-sell consumers with other types of financial products, such as annuities, 

which may well not be suitable for them. 

Consumers Union believes that the sellers of reverse mortgages 

should be required to make sure that the loan is suitable for the 

borrower and that there is independent, one-on-one premortgage 

counseling. We also believe there should be caps on origination fees 

for all reverse mortgages, and better restrictions on sales practices. 

We commend Senator Claire McCaskill, whose proposed legislation in this area aimed at preventing fraud and reverse mortgages 

and requiring that ads for government-backed mortgages present a 

balanced view of their risks and benefits. 

High fee debt settlement. We profiled a family ensnared by a 

company offering these services, who collected the fees, but provided no significant services. This industry, as we heard earlier, 

has expanded rapidly as consumer debt has grown and changes in 

Federal laws made it very difficult to file for personal bankruptcy. 

Attorney generals in New York and Texas have filed suit against 

debt settlement companies for failing to provide services to customers. We believe that the FTC should ban the charging of advance fees in debt settlements and cap fees based solely on a low 

percentage of the amount of which the debt is actually and permanent reduced below the amount owned—owed when the debt settlement contract was first signed. 

In addition, we believe all of these financial problems could be 

dramatically reduced if Congress will pass legislation to create a 

consumer financial protection agency which would meet a critical 

public need for stronger consumer protection and financial services, 

both by more carefully reviewing the financial products that are offered and strengthening enforcement in response to consumer problems and complaints. 

21 

In recent months, Consumer Reports and other consumer protection officials have also warned about a range of other recession-related Internet scams related to employment and work, and these 

include job search services, unemployment benefit scams, work-athome schemes, and websites that promise access to government 

grants. 

We very much appreciate the efforts of the FTC and other consumer watchdog groups and regulators to shut down such practices. We would also encourage media and Internet companies that 

accept advertising to carefully scrutinize the advertisements that 

make unsupported promises and take advantage of financiallystressed consumers or ads that make unethical or questionable 

claims. We believe that, as a matter of corporate responsibility, 

companies that accept advertising should not be setting consumers 

up for financial heartbreak. 

The diverse financial come-ons and ripoffs described here today 

come in a variety of forms and permutations, and, unfortunately, 

don’t lend themselves to a one-size-fits-all silver-bullet solution. 

However, we believe that everyone, across the board, needs to do 

more, starting with the consumer, who has to be ever on their 

guard, very skeptical of offers of financial help and extra income, 

and particularly when those offers come from businesses they don’t 

know or have an unfamiliar track record. We also think businesses 

should exercise more corporate responsibility, and they should redesign or withdraw products with high fees or financial traps built 

into them. 

We think it’s also a critical time to provide generous resources 

to our State and Federal regulators so that they can step up the 

enforcement of companies that deceive and defraud consumers. Our 

public agencies are on the front line of fighting these practices, and 

they should impose sharp civil and criminal penalties for companies that violate the law. 

We would also urge State and Federal policymakers to consider 

new consumer protections against unfair and deceptive practices. 

Economic fraud has a high financial and personal cost for consumers, and it could undermine public confidence in the marketplace in a renewed economy. 

We hope our Nation will lift up our financially-distressed families, and not push them down with deceptive practices and drive 

them further into debt. 

Thank you very much, and I look forward to answering any questions. 

[The prepared statement of Mr. Bell follows:] 

PREPARED STATEMENT OF CHARLES BELL, PROGRAMS DIRECTOR, CONSUMERS UNION

Introduction 

Mr. Chairman, Members of the Committee: 

Thank you very much for the invitation to testify on ways to protect consumers 

against deceptive practices, fraud and scams during the current economic downturn. 

We commend you for holding this hearing to focus attention on ways to protect consumers and encourage a safer marketplace. 

22 

1 Consumers Union, the nonprofit publisher of Consumer Reports, is an expert, independent 

organization whose mission is to work for a fair, just, and safe marketplace for all consumers 

and to empower consumers to protect themselves. To achieve this mission, we test, inform, and 

protect. To maintain our independence and impartiality, Consumers Union accepts no outside 

advertising, no free test samples, and has no agenda other than the interests of consumers. Consumers Union supports itself through the sale of our information products and services, individual contributions, and a few noncommercial grants. 

Consumers Union 1 is the independent, non-profit publisher of Consumer Reports, 

with circulation of over 7 million (Consumer Reports plus ConsumerReports.org subscribers). As part of our work, we regularly research and report on misleading and 

deceptive practices that affect consumers. We report on scams and fraud both to 

alert consumers, so they can protect themselves; and to alert law enforcement agencies and policymakers, so they can take action to directly curtail and stop these unethical, deceptive and/or fraudulent practices. 

Over the last several months, we have reported on a variety of anti-consumer 

practices that are affecting financially-distressed families which we think are worthy of attention by your Committee. 

These diverse financial come-on and ripoffs come in a variety of forms and permutations, and unfortunately do not lend themselves to a one-size-fits all, silver bullet solution. However, we believe that given the risks to consumers, everyone must 

do more: 

• Consumers must be ever on their guard, and be very, very skeptical of offers 

of financial help and extra income, particularly when those offers come from 

businesses they don’t know, or have an unfamiliar track record. They should 

seek second opinions and advice from knowledgeable and respected sources of 

information, including trusted friends, consumer protection agencies and watchdog groups, government agencies, attorneys, homeownership counselors and 

others, prior to handing over cash, or signing contracts or agreements that obligate them financially. 

• Businesses that sell products with high fees or financial traps built into them 

should withdraw or redesign such products, or in other cases provide much better disclosure, counseling and protections for customers. In addition, businesses 

have an important role to play in strengthening the protection of sensitive customer information, to prevent security breaches and identity theft. 

• Media and Internet companies that accept advertising should carefully scrutinize advertisements for products or services that make unsupported promises, 

take advantage of financially-stressed consumers, or make unfair, unethical or 

questionable claims. As a matter of corporate responsibility, companies that accept advertising should not be setting consumers up for financial heartbreak. 

To their credit, some Internet search companies now specifically warn consumers about websites that could include spyware or malware. These companies 

may be able to do much more to reduce and suppress deceptive ads, and warn 

consumers against financial scam websites that receive failing grades from 

watchdog groups and/or government regulators. 

• State and Federal regulators should step up enforcement of companies that deceive and defraud consumers, and impose sharp criminal and civil penalties for 

companies that violate the law. 

• State and Federal policymakers should consider new consumer protections to 

protect consumers against unfair and deceptive practices that target financiallydistressed households. In particular, legislation pending before Congress to establish a Consumer Financial Protection Agency would greatly help to protect 

consumers in good times and bad, and ensure that laws against deceptive practices and fraud are effectively enforced. 

• Economic fraud has a high financial and personal cost for consumers, could undermine public confidence in the marketplace and a renewed economy. Consumer protection should be a pillar of economic reconstruction, to ensure that 

people who work hard and save for the future will not be unfairly deprived of 

their income and assets. 

Rising Unemployment Fuels Consumer Financial Distress 

As the Committee is well aware, this is a very tough time for workers and consumers. The official unemployment rate is 9.5 percent, the highest in 25 years. 14.7 

million people are unemployed, and another 9 million people are working part-time 

because they can’t find a full-time job. This is now the worst recession in post-World 

War II history in terms of total jobs losses. Mass layoffs—job cuts of 50 or more 

23 

2 Nocera, Joe. ‘‘From Treasury to Banks, An Ultimatum on Mortgage Relief,’’ The New York 

Times, July 11, 2009. 3 Ibid. 

4Stern, Linda. ‘‘Personal Finance: Beware Scams and Sales Pitches,’’ Reuters.com, July 8, 

2009. 5 Consumer Reports. ‘‘Financial Traps are Flourishing,’’ March 2009. 

people by a single employer—are at their highest since continuous tracking began 

in April 1995, according to the U.S. Department of Labor. 

The bleak employment picture contributes to severe financial distress for families 

and individuals throughout the country. According to Economy.com, 15 million 

home-owning households are ‘‘under water,’’ meaning that the owners’ mortgage balance is higher—often considerably higher—than the value of the homes.2 As many 

as 3.5 million families may lose their homes to foreclosure this year,3 and Consumers Union estimates that every 13 seconds, another home goes into foreclosure. 

Home equity loan and credit card delinquency rates were at record levels in the first 

quarter of the year, and tens of millions of households are struggling with bills they 

can’t pay. 

When the economy falters, it’s prime time for ploys that claim to help consumers 

out of money messes. Unfortunately, as Linda Stern of Reuters has written, ‘‘. . . 

stocks and bonds might be down and out, but there is a bull market in cons.’’ 4 Consumers are at risk for a variety of get-rich-quick schemes and financial cons that 

target them specifically because they need fast help and/or are increasingly desperate. While many such frauds exist in both good times and bad times, the con 

artists expand their marketing efforts in recessions, and come up with very clever 

angles to attract new victims. 

Five Types of Recession-Oriented Financial Scams 

In March 2009, Consumer Reports published ‘‘Financial Traps are Flourishing,’’ an 

article that profiles five types of costly financial traps that prey on financially-distressed consumers in troubled times.5 A common theme of these consumer rip-offs 

is that ‘‘their financial fine print could leave [consumers] in worse shape than before.’’ Here are some examples of how financially-stressed households are affected 

by these practices. 

1. Foreclosure Rescue Scams 

First-time homeowners Kari and Roger Mizer of Springfield, Ill., faced foreclosure 

on their home in 2007 after the monthly payment on their adjustable-rate mortgage 

hit $1,850. It was just $900 when they bought their house 2 years earlier. 

Frustrated after being turned down for refinancing by more than 40 lenders, the 

Mizers had hope when they received a letter from a mortgage-restructuring firm 

that claimed to have a 95.5 percent success rate in stopping foreclosures. ‘‘As a 

member of the Better Business Bureau, you can trust us and avoid numerous dishonest scams,’’ said a letter they say they received from Augustus, Rae and Reed, 

based in St. Marys, PA. 

The Mizers checked with the Better Business Bureau and found no complaints. 

So the couple said they tapped Roger’s 401(k) retirement plan in May 2007 to pay 

the firm’s up-front fees of $1,347. 

‘‘They told us we shouldn’t communicate with the mortgage company anymore because they would do that instead and work out a repayment plan to save our 

house,’’ says Kari Mizer, a school food-service worker. When she began getting calls 

a month later from the mortgage lender about foreclosure proceedings, she was told 

that the firm had never contacted the bank. The Mizers’ home was put up for sale 

by the court around Christmas 2007 and auctioned off. They are now renting a 

house. 

‘‘All of the people who we talked to about refinancing or finding some way to keep 

our home acted like it was no big deal, that it’s just a house after all. But this was 

our home, and I cried for days because losing it was like going through a death in 

the family,’’ Kari Mizer says. The Mizers’ experience with a ‘‘rescuer’’ that charges 

an up-front fee for help that never comes is a common foreclosure-prevention trap. 

In fact the Mizers were among more than 200 Illinois consumers cited in a complaint against Augustus, Rae and Reed filed by Illinois Attorney General Lisa Madigan in September 2008. 

The complaint contends that the firm violated state law by charging for services 

that it did not provide, in many cases failing to negotiate at all or simply submitting 

paperwork that consumers easily could have provided themselves. The state is seeking the return of fees and the imposition of penalties. In other cases, homeowners 

are pressed into signing documents that transfer the title of their home to the 

scammer. 

24 

Public notices of foreclosure proceedings usually trigger mail, phone, and even 

door-to-door solicitations. But consumers should steer clear of any company that initiates such contact, demands a fee before providing services, or advises cutting contact with the mortgage company. That can delay legitimate options for preventing 

foreclosure proceedings. If anyone asks for an up-front fee or payment of any kind 

for counseling, that’s a signal that you’re dealing with a possible pretender. 

What consumers should do: Consumers anticipating problems making mortgage 

payments should seek legitimate free or low-cost help as soon as possible. Consumers can contact a housing counseling agency certified by the Department of 

Housing and Urban Development (www.hud.gov/foreclosure or 800–569–4287). 

Their agents can assess options and advise you in negotiating with the lender. Advice is also available at the Homeowner’s Hope Hotline, at 888–995–4673 (see box 

below). Another good source of help is the Institute for Foreclosure Legal Assistance, 

www.foreclosurelegalassistance.org, which funds and trains groups nationwide that 

give subsidized legal representation to families facing foreclosure. 

What policymakers and regulators can do: With a projected 3.5 million mortgage 

foreclosures set to take place this year, the FTC’s current and future investigative 

and enforcement work in this area is needed now more than ever. Consumers Union 

supports proposed state and Federal legislation that would prevent foreclosure rescue scams by creating additional protections for consumers who pay fees for rescue 

and loan modification services. In addition, Congress could pass legislation to create 

a Consumer Financial Protection Agency, which would meet a critical public need 

for stronger consumer protection in financial services, both by more carefully reviewing the financial products that are offered, and strengthening enforcement in 

response to consumer problems and complaints. 

2. Hard-sell Reverse Mortgages 

Helped along by television ads featuring actor James Garner and other celebrities, 

financial firms are enticing seniors to take equity out of their homes through reverse mortgages. Federally-insured reverse mortgages allow homeowners 62 and 

older to borrow against home equity and receive tax-free cash. The money borrowed 

plus interest is repaid only after the homeowner dies or moves out. The industry 

is expecting growth of these loans to accelerate since the lending limit has risen to 

$417,000. 

But a reverse mortgage should be a last resort. When homeowners use it to 

splurge on travel or pay off credit cards, they lose an important safety net that 

might be needed for an emergency. Lenders, though, are promoting a wide range 

of uses for reverse-mortgage cash. Financial Freedom Senior Funding Corp. of 

Irvine, Calif., suggests using the money for ‘‘special things you’ve always wanted to 

do, such as travel or hobbies.’’ Financial Freedom is a subsidiary of IndyMac Bank, 

which was taken over by the Federal Deposit Insurance Corp. in 2008. A sale of 

IndyMac is pending. 

The dangers are outlined in a lawsuit filed against Financial Freedom. The suit 

claims that the company advised its business partners to encourage seniors to take 

out as much money as possible in reverse mortgages so that the fees and interest 

paid to lenders would be maximized. The complaint goes on to say that Financial 

Freedom encouraged and trained partners, some of whom were insurance agents, 

to sell insurance products to seniors with the money gained from the reverse mortgage. In turn, Financial Freedom would obtain additional interest on the extra 

money borrowed. 

The plaintiff, Betty Adcock, 80, says she was persuaded to replace her home equity line of credit with a reverse mortgage. Her daughter, Carol Anthony, had already helped her establish a $150,000 no-fee home equity line for emergency expenses. During the first 3 years, Adcock had borrowed about $19,000. But her 

daughter said at a December 2007 Senate Committee hearing that ‘‘in place of the 

no-fee home equity loan, she now had a reverse mortgage that charged 18 closing 

fees.’’ The fees totaled a staggering $16,791.23, Anthony said. The salesman, according to the suit, advised Adcock to choose a reverse mortgage payment option that 

required her to take out $1,002.88 monthly, increasing the amount of interest she 

would have to pay. The suit claims that the reverse mortgage required that Adcock 

immediately make home repairs of about $5,500 and pay Financial Freedom for 

monitoring whether the repairs were done. On the date the loan closed, she owed 

$56,741.59. With the help of her daughter, Adcock paid off the reverse mortgage 6 

months later at a final cost of $71,942. Financial Freedom denies the allegations. 

What consumers should do: Consumer Reports recommends that consumers considering tapping home equity can contact a HUD-approved counselor (800–569–4287 

or www.hud.gov/offices/hsg/sfh/hecm/hecmlist.cfm). A free session with a trained 

25 

counselor can help evaluate all of the choices. If you opt for a reverse mortgage, 

don’t sign any documents until they have been reviewed by a lawyer you trust. 

What policymakers can do: Consumers Union believes that sellers of reverse mortgages should be required to make sure the loan is suitable for the borrower, and 

that is one-on-one premortgage counseling for all reverse mortgages. There should 

also be caps on origination fees for all reverse mortgages and better restrictions on 

sales practices. 

Senator Claire McCaskill has proposed legislation aimed at preventing fraud, and 

requiring that ads for government-backed mortgages present a balanced view of 

their risks and benefits. At her request, the GAO is conducting an ongoing investigation of the federally-insured mortgage program. 

Legislation is currently pending in California that would extend requirements for 

beefed-up independent counseling and cross-selling restrictions to lenders who aren’t 

federally-insured. Minnesota legislators supported a bill requiring lenders to show 

reasonable grounds for concluding that a reverse mortgage is suitable for each borrower, and Vermont has passed a law requiring face-to-face counseling. 

3. High-fee Debt Settlement 

Marissa Ruiz, 40, of Pasadena, Calif., was struggling to make minimum payments 

on more than $10,000 worth of credit-card debt in May 2007 when she saw an online ad from Debt Settlement USA that persuaded her to sign up. 

‘‘They said they’d work with your creditors to reduce your total debt and get it 

all paid off, and that’s what I wanted to do,’’ says Ruiz, a single parent supporting 

four children, ages 11 to 17, on a modest income as a children’s social worker. She 

says the company told her to stop sending payments to creditors, a tactic often used 

by debt-reduction companies. Instead she was supposed to save $141.80 per month 

and tell Debt Settlement when she had at least $1,000 so that the company could 

begin negotiating discounted payoffs with lenders. 

The company deducted $121.54 from her checking account as the first of 10 

monthly payments required for fees, Ruiz says. She’d handed over more than $600 

by the time she quit the plan 5 months later because she believed she was getting 

nothing in return, other than being hounded by calls from bill collectors. 

Debt Settlement USA’s President, Jack Craven, says his company contacted Ruiz’s 

creditors in July 2007 to notify them that she had granted the company limited 

power of attorney. He says she was not advised to stop paying creditors. Ruiz disputes that, and the written instructions she received from Debt Settlement state: 

‘‘Do not speak to creditors.’’ Ruiz says she contacted Debt Settlement to end its involvement. The company says that it tried to follow up but that she did not respond. 

Ruiz then sought help from Clearpoint, a nonprofit financial-counseling agency 

that she had also spotted on the Internet. The credit counselor didn’t require fees 

to help her develop a budget and contacted her creditors to discuss a realistic repayment plan. Ruiz says she negotiated directly with some lenders, such as Washington 

Mutual and JCPenney, that would agree to settle her bills for less than half of what 

she owed if she could pay the settlement amount in a few timely payments. 

To earn the money to do that, she took on a part-time job. In one year, she 

slashed her debt from almost $13,000 to $3,000. ‘‘It hasn’t been easy, and it still 

shocks me that I did it, but it feels great,’’ Ruiz says. ‘‘Now when I hear ads on 

the radio all the time from these kind of companies, I get so angry because I don’t 

want anyone else to get sucked in like I did.’’ People using settlement companies 

could face problems in the time before debt negotiations usually begin. The original 

debt might soar as missed payments lead to penalty fees and other charges, and 

the credit rating plunges further. 

Regulators say that under the typical arrangement, companies charge up-front 

fees totaling 15 percent of the debt to be settled, a monthly service fee of $50 and 

if they do reach a settlement, a contingency fee of 20 percent or more of the amount 

they’ve allegedly saved. And the Internal Revenue Service might consider forgiven 

debt to be taxable income. 

‘‘Most consumers end up quitting these programs within the first 2 years after 

being subjected to constant collection calls and paying fees that can run into the 

thousands while receiving none of the benefits they were promised,’’ says Googel, 

the Assistant Attorney General in West Virginia. 

Wesley Young, Legislative Director of the Association of Settlement Companies, 

a trade group, says that 40 to 55 percent of consumers complete the programs but 

that lack of savings discipline is the most significant factor in the dropout rate. But 

in a May 2004 case against debt-settlement services brought by the Federal Trade 

Commission, a court found that less than 2 percent of consumers enrolled in the 

defendants’ debt-negotiation programs, 638 out of 44,844, completed them. 

26 

In the past 2 years, West Virginia has charged nine debt-relief companies with 

violating state law by charging excessive fees for their services, along with other violations. The companies agreed to stop doing business with West Virginia residents 

and to refund $735,000 in payments collected from 490 residents. 

What consumers should do: Consumers struggling with credit-card debt should 

first consider negotiating directly with creditors. ‘‘Now is a better time than ever 

before to do this because card issuers are finally realizing that if we, their customers, go under, they will go down with us,’’ says Curtis Arnold, founder of 

CardRatings.com, a site that evaluates credit cards. ‘‘So they are reaching out to 

offer repayment plans to card members carrying significant debt loads.’’ Chase Card 

Services spokeswoman Tanya Madison says Chase will negotiate with some debtsettlement companies at a cardholder’s request but will not offer more favorable 

terms than the customer would receive by negotiating directly with the bank. People 

needing help can find a nonprofit credit counselor through the National Foundation 

for Credit Counseling (www.debtadvice.org). Those counselors will divide a set 

monthly payment among creditors to pay off the balance in full over time at reduced 

interest rates. Based on financial circumstances, the service might be provided free 

or for set fees: an enrollment charge of no more than $25 and a monthly fee of no 

more than $50. 

What policymakers can do: We urge the FTC to undertake a vigorous enforcement 

program against debt collection abuses, such as: 

• Prohibiting debt collectors who pursue debts in court or in arbitration without 

evidence of the essential facts of the debt, or without holding any license required by state law. The FTC must require that no collection activity can commence without proof of indebtedness by the consumer, date of the debt, identity 

of the original creditor, itemization of all fees, charges and payments, and 

itemization of all post-default charges and credits. 

• Stopping debt collectors’ attempts to collect on time-barred debts, deceptive settlement agreements, putting old debt on new credit cards, and cross-debt collection by refund anticipation lenders. 

• Restricting debt collectors from accessing a consumer’s financial account. At a 

minimum, there should be a requirement for express, informed, written permission. 

With respect to debt settlement companies, the FTC’s own workshop showed that 

these services often don’t benefit the consumers who pay for them. H.R. 2309 would 

direct the FTC to consider issuing regulations in the area of debt settlement. The 

FTC should ban the charging of advance fees in debt settlement and cap fees based 

solely on a low percentage of the amount by which the debt is actually and permanently reduced below the amount owed when the debt settlement contract was first 

signed. 

4. A Credit Card for Anyone 

The pitch sounds alluring: ‘‘If you have been turned down for credit recently because of your credit score, Continental Finance is here to help you with the second 

chance you have been waiting for.’’ 

But the ‘‘second chance’’ provided by Continental Finance Classic MasterCard 

could cause cardholders’ credit scores to dive further. Designed for borrowers with 

subprime credit, commonly defined as a credit score below 660, the card comes with 

fees galore. The initial credit limit is $300, but it is immediately reduced by a $50 

annual fee and a $200 account-processing fee, leaving available credit of only $50 

at the outset. In addition, there’s a monthly account-maintenance fee of $15, a $5 

fee for online payments, a $25 fee if the credit line is increased, which can happen 

after 6 months, a $15 replacement fee if the card is lost or stolen, and a $35 overthe-limit fee. The annual interest rate on balances: 19.92 percent. 

Issued by First Bank of Delaware, Continental Finance cards are among those labeled ‘‘fee harvester’’ credit cards in a 2007 report issued by the nonprofit National 

Consumer Law Center. 

In late 2008, First Bank of Delaware agreed to pay $304,000 in penalties and to 

overhaul procedures to settle charges filed in June 2008 by the FDIC. The complaint 

said that marketing for Continental Finance MasterCards issued from March 2006 

through June 2008 and other cards issued by the bank failed to adequately disclose 

significant up-front fees and misrepresented what the consumers’ initial available 

credit would be. 

CompuCredit, an Atlanta financial services and marketing company, was also 

named in the complaint. CompuCredit was First Bank of Delaware’s partner in 

marketing and servicing cards issued under other brand names such as Imagine 

MasterCard. Filings with the Securities and Exchange Commission show how lucraVerDate Nov 24 2008 11:53 Jun 15, 2010 Jkt 055982 PO 00000 Frm 00030 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\55982.TXT SCOM1 PsN: JACKIE
27 

6 Consumer Reports, ‘‘State of the Net: Boom Time for Cybercrime,’’ June 2009, p. 18–21. 

tive the credit-card business is. In 2007, CompuCredit reaped $673.9 million in credit-card fees, up from $436.7 million in 2006. Under CompuCredit’s 2008 settlement 

with the FDIC, the company has agreed to reverse $114 million in fees charged to 

consumer accounts arising from deceptive marketing allegations. The company also 

will pay a $2.4 million civil penalty. 

The FDIC order requires that the company disclose information about fees and 

other restrictions affecting available credit prominently on the same page in its solicitations. ‘‘No changes in our existing marketing materials are necessary because 

in 2006 we made changes in our solicitations that address the agencies’ concerns 

about placement of fee-disclosure information,’’ says Tom Donahue, a CompuCredit 

spokesman. The Federal Reserve Board has approved new rules for credit cards that 

limit total security deposits and fees during the first 12 months to 50 percent of the 

initial credit limit. 

What consumers should do: A better alternative for consumers seeking to rebuild 

poor credit histories is a secured credit card, which requires a cash deposit of at 

least $200 to $300 as collateral. The amount of cash deposited will typically be the 

initial credit limit. Making timely payments should boost the credit score, so look 

for a card that reports to the three major credit bureaus and has no application fee. 

Interest rates on such cards recently were in the mid-to-low teens, and annual fees 

should be no more than $50. 

5. Uninsured Savings Accounts 

In early December, when the average interest rate on one-year certificates of deposit offered by U.S. banks was hovering at 3.2 percent, an online bank’s offer 

sounded enticing: rates of 5.5 to 6.5 percent on one-year CDs. The bank says its 

‘‘Premium’’ CDs are for the investor who is ‘‘looking for an alternative to the low 

rates offered by most domestic banks’’ and a guaranteed rate of return to avoid market fluctuations. 

That high rate might be ‘‘guaranteed,’’ but there’s no Federal guarantee backing 

the money you deposit. That’s because the offer came from Millennium Bank in St. 

Vincent and the Grenadines, in the West Indies, and the bank is not FDIC-insured. 

Millennium says it is a wholly-owned subsidiary of United Trust of Switzerland and 

devotes space on its website to describing Swiss banking. It notes that ‘‘the main 

reason for Swiss Banking is to keep one’s financial status private, protecting personal assets along with receiving a higher return.’’ 

Millennium encourages customers to use its secure online banking services, but 

it says there is no website providing information about United Trust of Switzerland 

because its ‘‘premier private clients’’ don’t trust the security of public websites. 

We checked with the Swiss Federal Banking Commission, which says that United 

Trust is registered as a management-consulting firm and that neither it nor Millennium Bank is supervised by the commission. The International Financial Services 

Authority in St. Vincent confirms that Millennium is registered as an offshore bank 

operating on the island but would not comment further. 

When we asked Millennium employee Bob Kelty how the bank invested depositors’ money to achieve such high returns, he declined to explain, saying, ‘‘That’s proprietary information.’’ 

What consumers should do: Some CDs, money-market accounts, and other savings 

alternatives might not be FDIC-insured, so you need to be careful and shop around. 

Bankrate.com, which publishes online bank data, lists federally-insured banks, 

along with a ‘‘Safe & Sound’’ rating assessing overall financial stability. 

Recession-Related Internet Scams 

Another big category of consumer frauds that target financially-distressed households are Internet-related scams relating to employment and work, including: (1) job 

search services; (2) unemployment benefits scams; (3) work-at-home schemes; and 

(4) websites that promise access to government grants; and (5) online shopping dangers. 

1. Internet Employment Scams 

In our June 2009 magazine, in an article entitled ‘‘Boom Time for Cybercrime,’’ 

Consumer Reports warns consumers to be especially careful about cyber-crimes during the economic downturn.6

According to the article: 

One in five online consumers were victims of a cybercrime in the past 2 years, 

according to the latest Consumer Reports state of the Net survey. . . . The overall rate of cybercrime hasn’t declined much over the 5 years we’ve tracked it. 

28 

7WLKM News, Detroit, MI, June 16, 2009. 

8 Consumer Reports. ‘‘Beware of Work-At-Home Stings,’’ June 2009, p. 15. 

Crooks continue to take advantage of new technologies. And consumers, corporations and the government haven’t done all they could for protection. The 

problem stands to get worse as rising unemployment and foreclosures fuel a 

wave of recession-oriented Internet scams. 

The article profiles Dan and Pat Quigley, a couple from Woodinville, Washington. 

When Dan was laid off from his engineering job with Motorola, he posted his 

re ́sume ́ on several major job-search sites, entering personal data such as his name, 

address, and educational background. He didn’t want to leave anything out, but he 

also worried that ‘‘with that info up there, I was essentially painting a target on 

myself.’’ And soon, Dan began receiving a lot more employment-related spam. 

Trying to help in her husband’s job search, Pat Quigley visited a legitimate-looking site that promised jobs, but it turned out to be malicious. Then the Quigleys 

noticed that Pat could no longer access security software sites. Her computer had 

become infected. Ultimately, the couple was forced to erase Pat’s hard drive. 

According to Washington State’s Attorney General, the Quigleys aren’t alone. 

‘‘We’ve seen a big spike in complaints about work-related scams, and they’re often 

over the Internet,’’ Rob McKenna, Washington State’s Attorney General told Consumer Reports. ‘‘What unemployed people, people in foreclosure, and the elderly all 

have in common is that they’re more vulnerable, more anxious, and they set aside 

common sense.’’ 

Job scams come in a variety of guises, according to the Internet Crime Complaint 

Center, a partnership between the FBI, the Bureau of Justice Assistance, and the 

National White Collar Crime Center. 

Some scams appear to be offers to process payments, transfer funds, or reship 

products but are actually fronts for operations that cash fraudulent checks, transfer 

illegally obtained funds, or receive stolen merchandise for shipment to criminals. 

Even users of well-known employment sites can be at risk. User IDs and passwords 

were recently stolen from the internal databases of job sites Monster and USAJobs. 

What consumers can do: Avoid job listings that ask you to pay money up front. 

Make sure that online job-search services you use offer privacy options. Monster, for 

example, lets you post a confidential version of your re ́sume ́ that hides your key contact information, among other things. Never post a re ́sume ́ that includes your Social 

Security number. Avoid job offers that claim to pay a lot of money for little work. 

2. Unemployment Benefit Scams 

Some Internet frauds directly target the unemployed themselves. Michigan’s Unemployment Insurance Agency has warned unemployed workers against using 

websites that charge fees to file their claims for unemployment benefits, and to be 

wary of e-mails inviting them to establish direct deposit accounts for their benefits. 

These ‘‘file-for-a-fee’’ and direct deposit services ask for personal information, exposing users to the risks of identity theft. The filing sites advertise on search engines 

such as Yahoo and Google, and appear as sponsored-ad listings when individuals 

search for information on how to file for benefits.7

What consumers can do: Bypass the scam offers, and file for unemployment benefits directly with the state agency that is responsible for distributing benefits. 

3. Work-At-Home Schemes 

The FTC has gone after at least 500 work-at-home schemes in recent years, and 

Internet ads for such services are rampant on the web. Such ads include ads for 

services that have generated many consumer complaints to the Better Business Bureau, the FTC and state consumer protection agencies.8

What consumers can do: It is possible for consumers to work at home—but deceptive offers are plentiful, so consumers shouldn’t expect to get rich quick. To avoid 

scams, the Federal Trade Commission and NASE advise consumers: 

• Don’t pay for materials—Legitimate home product-assembly businesses are local 

and never ask you to buy the materials. 

• Be wary of network building—Stay away from multilevel marketing schemes 

that make earnings contingent on your ability to sign up an ever-growing pyramid of ‘‘distributors’’ who are supposed to do the same and pass sales commissions up the line. 

• Do some sleuthing—Check the company’s Better Business Bureau rating. Also 

do a search at www.ripoffreport.com and www.complaints.com. 

29 

9The Unsponsored Link (blog), Consumer Reports Webwatch, available at: 

http://blog.consumerwebwatch.org/2009/05/freelgrantlmoneyalshamlsitelfr.html, 

http://blog.consumerwebwatch.org/2009/05/govenmentgrantsonlineusanother.html, 

http://blog.consumerwebwatch.org/2009/03/nolfreelgovernmentlgrantslatlg.html, and 

http://blog.consumerwebwatch.org/2009/05/staylawaylfromlalllgrantlinstrl1.html. 

• Be a skeptic—Don’t depend on promises of 100 percent satisfaction and moneyback guarantees. They might be worthless. 

4. ‘‘Free Government Grants’’ 

Numerous web ads claim that large sums of government money are available to 

consumers. If you fall for them, you will likely be enrolled in a grant-search program 

that could cost up to $90 a month. 

‘‘Billions of dollars available in government grants, never repay!’’ claimed an ad 

recently at FreshGrants.com. The ad is an enticement for a ‘‘Free Grants Kit’’ that 

the website claims will explain how to apply for government grants for which you 

may or may not be eligible. 

As for ‘‘free,’’ that’s open to interpretation. You’re asked to provide your creditcard info to pay $1.98 for shipping and handling. By ordering the ‘‘free’’ grant kit, 

you’re agreeing to pay fees for monthly access to Grant Funding Search and a trial 

membership in the Ideal Wealth Builder Club, which includes benefits that ‘‘will 

show you how to turn your debt into wealth.’’ But the ad’s fine print said that if 

you didn’t cancel within the free trial period, your credit card would automatically 

be charged $99.90 in combined membership fees every month. That’s how to build 

wealth, all right, just not for you. 

At one such website, consumers were invited to fill out a brief form asking for 

their name, income, and the type of grant they are seeking.9 A researcher from Consumer Reports Webwatch filled out the form several times in March, and received 

the same answer every time: 

‘‘Congratulations! You qualify for a free CD (compact disc)! Use this CD to apply 

for your cash: $150 billion to start your own business! $97 billion to go to school! 

$144 billion to buy a home!’’ 

While the CD is free, there’s a $3.95 shipping charge. But what probably isn’t apparent to cash-strapped consumers desperately scouring the Web for financial aid 

is the fine print at the bottom of the page (below the screen), which reads as follows: 

‘‘Special Bonus: Order your FREE CD today and receive a free 7 day trial enrollment in the Grant Writing Express Online Help Center which includes 24 

Hour E-mail Access to Grant Specialists, Funding Instruction Courses, and 

Grant Sources Updated Daily. It also gives you access to our Grant Writing 

Specialists who are there to Quickly Answer Your Questions about the Grant 

Process. This membership continues at the low monthly rate of only $74.95 for 

as long as you need the help in your Grant Search and Application Process. You 

can stop your monthly subscription to the help center site anytime in the 7 days 

and you will not be billed anything. The free trial begins on the day the CD is 

ordered.’’ 

The FTC has been warning consumers about scam government grant sites at least 

since 2006, and the Better Business Bureau has received many complaints about 

these sites. The sites may operate under literally dozens of similar business names; 

one website had as many as 30 different business names, acting as ‘‘feeder sites’’ 

to drive more web traffic to the primary company. 

What consumers should do: Avoid website offers that offer easy money from government grants, and instead visit www.Grants.gov, the Federal Government’s gateway to funding opportunities. 

5. Online Shopping Dangers 

An estimated 1.7 million households were victims of ID theft committed over the 

Internet, Consumer Reports’ State of the Net survey shows. Of the respondents to 

our survey who fell into that category, two-thirds said the incident occurred because 

of an online purchase. Other sources of ID theft included hacked computers, e-mail 

scams, and compromised financial transactions. 

In 2008, the Consumer Sentinel Network, a joint project that includes the Federal 

Trade Commission, National Fraud Information Center, Internet Crime Complaint 

Center, and some Better Business Bureaus, reported 370,000 consumer-fraud complaints. In 63 percent of those, the defrauders, which include a variety of businesses, 

initially made contact with the consumer via the Internet. 

30 

10 Cleland, R.L., et al., ‘‘Weight Loss Advertising: An Analysis of Current Trends,’’ A Report 

of the Staff of the Federal Trade Commission, September 2002, page v. 

What consumers can do: Be cautious about with whom you do business. ‘‘Someone 

can set up an e-commerce site in hours,’’ says Brent Remai, Vice President of Consumer Marketing for security software maker McAfee. ‘‘And even if a site isn’t set 

up by a cybercriminal, it can be hacked.’’ Even when shopping at a site that seems 

trustworthy, first check it out with the Better Business Bureau’s online division. 

Consider using a two-way firewall, which blocks software that’s on your computer 

from sending outgoing communications without your knowledge. You can get one 

free of charge at www.zonealarm.com. What regulators and policymakers can do about recession-oriented Internet-oriented scams: Recession-oriented Internet fraud and scams do not exist in a vacuum, 

but are part of a much larger policy challenge reducing Internet-oriented scams, 

fraud and crime. We have three major recommendations: 

1. Many of the scams identified above are promoted extensively through online 

advertising and e-mail, or through fraudulent shopping sites. This underscores 

the importance of swift enforcement and regular sweeps to detect and alert the 

public to problems, as have been carried out by the FTC and state regulators 

on various Internet issues. 

Internet criminals can pivot on a dime to adjust their messaging to fit an economic downturn, a swine flu epidemic, or other crisis. Especially when economic 

times are hard, it is critical that state and Federal consumer protection agencies be provided with ample staff and investigative resources to go after purveyors of fraud, and widely communicate the results of their investigations to 

the public. 

The FTC’s Operation Short Change, announced on July 1, is a prominent example of how a high-profile enforcement sweep can expose bad practices, directly 

halt the operations of specific companies, and send a clear message that such 

crimes will not be tolerated. In the states, many attorneys general have been 

active in warning the public about Internet scams and pursuing companies engaged in foreclosure scams and questionable debt settlement practices. 

2. Media and Internet companies that accept advertising should carefully scrutinize advertisements for products or services that make unsupported promises, 

take advantage of financially-stressed consumers, or make unfair, unethical or 

questionable claims. While we don’t know what the exact standard should be 

here, we would note that as a matter of corporate responsibility, companies that 

accept advertising should not be setting consumers up for financial heartbreak. 

As noted by Dr. George Blackburn in an FTC staff report regarding weight loss 

claims, ‘‘In the absence of laws and regulations to protect the public against 

dangerous or misleading products, a priority exists for the media to willingly 

ascribe to the highest advertising standards, i.e., those that reject the creation 

and acceptance of advertisements that contain false or misleading weight loss 

claims.’’ 10

We would also note that to their credit, some Internet search companies now 

specifically warn consumers about websites that could include spyware or 

malware. These companies may be able to do much more to suppress deceptive 

ads, and warn consumers against financial scam websites that put them at serious risk, and/or receive failing grades from watchdog groups and government 

regulators. 

3. Consumers Union believes a variety of other new protections to prevent fraud 

and promote data security are needed, including measures to prevent retail 

fraud and protect sensitive customer data from security breaches. Businesses 

should store sensitive data in encrypted form. Two-factor user authentication, 

using a password and a key with a constantly updated passcode, would provide 

further protection. Companies should regularly test the security of their Web 

applications and networks. Programmers should be educated about the latest 

security measures. Companies entrusted with valuable consumer information 

should be certified by Trustkeeper and Verisign. Web-hosting companies must 

tighten policies to fight phishing, including suspending terms-of-service violators and requiring the collection of accurate information about account holders, 

as the Anti-Phishing Working Group suggests. 

Conclusion 

Mr. Chairman, Members of the Committee, as outlined above, the diverse financial come-on and ripoffs come in a variety of forms and permutations, and unfortuVerDate Nov 24 2008 11:53 Jun 15, 2010 Jkt 055982 PO 00000 Frm 00034 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\55982.TXT SCOM1 PsN: JACKIE
31 

nately do not lend themselves to a one-size-fits-all, silver bullet solution. However, 

we believe that given the risks to consumers, everyone must do more: 

• Consumers must be ever on their guard, and very, very skeptical of offers of 

financial help and extra income, particularly when those offers come from businesses they don’t know, or have an unfamiliar track record. They should seek 

second opinions and advice from knowledgeable and respected sources of information, including trusted friends, consumer protection agencies and watchdog 

groups, government agencies, attorneys, homeownership counselors and others, 

prior to handing over cash, or signing contracts or agreements that obligate 

them financially. 

• Businesses that sell products with high fees or financial traps built into them 

should withdraw or redesign such products, or in other cases provide much better disclosure, counseling and protections for customers. In addition, businesses 

have an important role to play in strengthening the protection of sensitive customer information, to prevent security breaches and identity theft. 

• Media and Internet companies that accept advertising should carefully scrutinize advertisements for products or services that make unsupported promises, 

take advantage of financially-stressed consumers, or make unfair, unethical or 

questionable claims. As a matter of corporate responsibility, companies that accept advertising should not be setting consumers up for financial heartbreak. 

To their credit, some Internet search companies now specifically warn consumers about websites that could include spyware or malware. These companies 

may be able to do much more to reduce and suppress deceptive ads, and warn 

consumers against financial scam websites that receive failing grades from 

watchdog groups and government regulators. 

• State and Federal regulators should step up enforcement of companies that deceive and defraud consumers, and impose sharp criminal and civil penalties for 

companies that violate the law. 

• State and Federal policymakers should consider new consumer protections to 

protect consumers against unfair and deceptive practices that target financiallydistressed households. In particular, legislation pending before Congress to establish a Consumer Financial Protection Agency would greatly help to protect 

consumers in good times and bad, and ensure that laws against deceptive practices and fraud are effectively enforced. 

• Economic fraud has a high financial and personal cost for consumers, could undermine public confidence in the marketplace and a renewed economy. Consumer protection should be a pillar of economic reconstruction, to ensure that 

people who work hard and save for the future will not be unfairly deprived of 

their income and assets. 

Thank you very much for the opportunity to testify here today about this critically 

important national issue. We look forward to working with you as you move forward 

in addressing these issues. 

Senator PRYOR. Thank you. 

Next is Sally Greenberg, Executive Director of the National Consumer League. 

STATEMENT OF SALLY GREENBERG, EXECUTIVE DIRECTOR, 

NATIONAL CONSUMERS LEAGUE 

Ms. GREENBERG. Thank you, Senator Pryor. I’m really honored 

to be here this morning. First of all, thank you for holding this 

hearing. It’s a really important topic, and your—you and your excellent staff have given all of us here an opportunity to make some 

recommendations and describe what we see out there. And it’s not 

pretty. 

One thing I’ve learned in this job—and I’ve only been at the job 

a couple of years; I was a colleague of Chuck Bell, here, at Consumers Union, for 10 years, before coming to the National Consumers League—is that those who perpetrate fraud have absolutely 

no qualms about stealing from the most desperate or destitute consumer. The consumers who fall into these fraudulent traps are not 

32 

stupid people. People tell me that all the time, ‘‘How can he be so 

stupid?’’ Well, I’ll tell you, the people who—Mr. Vitale, here— 

they’re very, very good at what they do, and they say all the right 

things to people, and they’re very schooled at it. So, I think it’s— 

the public education and outreach is just such an important piece 

of what we’re talking about here today, because once people hear 

the kinds of things that we’re talking about, I think they’ll think 

twice. 

But, desperate times and tough economies, really make consumers much more vulnerable. We have certainly found that at the 

National Consumers League Fraud Center. The Fraud Center’s 

been going since 1992. It was really formed—we put it together as 

a result of this, just, explosion of Internet fraud. And what we saw 

in the last 6 months at the Fraud Center, the first 6 months of 

2009, were 6,800 reports of fraud directly from consumers. We 

share all of those reports with 90 international, Federal, State, and 

local law enforcement officials. We particularly—we are very interested in bringing together both law enforcement, consumer organizations, labor groups, corporations, nonprofits, and government. We 

have something called an ‘‘Alliance Against Fraud,’’ and we’re 

going to make a recommendation that we all need to be talking together on a regular basis and more frequently. 

Today, we’re pleased to be able to share with you the results of 

our 6-month review of complaints received by the Fraud Center, 

which covers the period, as I said, January to June of 2009. Of special note, work-at-home scams moved into our top-ten categories of 

most prevalent frauds. They didn’t make the top-ten list last year. 

Also, most of the frauds that we—that were reported to our Fraud 

Center were fake-check complaints. More than half involved either 

fraudulent mystery shopping opportunities or false sweepstakes 

winnings, with average losses of $3,000-per-victim. We believe that 

both types of fraud are closely linked with the current economic circumstances. And moreover, in the last 6 months our statistics show 

the overall frequency of fake-check complaints has increased 4 percent. 

The examples of consumers who have been scammed—we heard 

one very compelling woman speak about her example. What—we 

talked recently to a woman named Roxanne. I think her experience 

is illustrative. After receiving an advertisement for a mystery shopper job, Roxanne received a cashier’s check in the amount of $4,665 

in the mail. She promptly deposited the check, and, 3 days later, 

asked her bank to verify that it was good. And they did so. She 

began conducting her mystery shopping work that was assigned to 

her. Now, after purchasing several hundred dollars worth of items, 

Roxanne was instructed to wire the remainder of the funds left 

from the cashier’s check to clients in Canada. She learned, several 

days later, that the original cashier’s check had been returned to 

the bank as counterfeit. Unable to contact the representative, she 

was left owing the bank more than $4,000. That’s a classic fakecheck scam, and that—those have simply exploded over the last 

couple of years. 

Her case illustrates that the worsening economy has caused increasing—increased consumer interest in supplementing their deVerDate Nov 24 2008 11:53 Jun 15, 2010 Jkt 055982 PO 00000 Frm 00036 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\55982.TXT SCOM1 PsN: JACKIE
33 

clining incomes with work-from-home scams, and she’s certainly 

not alone. 

We conducted a survey in February of this year and found that 

31 percent of respondents were more likely to consider starting a 

home-based business due to the worsening economic climate. That 

same survey found that 33 percent of respondents were unable to 

detect a pyramid scheme when it was described to them. And this 

trend was particularly pronounced among African Americans, Hispanics, and low-income consumers. 

Adding insult to injury is what’s going on out there in the rest 

of the country, because so many of the consumer offices around the 

country have been either slashed—their budgets have been slashed 

or they’ve been closed down entirely. From Florida to Wisconsin to 

Nevada to California, these offices are going without directors and 

they’re—these offices are really the boots-on-the-ground protection 

that consumers have. 

Now, we recommend—we’re making five recommendations in our 

testimony. The first is in support of the great work the FTC is 

doing now. We want to point out, the FTC staff is only 63 percent 

of the size it was in 1979, and we want to ask you, as Members 

of Congress, to give the FTC and other Federal agencies the resources they need to do the job that so badly needs being done with 

their—the kind of outreach that we saw here this morning. 

We would also like consumers to have the access to the FTC’s 

Consumer Sentinel Database so they can quickly search it for complaints related to suspicious e-mails, telemarketing calls, and 

fraudulent businesses. Currently, only law enforcement has access. 

We think it’s for privacy reasons. But, we would like to try to get 

that worked out so the public can get access to that information. 

Third, we’d like to see low-income and minority consumers really 

the focus of our—of more efforts to protect them, since they tend 

to be the more vulnerable, especially in this economy. And we 

have—make some suggestions about reaching out to those who 

have applied for unemployment benefits. There’s also work that 

could be done for those who are accessing different programs that 

the FTC has for people who need assistance in both Internet and 

landlines. 

So, we—with financial support from Congress, we also would like 

to ask that the FTC create a grant program for organizations from 

State and local government, and nonprofits, to help fund innovative 

consumer fraud projects. 

And last, we would like to see, as I noted before, more coordination with all the Federal agencies that do the kind of work that all 

of us here at the table do. We think there should be a more regular 

coming together of all of us, perhaps a national conference, to talk 

about antifraud strategies. 

So, thank you, Mr. Chairman, for giving the National Consumers 

League this opportunity to talk with you today. We commend you 

for focusing on this rampant consumer fraud, and we thank you, 

also, for your very pro-consumer record. 

[The prepared statement of Ms. Greenberg follows:] 

34 

1The National Consumers League, founded in 1899, is America’s pioneer consumer organization. Our non-profit mission is to protect and promote social and economic justice for consumers 

and workers in the United States and abroad. For more information, visit www.nclnet.org. 2 According to the FTC’s Consumer Sentinel Network Data Book for January–December 2008, counterfeit check scams were the fifth-most reported scam, accounting for 3 percent of the total 

complaints received. 3Federal Trade Commission. Consumer Fraud in the United States: The Second FTC Survey. 

Pg S–1. October 2007. Online: http://www.ftc.gov/opa/2007/10/fraud.pdf. 4 Association of Certified Fraud Examiners. 2008 Report to the Nation on Occupational Fraud 

and Abuse. Page 4. July 14, 2008. Online: http://www.acfe.com/documents/2008-rttn.pdf. 5 Unisys Corporation. ‘‘Unisys research Shows Economic Crisis Causing Increased Worldwide 

Consumer Fears about Fraud and Security Risks,’’ Press Release. April 20, 2009. 

PREPARED STATEMENT OF SALLY GREENBERG, EXECUTIVE DIRECTOR, NATIONAL CONSUMERS LEAGUE

Introduction 

Good morning, Mr. Chairman, and members of the Subcommittee. My name is 

Sally Greenberg and I am the Executive Director of the National Consumers League 

(NCL).1 I appreciate this opportunity to appear before the Subcommittee on Consumer Protection, Product Safety, and Insurance of the Senate Commerce, Science, 

and Transportation Committee to discuss the issue of fraud connected to the ongoing economic recession. 

Since our founding more than a century ago, the National Consumers League has 

sought to protect consumers from fraudulent practices. In 1992, the League established a Fraud Center, enabling us to directly assist consumers threatened by the 

rampant proliferation of telemarketing and online fraud enabled by the growth of 

global telecommunications networks and the Internet. Via our online fraud information portal, Fraud.org, we accept consumer fraud complaints which we analyze and 

share with more than ninety international, Federal, state, and local law enforcement and consumer protection agency partners including the Federal Trade Commission (FTC), Federal Bureau of Investigation (FBI), and U.S. Postal Inspection 

Service (USPIS). Thanks to the work of the Fraud Center staff, NCL was one of the 

first organizations to raise the alarms about the growth in fake-check scams, which 

now account for more than forty percent of the nearly fifteen thousand complaints 

NCL receives on an annual basis.2 Today, we are pleased to be able to share with 

you the results of our six-month review of fraud complaints received by the Fraud 

Center, covering the period January–June of 2009. Through our Alliance Against 

Fraud coalition, NCL also acts as a convener of thirty-nine organizations from the 

non-profit, corporate, government, and labor communities to coordinate anti-fraud 

activities nationally. 

The impact of fraud nationally is stunning. According to FTC estimates, 30.2 million consumers were victims of fraud in a single year.3 The impact of fraud on businesses is equally staggering. According to the Association of Certified Fraud Examiners, a 50,000 member professional organization, it is estimated that fraud costs 

organizations approximately 7 percent of annual organizations revenues, or approximately $994 billion annually.4 Given these sobering statistics, we believe it is imperative that public policymakers at all levels of government—and particularly at the 

Federal level—redouble their efforts to educate consumers about the threat of fraud 

and to vigorously enforce existing statutes and regulations pertaining to fraud. 

Fraud Linked to the Recession is a Growing Threat 

Americans are clearly concerned about the link between the recession and consumer fraud. According to the Unisys Security Index, nearly three in four Americans believe that the world financial crisis will increase the risk of identity theft 

and fraud.5 While detailed statistics are difficult to obtain, it is clear to us that rising economic hardship is affecting consumers’ vulnerability to fraud. The story of 

one victim who contacted the Fraud Center—who we will call simply Roxanne to 

protect her privacy—is typical of the complaints we have increasingly received in 

recent months. 

In hopes of finding work, Roxanne was grateful to be contacted by a company calling itself ‘‘Service Inspection,’’ which was purportedly looking for mystery shoppers. 

After responding to the offer, Roxanne received a cashier’s check in the amount of 

$4,665 in the mail. The company representative encouraged Roxanne to begin work 

immediately. Roxanne deposited the check and after three business days contacted 

her bank to verify that funds were available. The bank assured her that the check 

had ‘‘cleared,’’ and she began conducting the mystery-shopping work ‘‘assigned’’ her. 

After purchasing several hundred dollars worth of items from the Gap and WalMart, she was instructed to wire the remainder of the funds left from the cashier’s 

35 

6For more information on fake-check scams, visit NCL’s and the Consumer Federation of 

America’s fake checks campaign website at www.fakechecks.org. 7 National Consumers League. Analysis of first 6 months of complaint data from NCL’s Fraud 

Center. July 9, 2009. 8 National Consumers League. ‘‘National Consumers League 2009 Pyramid Scheme Survey: 

Key Findings,’’ February 2009. Online: http://www.fraud.org/pyramids/surveylfindings.pdf. 9 National Consumers League. ‘‘National Consumers League 2009 Pyramid Scheme Survey: 

Key Findings,’’ February 2009. Online: http://www.fraud.org/pyramids/surveylfindings.pdf. 10 National Consumers League. ‘‘NCL’s Fraud Center: Top 10 Scams of 2008.’’ June 2, 2009. 

Online: http://www.nclnet.org/news/2009/2008%20fraud%20stats.pdf. 

check to ‘‘clients’’ (in reality, associates of the scammer) in Canada via Western 

Union and MoneyGram. Several days later, Roxanne was informed by her bank that 

the original cashier’s check had been returned to the bank as counterfeit. Unable 

to contact the ‘‘Service Inspection’’ representative (who had likely already absconded 

with cash from the wire transfer), Roxanne was left owing her bank more than 

$4,000. 

The sequence of events in Roxanne’s story is not atypical. The majority of fakecheck scam complaints our Fraud Center has received involve either fraudulent 

mystery-shopping ‘‘opportunities’’ or false sweepstakes ‘‘winnings.’’ 6 For the first 6 

months of 2009, fake-check scams made up more than forty-four percent of the total 

complaints NCL received, of which sixty-five percent involved a fraudulent mystery 

shopper job or phony sweepstakes winnings, with average losses of more than 

$3,000 per victim.7 We believe that both types of fraud are closely linked with economic circumstances. The worsening economy has caused increased consumers interest in supplementing their declining incomes with work-from-home opportunities, 

in particular. NCL conducted a survey in February of this year and found that thirty-one percent of respondents were more likely to consider starting a home-based 

business due to the worsening economic climate.8

The impact of recession-related fraud is likely to fall disproportionately on lowincome and minority consumers. As part of NCL’s February 2009 survey of consumer vulnerability to pyramid schemes, we sought to test whether consumers could 

differentiate a legitimate home-based multi-level marketing plan from a fraudulent 

pyramid scheme. We found that thirty-three percent of respondents were unable to 

detect the pyramid scheme when it was described to them. This trend was especially 

pronounced among African-American, Hispanic, and low-income consumers (48 percent, 35 percent, and 39 percent, respectively). Given that African-Americans (46 

percent) and Hispanics (48 percent) were also more likely than average (31 percent) 

to consider a home-based business due to the economic recession, these populations 

are at increased risk of such fraud.9

Sweepstakes—many of which are fraudulent—also appeal to consumers faced 

with imminent home foreclosure or mounting household debt. Consumers may fall 

victim to the promise of unexpected riches as a way to stave off economic ruin. 

Fraud complaints involving such scams (but not including a fake check) have increased in the first 6 months of 2009 versus our 2008 year-end statistics. Other 

types of fraud linked to the bad economy are also on the rise. Fraudulent business 

opportunity scams (which includes fake franchises and distributorships) were not 

among the top ten types of scams reported to the Fraud Center in 2008. In the first 

6 months of 2009, however, they have grown to be the sixth-most reported scam.10

As the unemployment rate nears 10 percent, we expect more out-of-work consumers 

to explore the option of starting their own businesses, increasing their exposure and 

vulnerability to such business opportunity scams. 

Mounting household debt is also fueling a dramatic rise in fraudulent credit counseling and credit repair services. The story of one such victim who contacted the 

Fraud Center—we’ll call her Patrice—is illustrative of these kind of scams. Patrice, 

anxious to repair her damaged credit, signed up online with a company going by 

the name of ‘‘Advanced Credit Systems’’ (ACS). The ACS ‘‘representative’’ claimed 

the company was able to ‘‘guarantee’’ its customers that it could repair their credit 

by working with lenders and via personalized credit counseling services. After 

speaking with the ACS ‘‘representative’’ several times by telephone, Patrice was instructed to make her first payment of $1,200, which she promptly wired to a bank 

account specified by ACS. Immediately after Patrice transferred the funds, she attempted to contact ACS, only to find that the ‘‘representative’’ and ACS would no 

longer answer her increasingly frantic calls. Patrice never received any services in 

exchange for her $1,200. 

36 

11 Jenkins, Janet. Administrator of DATCP Division of Trade and Consumer Protection. Telephone interview. July 9, 2009. 12 Varian, Bill. ‘‘Hillsborough County budget cuts runs deep,’’ St. Petersburg Times. June 4, 

2009. Online: http://www.tampabay.com/news/localgovernment/article1007144.ece. 13Moore, Nancy. City of Virginia Beach Consumer Affairs Program. Telephone interview. July 

10, 2009. 14 U.S. Census Bureau. Online: http://www.pascoedc.com/PascoCounty.aspx. 15 ‘‘Consumers will lose an advocate,’’ St. Petersburg Times. June 19, 2008. Online: http:// 

www.tampabay.com/opinion/editorials/article631715.ece?comments=legacy#. 16 Reuters. ‘‘Recession likely to end in Q3 2009-Blue Chip survey,’’ July 10, 2009. Online: 

http://www.reuters.com/article/bondsNews/idUSN1051292120090710. 

State and Local Budget Shortfalls Decimating Consumer Protection 

Capabilities 

At the same time that consumer vulnerability to fraud has increased due to the 

economic recession, the abilities of those entrusted with protecting consumers from 

scam artists have been severely curtailed. While Federal agencies such as the FTC, 

FBI, USPIS, and Office of the Comptroller of the Currency (OCC) perform a valuable job protecting consumers from scams falling under their purview, much of the 

day-to-day consumer protection work in the United States is performed at the state 

and local level. State and local consumer protection agencies, never a darling of appropriators even before the economic crisis, are now seeing their budgets cut to the 

bone or worse. 

For example, the Nevada Consumer Affairs Division (NVCAD) has temporarily 

suspended all operations for FY2010. The NVCAD was responsible for accepting 

consumer complaints and bringing civil actions against scam artists in Nevada. 

There is currently no way for consumers to submit fraud complaints to state consumer protection officials in Nevada. The Wisconsin Department of Agriculture, 

Trade, and Consumer Protection has had to make due with significantly fewer employees in recent years and has been subject to Governor Doyle’s request that some 

positions remain unfilled.11 The California Department of Consumer Affairs has 

been without a Director for more than 3 months due to budget woes. 

The Hillsborough County, Florida Consumer Protection Agency (whose area of jurisdiction encompasses the City of Tampa) may soon be eliminated.12 In Virginia 

Beach, Virginia, a city whose population is in excess of 440,000, the director of the 

city’s Consumer Affairs program recently resigned her position in an effort to save 

the agency from being closed down due to budget issues.13 Pasco County, Florida, 

one of the top fifty fastest-growing counties in the Nation,14 dissolved its Consumer 

Affairs Office to help make up for its budget shortfall. The 700 cases that the office 

took on annually will presumably also no longer be investigated.15

These are not isolated incidents. Across the country, state and local authorities 

are decimating consumer protection agencies’ budgets in an effort to deal with large 

deficits. State and local consumer protection organizations are the proverbial ‘‘boots 

on the ground,’’ in the fight to control fraud. Without action at the Federal level 

to step into the gap created by the demise of state and local-level consumer protection capabilities, consumers will increasingly be left to fend for themselves against 

the growing threat posed by professional fraudsters. 

Consumer Empowerment Must Be Paired With an Increased Federal Role 

Consumers face a double bind. The economic crisis has made them increasingly 

vulnerable to fraud while local agencies that investigate scams and enforce the laws 

are shutting their doors, leaving consumers with fewer avenues to protect their interests. Absent increased action at the Federal level to investigate and prosecute 

scam artists and educate consumers about the threat of fraud, consumers will be 

caught between the proverbial rock and a hard place. 

We cannot simply wait for the economy to turn around and state and local budgets to recover. The economic crisis is likely to remain with us for the foreseeable 

future. Experts predicted that any recovery in the U.S. economy in 2010 is likely 

to be modest.16 We expect that this will mean continued belt-tightening for state 

and local governments with commensurate impacts on consumer protection agencies. Absent direct Federal support of state and local consumer protection efforts, 

consumers will need the Federal Government to play an increased role in protecting 

them from fraud. To this end, we propose the following remedies: 

First, we must give the relevant Federal agencies the resources they need to protect consumers from fraud. In particular, the Federal Trade Commission remains a 

critically underfunded and overworked agency. While the FTC continues to fulfill its 

traditional antitrust enforcement and consumer protection missions, its portfolio has 

grown—largely thanks to the explosion in Internet-related fraud—to include implementation statutes related to identity theft, the CAN–SPAM Act, Do-Not-Call RegVerDate Nov 24 2008 11:53 Jun 15, 2010 Jkt 055982 PO 00000 Frm 00040 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\55982.TXT SCOM1 PsN: JACKIE
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17 According to the FTC, the Commission had 1,746 FTEs in 1979 (see http://www.ftc.gov/ 

ftc/oed/fmo/fte2.htm) and requested 1,102 FTEs in FY2009 (see http://www.ftc.gov/ftc/oed/ 

fmo/budgetsummary09.pdf). 18 According to FTC Annual Reports to Congress, the Commission brought 83 actions for the 

twelve months ending February 2005, 60 actions for the period ending February 2006, 59 actions for the period March 2007, and 23 for the period ending February 2008 (see http://ftc.gov/ 

os/annualreports/index.shtm). 19Federal Trade Commission. Consumer Sentinel Network Data Book for January-December 

2008. Pg 3. February 2009. Online: http://www.ftc.gov/sentinel/reports/sentinel-annual-reports/sentinel-cy2008.pdf. 20 Complaint data from NCL’s Fraud Center is periodically submitted to the Consumer Sentinel database as part of our partnership with the FTC. 

istry, and USA SAFE WEB Act, among other areas. Despite this growing mission, 

the FTC’s staff is only 63 percent of the size it was in 1979.17 The lack of resources 

available to the FTC is perhaps best illustrated by the number of enforcement actions brought by the agency in recent years. For the twelve months ending February 

2005, the FTC brought 83 enforcement actions. Every year since then, the number 

of actions brought by the agency has shrunk. For the twelve months ending February 2008, that number had dwindled to 23.18 The FTC can and should do more 

to protect and educate consumers, but it will require additional resources to do so. 

Increasing FTC funding levels, particularly in the Bureau of Consumer Protection, 

to levels sufficient to meet the Commission’s growing mission would be a good first 

step toward this goal. 

Second, more resources for enforcement should be coupled with a renewed focus 

on consumer education and an embrace of innovative vehicles for empowering consumers to protect themselves from fraud. We would like consumers to have access 

to the FTC’s Consumer Sentinel (CSN) database so that they can quickly search it 

for complaints related to suspicious e-mails, telemarketing calls, and fraudulent 

businesses. That database, which last year collected more than 1.2 million complaints and now contains over 7.2 million, could be an extremely valuable tool for 

consumers.19 Currently, only law enforcement agencies who agree to strict nondisclosure requirements have access due in part to the availability of personally 

identifying information within the complaints.20 We would urge the FTC to convene 

a series of meetings among its non-profit, law enforcement, and consumer protection 

agency partners to determine what information within the CSN database can safely 

be made publicly available and searchable for the benefit of all consumers. 

Third, as detailed in our testimony, low-income and minority consumers have 

proven particularly vulnerable to fraud connected with the worsening economy. Special attention should be given to fraud education efforts aimed at these distinct populations. For example, recently-jobless consumers applying for unemployment benefits could be provided with educational information related to work-at-home scams 

and business opportunity fraud. New applicants for FCC and state-level Lifeline and 

Link-Up telecommunications subsidy programs could be provided with information 

related to Internet and telemarketing fraud. This could become particularly helpful 

as those and other subsidy programs connected to the Universal Service Fund transition from a landline telephone-based model to a broadband and wireless telephonebased model. These materials should be made available in multiple languages to assist non-English speaking consumers who may also be more vulnerable to these 

scams. Fourth, the FTC should enhance its support of fraud education efforts undertaken 

by national, state, and local non-profit partners working with populations at enhanced risk of fraud via targeted grant-making. While government agencies are important, non-profit consumer groups and others play an important role in interacting with consumers. NCL talks weekly to hundreds of victims of scams. We consider ourselves to be partners with government agencies in fighting fraud. However, 

we have the advantage of being a consumer group and many people tell us they are 

more comfortable interacting with us than with a government agency. NCL—and 

likely other non-profit members of our Alliance Against Fraud—would like the opportunity to apply for government grants to expand our work on fraud and take on 

innovative anti-fraud projects. Much like what the Department of Justice does with 

its grants program to non-profits, the FTC could do with consumer protection 

groups. 

Finally, while we support enhanced resources for Federal agencies to enforce 

fraud statutes and educate consumers, this is a shared responsibility with state and 

local government, business, and on-profit organizations. What is also needed is increased cooperation and goal-setting among the myriad Federal agencies that are 

active in addressing fraud within their organization’s regulatory purview and these 

external stakeholders. Agencies like the FBI, FTC, SEC, USPIS, U.S. Secret Service, 

38 

21 ‘‘Economic Security, Health and Safety of Nation,’’ Press release. Consumer Federation of 

America et al. December 11, 2008. Online: http://static.uspirg.org/consumer/archives/ 

consumerreleaseandplatform10dec2008.pdf. 

State Department and Department of the Treasury all do excellent work and are 

experts at detecting and fighting back against the kinds of fraud affecting their 

areas of specialization. What is lacking is broad, sustained inter-agency coordination 

on anti-fraud work. This is one reason why NCL is strongly supporting the restoration of the White House Office of Consumer Affairs which NCL, along with other 

national consumer groups, have called upon the Obama Administration to create.21

Such an office should be charged with organizing a coordinating conference among 

the Federal anti-fraud organizations, with input from consumer groups and other 

third-party stakeholders, aimed at developing a national anti-fraud strategy. 

Conclusion 

In conclusion, the impacts of the economic crisis on consumers have been dire. Not 

a day passes without new stories of consumers losing jobs, homes, and retirement 

savings to the worsening economy. These disastrous effects are compounded by 

rampant consumer fraud. Economic hardship all-too-frequently leads to the kind of 

desperation that fraudsters prey upon, as our fraud statistics clearly indicate. Vulnerability to such scams is especially acute among those populations least able to 

recover from the impact of fraud. 

The negative effects of the economic crisis on consumer fraud protection have been 

exacerbated by the decline—and in some cases the disappearance—of state and local 

consumer protection agencies. With fewer places to turn to within their communities, victims of fraud will increasingly look to the Federal Government to fill the 

void left by smaller state and local consumer protection budgets. 

NCL believes we can and must do more to protect consumers from fraud in these 

trying economic times. We believe it is imperative that the Federal Government give 

its fraud protection agencies the resources they need to accomplish this growing 

mission. We strongly support efforts by Congress and the Executive Branch to investigate ways that Federal fraud protection can be enhanced by greater inter-agency 

coordination, greater outreach to at-risk populations, and innovative projects that 

empower consumers to protect themselves. 

Thank you, Mr. Chairman, for giving the National Consumers League this opportunity to comment on the effect of the recession on consumer fraud. We commend 

you for your pro-consumer record and look forward to working with you and your 

staff to help protect America’s consumers from the scourge of fraud. 

Senator PRYOR. Our next witness will be Tim Muris, former FTC 

Chair, and now Professor at George Mason University School of 

Law. 

STATEMENT OF TIMOTHY J. MURIS, 

FOUNDATION PROFESSOR, GEORGE MASON UNIVERSITY 

SCHOOL OF LAW AND OF COUNSEL, O’MELVENY & MYERS LLP 

Mr. MURIS. Thank you very much, Mr. Chairman. 

I have held four positions at the FTC. I was Chairman from 2001 

to 2004, and I am the only person ever to direct both of the agency’s enforcement bureaus, fortunately not at the same time. 

I strongly believe in the FTC as a consumer protection agency. 

I’m especially proud of our consumer protection accomplishments 

while I was Chairman. We did great work in the fraud program 

and in protecting the privacy of Americans, including creating the 

National Do Not Call Registry. 

Preventing fraud is crucial of the Commission’s mission. Fraud 

is essentially theft. Fraud distorts market forces and limits the 

ability of consumers to make informed choices. Fraud takes many 

forms and imposes enormous costs. 

Fraud will largely go unchecked without the leadership of the 

Nation’s Consumer Protection Agency. We created the FTC’s modern antifraud program in 1981, when I directed the Bureau of ConVerDate Nov 24 2008 11:53 Jun 15, 2010 Jkt 055982 PO 00000 Frm 00042 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\55982.TXT SCOM1 PsN: JACKIE
39 

sumer Protection. We used Section 13(b) to halt fraudulent 

schemes and to obtain consumer redress and other potent equitable 

remedies. 

Once launched, the fraud program grew in importance and success. Each succeeding FTC Chairman has expanded its scope and 

improved its operation. While I was chairman, we greatly increased 

cooperation with criminal authorities, helping put bad actors in 

jail. Further, we expanded the FTC’s consumer protection efforts to 

Spanish-language media. When I arrived, the FTC directed very 

little attention to marketing that appeared in any language other 

than English. We corrected the problem, and that effort continues. 

I want to personally thank Senator Nelson, his staff and the 

Florida delegation helped us a lot with that effort. 

The fraud program is at the heart of what I believe is the FTC’s 

proper role. In America, we use markets to organize our economy. 

Consumers derive vast economic benefits over the long term from 

these markets. Consumer protection policy, in turn, can have profound effects, both for good and ill, on these markets. 

The FTC and other public authorities operate against a backdrop 

of important consumer protection institutions; most notably, the 

market and private common law. In our economy, consumers compete to offer the most appealing mix of price and quality. But, 

when competition alone cannot punish or deter seller dishonestly, 

the common law provides basic rules of the road, such as ‘‘Don’t lie 

to your customers,’’ and ‘‘Keep your contractual promises.’’ 

Notwithstanding the strengths of the common law, sometimes, as 

when court enforcement is not feasible, private law just doesn’t 

work. When market forces are inefficient and the common private 

law is ineffective, a public agency, such as the Federal Trade Commission, can help preserve competition and protect consumers. 

Thus, the FTC has a crucial role as an umpire in our economy, but 

it is not, and should not be, a star player. 

Let me make a closely related point. As this committee considers 

the Commission’s tools to attack fraud, there are proposals to expand the FTC’s rulemaking authority. Although many do not think 

of them as such, the common-law principles I just discussed are 

rules, providing a crucial part of the institutional framework that 

helps our market economy function to protect consumers. In most 

circumstances, these common-law rules provide both clear guidance 

to the business community and an adequate basis for FTC enforcement. Although common-law rules do not provide for civil penalties, 

there is no need for such penalties to combat fraud. The FTC already has the authority to get the money through Section 13(b), as 

I just discussed, and the limit is the amount of money available, 

not any lack of authority. 

Moreover, rules seeking to address fraudulent practices often are 

very difficult to write. By their nature, rules must apply to legitimate actors. Remedies and approaches that are appropriate for bad 

actors can be extremely burdensome when applied to legitimate 

businesses, and there is simply no straightforward way to write a 

rule against fraud. 

Rulemaking should not be a substantial component of FTC consumer protection. The agency went down this road once before, 

with disastrous consequences. In the 1970s, the Commission emVerDate Nov 24 2008 11:53 Jun 15, 2010 Jkt 055982 PO 00000 Frm 00043 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\55982.TXT SCOM1 PsN: JACKIE
40 

1 15 U.S.C. § 45. 

barked on a vast enterprise to transform the American economy. In 

15 months, the Commission proposed 15 rules, usually without a 

clear theory of why there was a law violation, and, at best, a shaky 

empirical foundation. As it did before, the FTC will fail if it seeks 

to become the second most powerful legislature in Washington. 

The procedures currently required for rules force the Commission 

to be clear about its theories and focus its evidence on the key 

questions. The ability of rulemaking participants to designate disputed factual issues and cross-examine witnesses on those issues is 

very useful in testing the Commission’s theories. Properly focused, 

so-called Magnuson-Moss procedures are workable. They help the 

Commission create clear, targeted rules aimed at bad actors without harming legitimate businesses and consumers. 

I would like to discuss, briefly, a final issue. From personal experience, those with whom we worked in Attorneys General offices 

across America are diligent and professional. Nevertheless, recent 

problems have arisen in a few states involving the outsourcing of 

enforcement. Some want to grant State Attorneys General greater 

authority to enforce Federal regulations. If you, in Congress, choose 

to extend such authority, you should add safeguards so that the authority is exercised in a uniform, transparent, and impartial manner. 

Thank you very much, Mr. Chairman. I would be glad—and 

members of the Committee—I would be glad to answer any questions. 

[The prepared statement of Mr. Muris follows:] 

PREPARED STATEMENT OF TIMOTHY J. MURIS, FOUNDATION PROFESSOR, GEORGE

MASON UNIVERSITY SCHOOL OF LAW AND OF COUNSEL, O’MELVENY & MYERS LLP 

Chairman Pryor, Ranking Member Wicker, and Members of the distinguished 

Subcommittee, my name is Tim Muris. I am Foundation Professor at the George 

Mason University School of Law and of Counsel at O’Melveny & Myers LLP. Most 

relevant for today’s hearing, I held four positions at the Federal Trade Commission, 

most recently as Chairman from 2001–2004. I am also the only person ever to direct 

both of the FTC’s enforcement arms, the Bureau of Consumer Protection and the 

Bureau of Competition. I believe strongly in the importance of the FTC as a consumer protection agency. Serving as Chairman was the greatest honor of my professional career, and I am especially proud of our consumer protection accomplishments, such as our work on the fraud program and in protecting the privacy of 

Americans, including creation of the National Do Not Call Registry. The United 

States Chamber of Commerce and United States Chamber Institute for Legal Reform have asked me to discuss the important subjects of today’s hearing, and I want 

to thank the Committee for giving me the opportunity to appear today. The views 

I express are my own. 

I. The Role of the FTC 

As a Nation, we use markets to organize and drive our economy. We derive vast 

economic benefits from these markets and the competition that helps markets function properly. These benefits should not be taken for granted; they are not immutable. The Nation’s consumer protection policy can have profound effects on such 

benefits by strengthening the market. The policy also can reduce these benefits, 

however, by unduly intruding upon the market and hampering the competitive process. The Federal Trade Commission has a special responsibility to protect and speak 

for the competitive process, to combat practices that harm the market, and to advocate against policies that reduce competition’s benefits to consumers. 

The FTC protects consumers through its responsibility to prevent ‘‘unfair or deceptive acts or practices.’’ 1 The FTC, and other public authorities, operate against 

a backdrop of other consumer protection institutions, most notably the market and 

41 

2Memorandum of Law of Amicus Curiae Federal Trade Commission, Powers v. Harris, Case 

No. CIV–01–445–F (W.D. Okla. Sept. 5, 2002), available at http://www.ftc.gov/os/2002/09/ 

okamicus.pdf. 

private common law. In our economy, producers compete to offer the most appealing 

mix of price and quality. This competition spurs producers to meet consumer expectations because the market generally imposes strict discipline on sellers who disappoint consumers and thus lose sales to producers who better meet consumer 

needs. These same competitive pressures encourage producers to provide truthful information about their offerings. Market mechanisms cannot always effectively discipline deceptive sellers, however, especially when product attributes are difficult to 

evaluate or sellers are unconcerned about repeat business. 

When competition alone cannot punish or deter seller dishonesty, another institution can mitigate these problems. Private legal rights provide a set of basic rules 

for interactions between producers and consumers, such as do not lie to your customers and keep your contractual promises. Government also can serve a useful role 

by providing default rules, which apply when parties do not specify rules. These 

rights and default rules alleviate some of the weaknesses in the market system by 

reducing the consequences to the buyer from a problematic exchange. Notwithstanding the strengths of private legal rights, in some circumstances—as when court 

enforcement is impractical or economically infeasible—they may not be an effective 

deterrent. 

When consumers are vulnerable because market forces are insufficient and the 

common law is ineffective, a public agency, such as the Federal Trade Commission, 

can help preserve competition and protect consumers. The FTC’s consumer protection and competition missions naturally complement each other by protecting consumers from fraud or deception without restricting their market choices or their 

ability to obtain truthful information about products or services. The Commission 

attacks conduct that undermines competition, impedes the exchange of accurate information, or otherwise violates the common law rules of exchange. 

Because of its antitrust responsibilities, the agency is well aware that robust competition is the best, single means to protect consumers. Rivalry among incumbent 

producers, and the threat and fact of entry from new suppliers, fuels the contest 

to satisfy consumers. In competitive markets, firms prosper by surpassing their rivals. In turn, this competitive market has important implications for the design of 

consumer protection policies to regulate advertising and marketing practices. 

Without a continual reminder of the benefits of competition, consumer protection 

programs can impose controls that ultimately diminish the very competition that increases consumer choice. Some consumer protection measures—even those motivated by the best of intentions—can create barriers to entry that limit the freedom 

of sellers to provide what consumers demand. While I was Chairman, for example, 

the Commission participated in a court challenge to a state law that banned anyone 

other than licensed funeral directors from selling caskets to members of the public 

over the Internet. While recognizing the state’s intent to protect its consumers, the 

Commission questioned whether the law did more harm than good. In an amicus 

brief, the FTC noted that ‘‘[r]ather than protect[ing] consumers by exposing funeral 

directors to meaningful competition, the [law] protects funeral directors from facing 

any competition from third-party casket sellers.’’ 2 The synergy between protecting 

consumers from fraud or deception without unduly restricting their choices in the 

market or their ability to obtain truthful information should undergird all of the 

Commission’s consumer protection initiatives. 

II. The FTC and Consumer Fraud 

Preventing fraud is a crucial part of the Commission’s support of the market system and the common law. More than half of the Commission’s budget and staff is 

devoted to consumer protection, with a significant focus on fraud. Fraud is essentially theft. Fraud distorts market forces and limits the ability of consumers to make 

informed choices. Fraud leads to inefficiency, causing consumers to allocate their resources unproductively. Fraud also reduces consumer confidence and the efficacy of 

legitimate advertising, thereby further diluting the amount of useful information to 

guide consumers’ choices. This effect also raises costs for legitimate competitors, 

who must offer more assurances of performance to overcome consumers’ wariness. 

The costs of fraud to consumers are enormous. Fraud takes many forms from 

fraudulent credit repair services, to unauthorized billing, to deceptive weight loss 

products. A survey released by the FTC in 2007 showed that an estimated 13.5 percent of U.S. adults, approximately 30.2 million consumers, were victims of one or 

42 

3 Consumer Fraud in the United States: The Second FTC Survey, FTC Staff Report, at s–1 

(Oct. 2007), available at http://www.ftc.gov/opa/2007/10/fraud.shtm. 4FTC Fraud Forum, Presentation, Day One: Panel 1 (Doug Shadel, State Director, AARP 

Washington, Advances in Fraud Prevention Research), at slide 31 (Feb. 25, 2009), available at 

http://www.ftc.gov/bcp/workshops/fraudforum/index.shtm#presentations. 5 Id. at slide 32. 6The Commission uses the ‘‘second proviso’’ of § 13(b), ‘‘in proper cases the Commission may 

seek, and after proper proof, the court may issue, a permanent injunction.’’ Trans-Alaska Pipeline Authorization Act, Pub. L. No. 93–153, § 408(f), 87 Stat. 576 (1973). 7See, e.g., John Villafranco, Looking Back on the Muris Years in Consumer Protection: An 

Interview with Timothy J. Muris, ANTITRUST, Summer 2004 80, 82–83. From the beginning of 

the § 13(b) program, the Commission has used this tool against a wide variety of scams, including real estate equity schemes, FTC v. Rita A. Walker & Assoc., No. 83–2462 (D.D.C. filed Oct. 

5, 1983); business opportunity scams, FTC v. H. N. Singer Inc., 668 F.2d 1108 (9th Cir. 1982), 

FTC v. Kitco, Inc., No. 83–467 (D. Minn. tiled Apr. 9, 1983); and travel scams, FTC v. Paradise 

Palms Vacation Club, No. 81–116 (W.D. Wash. filed Sept. 25, 1981). 8FTC v. International Diamond Corp., 1983–2 Trade Cas. (CCH) 65,725 (N.D. Cal.1983). The 

Commission previously had pursued administrative cases against unconventional investments. 

American Diamond Corp.. 100 F.T.C. 461 (Sept. 28, 1982) (complaint and consent order). 9 In these initial consumer protection § 13(b) cases, Commission staff began the practice, still 

followed today, of working closely with other government agencies, such as the Department of 

the Interior’s Bureau of Land Management, and Federal criminal enforcement authorities such 

as the United States Postal Inspection Service and the Secret Service in developing investigations and litigating cases. Parallel investigation and prosecution by both the FTC and criminal 

authorities have remained an important aspect of the Commission’s § 13(b) program. 10FTC v. H.N. Singer, Inc. 668 F.2d 1108 (9th Cir. 1982) is a seminal case establishing the 

Commission’s authority to seek, and the district courts’ power to grant, all the traditional equitable remedies inherent in the authority granted by § 13(b) to obtain permanent injunctions. 

Singer was the first § 13(b) case to attack a business opportunity scam. 

more of the frauds covered in the survey, and that an estimated 48.7 million incidents of these frauds had occurred during the previous year.3

The victims of fraud are as varied as the form of the fraud. For example, the 

AARP has shown that investment fraud victims are more likely to be male, 55–61, 

more financially literate, college-educated, higher income, and more optimistic.4 Lottery fraud victims are more likely to be female, over 70 years old, less financially 

literate, less educated, and have lower incomes.5

Because fraud is often national in scope, and scarce Federal criminal law enforcement resources are primarily used against such matters as drug trafficking and terrorism, fraud will go largely unchecked without the active leadership of the Nation’s 

consumer protection agency. We created the FTC’s modern anti-fraud program in 

1981 when I was Director of the Bureau of Consumer Protection. The development 

of a vibrant anti-fraud program at the FTC is a major success story. Fortunately, 

the legal tools for such a program already existed; in 1973, Congress had amended 

the FTC Act to allow the Commission to sue in Federal district court and obtain 

strong preliminary and permanent injunctive relief—including redress.6

We began by targeting the fraudulent sale of various types of unconventional investments.7 The double-digit inflation of the period that made traditional investments relatively unattractive propelled these ‘‘alternative investment’’ scams. The 

first case involved defendants that fraudulently sold $300 million worth of diamonds 

for investment.8 Similar actions against boiler rooms selling advisory services for 

the Federal oil and gas lease lottery followed as did actions against the sellers of 

worthless oil and gas leases themselves. In this initial period the Commission 

brought three cases against sellers of gemstones and five cases involving oil and 

gas.9

Before the shift to Federal court, most of the Commission’s consumer protection 

work used its administrative process. Most investigations relied upon voluntary production of requested documents and information from the investigated targets, who 

had every incentive to delay. This process had obvious drawbacks for addressing 

fraud. Federal district court cases proved much more effective, enabling the Commission to bring fraudulent schemes to an immediate halt, to take the targets by 

surprise so that money might be available for redress, and to prevent destruction 

of records showing the extent of the fraud and identifying injured parties. 

Almost from the inception of the § 13(b) program, the Commission has used this 

tool not only to obtain court orders halting fraudulent schemes, but also to obtain 

consumer redress and other potent equitable remedies. Very early in the § 13(b) consumer protection cases, the Commission began to seek, as ancillary to issuance of 

permanent injunctions, provisional remedies such as a freeze of assets, expedited 

discovery, an accounting, and the appointment of a receiver on the ground that 

these remedies would insure the effectiveness of any final injunction ordered.10

43 

11David R. Spiegel, ‘‘Chasing the Chameleons: History and Development of the FTC’s 13(b) 

Fraud Program,’’ 18 Antitrust 43 (2004). 12Prepared Statement of The Federal Trade Commission Before the Senate Committee on 

Commerce, Science, and Transportation, U.S. Senate, July 31, 2007. 

To make the best use of this approach, the Agency used modern investigative 

techniques geared for speed and stealth. The agency also developed a group of professional investigators trained to uncover fraudulent schemes, determine ownership 

and control of such schemes, trace assets, develop evidence, preserve evidence for 

trial, and testify in court. More recently, Commission investigators have become experts in Internet investigative techniques and have provided training for thousands 

of local, state, Federal, and international criminal and civil law enforcement offices. 

Once launched, the fraud program grew in importance and success. Each succeeding FTC Chairman has expanded its scope and improved its operation. During 

the 1990s in particular, the agency formed strong, working relationships with state 

and local law enforcement agencies, leading sweeps against targeted types of fraud, 

thereby greatly increasing the program’s effectiveness. By 2004, when my tenure as 

Chairman ended, there had been a total of 78 sweeps, resulting in 2,200 law enforcement actions.11

During the late 1990s, the fraud program matured under the strong leadership 

of Chairman Robert Pitofsky and Bureau Director Jodie Bernstein into the flagship 

of the Commission’s consumer protection program. From Fiscal Year 1983 until Fiscal Year 1995—the first full 13 years that the Commission filed § 13(b) actions—the 

average number brought was 23 per fiscal year. During the Pitofsky-Bernstein 

years, that average skyrocketed to 71 filings per fiscal year. Not surprisingly, as the 

number of filings increased, so has the amount of consumer redress awarded. In Fiscal Year 2003, for example, nearly $873 million in consumer redress was ordered 

in 98 judgments. 

The Commission’s ability to protect consumers from these scams was aided immeasurably by another Pitofsky-Bernstein innovation, the creation of the Consumer 

Response Center (CRC)—a central facility with trained call center staff and an automated call distribution system to record and respond to consumer complaints and 

inquiries. The existing telemarketing fraud complaint database, in operation since 

the early 1990s, was dramatically upgraded and revamped into Consumer Sentinel, 

a system linking law enforcers through a secure Internet site. The Consumer Sentinel system enabled the CRC staff to enter data from consumer complaint calls in 

real time. Initially scores, and ultimately hundreds, of law enforcement agencies at 

the state, Federal, and local levels joined the system, gaining access to the complaint database, as well as the opportunity to ‘‘cross-walk’’ their own complaint data 

into the Consumer Sentinel database. Other entities, such as local Better Business 

Bureaus, also were invited to contribute complaint data to the Sentinel database. 

Consumer Sentinel strengthened the fraud program by improving the staff’s ability 

to spot emerging trends, to identify bad actors more quickly, and to locate potential 

witnesses to support the Commission’s cases. 

The Commission also has taken important steps to improve its cooperation with 

criminal law enforcement agencies. While I was Chairman, we established a Criminal Liaison Unit to coordinate with criminal law enforcement agencies across the 

country to encourage criminal prosecution of consumer fraud. The unit identifies 

criminal law enforcement agencies that may bring specific types of consumer fraud 

cases, educates criminal law enforcers in areas of FTC expertise, coordinates training with criminal authorities to help the FTC prepare cases for referral and parallel 

prosecutions, and provides Special Assistant United States Attorneys to help prosecute the worst FTC Act violators. Between October 1, 2002, and July 31, 2007, 214 

individuals were indicted in telemarketing fraud cases resulting from referrals from 

the Criminal Liaison Unit.12

I also am especially proud of the expansion of the FTC’s consumer protection efforts to the Spanish language media. Having grown up in Southern California, and 

having lived in southern Florida and Chicago, I was aware of the large and thriving 

Spanish language media throughout the United States. Yet, when I arrived in 2001, 

the FTC directed very little attention to marketing that appeared in any language 

other than English. We corrected that problem, hiring numerous attorneys and 

other staff fluent in Spanish, translating the FTC’s excellent consumer education 

materials into that language, and bringing numerous cases against fraud and other 

illegal marketing practices that targeted the Hispanic community. That effort has 

continued. For example, in September 2006, the FTC co-hosted an Hispanic outreach workshop with the U.S. Postal Inspection Service (USPIS), the U.S. Attorney’s 

Office for the Southern District of New York, and the Manhattan Hispanic Chamber 

of Commerce. During the workshop, the FTC announced three law enforcement acVerDate Nov 24 2008 11:53 Jun 15, 2010 Jkt 055982 PO 00000 Frm 00047 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\55982.TXT SCOM1 PsN: JACKIE
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13While my testimony today does not address proposals to codify third-party liability for FTC 

Act violations, potential problems could arise depending on the precise legislative language. 14 Although the FTC promulgated the Safeguards Rule at the same time as it was initiating 

information security cases, the rule was primarily useful in establishing a structure for remedies. Adopted under GLB, the rule set out a flexible, process-oriented approach to providing 

information security. Because Congress had specified liability for financial institutions that 

failed to protect sensitive information, the rule did not require a theory of who was liable under 

Section 5 and under what circumstances. Those theories were developed through the common 

law process in individual cases, and most of the Commission cases have involved industries not 

within GLB’s jurisdiction. 15Of course, the agency and its staff have become quite knowledgeable about certain sectors 

of the American economy, including, for example, the downstream parts of the oil industry, certain aspects of health care, and credit reporting agencies. For credit reporting agencies, the FTC 

is the regulator, and pursuant to the FACT Act, has promulgated numerous rules in the last 

few years. These rules, and many others, were promulgated pursuant to Congressional direction. 

tions against scammers targeting Hispanics with their unlawful business practices, 

as well as the results of a Hispanic Multi-Media Surf conducted by the FTC and 

60 partners in the United States and Latin America. 

The FTC’s vital role as an antifraud agency continues today. Earlier this month, 

for example, it announced the results of a law enforcement sweep called ‘‘Operation 

Short Change,’’ which included 15 FTC cases and 44 law enforcement actions by the 

Department of Justice, and actions by at least 13 states and the District of Columbia. The Operation targeted scammers seeking to take advantage of the economic 

downturn through a variety of schemes from phony debt-reduction services to promises of nonexistent jobs. In February 2009, the Commission held a two-day Fraud 

Forum with representatives from law enforcement, consumer advocates, business 

representatives, academics, and others exploring the problem of fraud and how the 

FTC can more effectively protect consumers from fraudulent schemes. 

III. The FTC and Rulemaking 

As this Committee evaluates policy initiatives aimed at giving the Commission 

adequate tools to attack fraud, I would like to comment specifically on proposals to 

expand the Commission’s rulemaking authority.13 I submit that such proposals 

should be evaluated carefully and considered in the historic context of the Commission’s purpose and mission. 

A. The Role of FTC Rulemaking 

As I discussed above, the agency has relied on the development of common law 

principles, supplemented with occasional rules and guides. The cornerstone of the 

FTC’s consumer protection mission is the fraud program, through which the Commission has returned hundreds of millions of dollars to defrauded consumers. 

Although many do not think of them as such, these common law principles are rules, providing a crucial part of the institutional framework that helps our market 

economy to function. In most circumstances, these common law rules provide both 

clear guidance to the business community and an adequate basis for FTC enforcement actions. Although common law rules do not provide civil penalties, there is no 

need for the civil penalties to combat fraud. The effective limit on the FTC’s ability 

to recover money in cases of fraud is the money available, not any lack of authority 

to recover the funds. 

The common law process is well suited to develop new policy. For example, the 

Commission has used this process to formulate general rules to protect the security 

of sensitive consumer information. Using both its deception and unfairness authority, the Commission has brought cases addressing information security, as the 

growth of the Internet and technology have created new vulnerabilities. Attempting 

to write a rule defining the scope of liability in advance could have stymied the natural development of this common law process, leading to uncertain results.14

Rules seeking to address fraudulent or other practices often are very difficult to 

write. Unlike the FCC, SEC, or other regulatory bodies, the FTC is not a sectorspecific regulator. Thus, the agency generally lacks industry-specific knowledge, expertise, and routine contacts with regulated entities and Congressional committees 

with jurisdiction over those industries.15 Instead, in its law enforcement experience, 

the Commission deals with pathology. It is familiar with bad actors, who have demonstrated their unwillingness to comply with basic legal principles. 

By their nature, however, rules also must apply to legitimate actors, who actually 

deliver the goods and services they promise. Remedies and approaches that are entirely appropriate for bad actors can be extremely burdensome when applied to legitimate businesses, and there is usually no easy or straightforward way to limit 

a rule to fraudulent activities. Rather than enhancing consumer welfare, overly burdensome rules can harm the very market processes that serve consumers’ interests. 

45 

16See, e.g., Comment of the Staff of the FTC before the Department of Health and Human 

Services Food and Drug Administration, In the Matter of Food Labeling: Health Claims; Dietary 

Guidance, Docket No. 2003–0496 (Jan. 2004), available at http://www.ftc.gov/os/2004/ 

040126fdacomments.pdf. 17See R.H. Coase, The Problem of Social Cost, 3 J. L. & ECON. 1, 15–16 (1960) (‘‘Once the 

costs of carrying out market transactions are taken into account it is clear that such a rearrangement of rights will only be undertaken when the increase in the value of production consequent upon the rearrangement is greater than the costs which would be involved in bringing 

it about.’’). 18For similar criticisms of the FTC’s rulemaking binge, see the extensive, contemporaneous 

studies by Barry Boyer (Report to the Administrative Conference of the U.S., Trade Regulation 

Rulemaking Procedures of the Federal Trade Commission, 1979) and Teresa Schwartz (Regulating Unfair Practices Under the FTC Act: The Need for a Legal Standard, 11 Akron L. Rev. 

1 (1977)). See also Muris, Rules Without Reason—The Case of the FTC, 6 Regulation 20 (Sept./ 

Oct. 1982). 19 Although within the Commission these procedures are uniformly referred to as ‘‘MagnusonMoss,’’ in fact, the procedures are contained within Title II of the Magnuson-Moss Warranty— 

Federal Trade Commission Improvement Act of 1975. Only Title I involved the Magnuson-Moss 

Warranty Act, but I use here the conventional designation of Magnuson-Moss procedures. 

For example, the Commission’s initial proposal for the Telemarketing Sales Rule 

was extremely broad and burdensome, and one of the first acts of the Pitofsky Commission was to develop a narrower approach to the rule. More recently, the Commission found it necessary to repropose its Business Opportunity Rule, because the initial proposal would have adversely affected millions of self-employed workers. 

Of course, rulemaking can be appropriate. For example, the Commission sometimes can provide ‘‘rules of the game’’ that reduce consumer harm in the future. The 

Commission can establish new default rules and procedures for transference of 

rights when it is otherwise difficult to do so. Thus, the Commission’s Mail Order 

rule provides that unless the parties agree otherwise, the merchandise must be delivered with 30 days. While seeking to facilitate the exercise of consumer choice, the 

agency is also highly cognizant of the need to avoid unduly shackling market 

forces.16 For example, this balance undergirds the FTC’s approach to unsolicited 

telemarketing calls, through which consumers decide whether or not they wish to 

receive such calls and express their preferences effectively through the Do Not Call 

registry. Once these new rules of exchange are established, if transaction costs are 

low, parties can more easily transfer these rights.17

It would be a major mistake for rulemaking to be a substantial component of FTC 

consumer protection. The FTC went down this road once before, with disastrous consequences. In the 1970s, using its unfairness authority under Section 5 without 

meaningful standards, the Commission embarked on a vast enterprise to transform 

entire industries. Over a 15-month period, the Commission issued a rule a month, 

usually without a clear theory of why there was a law violation, with only a tenuous 

connection between the perceived problem and the recommended remedy, and, at 

best, a shaky empirical foundation.18 The enterprise foundered because of the internal inadequacies of the Commission’s procedures and because of intense Congressional opposition. 

As it did before, the FTC will fail in its mission to protect consumers if it seeks 

to become the second most powerful legislature in Washington. This is surely an unsuitable task for five unelected representatives, not closely supervised by the White 

House or a Cabinet department. 

Regardless of the procedures, rulemaking is a resource-intensive activity that inevitably draws resources away from enforcement. While I was Chairman, the agency 

was pursuing subprime lending cases involving failure to disclose adequately key 

terms of the transaction. In 2005, however, as more and more dubious loans were 

made, the agency diverted substantial resources to rulemakings to implement the 

FACT Act. The FTC asked for rulemaking authority in one narrow area (risk-based 

pricing); it ended up with statutory mandates for more than a dozen separate rules 

and studies. Whatever their value, those rules and studies consumed resources the 

Commission could have productively employed on cases. 

B. Magnuson-Moss Procedures Are Appropriately Tough, But Usable 19

Rulemaking is an exercise in generalization. The FTC should determine whether 

a problem occurs often enough to justify a rule, whether the problem has a common 

cause in a sufficient number of cases to justify the remedy, and whether that remedy can correct the problem without imposing excessive costs. Because the FTC cannot generalize simply from its own experiences or from the horror stories of others, 

it should rely on projectable evidence such as surveys of consumers and econometric 

studies of industry behavior. 

46 

20The Administration’s proposal would do more than just change the procedures used in rulemaking. It also would eliminate the requirement that unfair or deceptive practices must be 

prevalent, and eliminate the requirement for the Commission’s Statement of Basis and Purpose 

to address the economic effect of the rule. It also changes the standard for judicial review, eliminating the court’s ability to strike down rules that are not supported by substantial evidence 

in the rulemaking record taken as a whole. The current restrictions on Commissioners’ meeting 

with outside parties and the prohibition on ex parte communications with Commissioners also 

are eliminated. These sensible and important protections should be retained. 

The Magnuson-Moss procedures force the Commission to be clear about its theories and focus its evidence on the key questions. Otherwise, the procedures can 

make the rulemaking almost interminable. The ability of rulemaking participants 

to designate disputed factual issues and cross examine witnesses on those issues is 

very useful in testing the Commission’s theories. Properly focused, Magnuson-Moss 

procedures are workable. 

The Commission’s recent experience in the Business Opportunity Rulemaking is 

a reminder of the useful aspects of the Magnuson-Moss procedures. The Commission 

proposed a wide-ranging rule, apparently aimed at fraud, but that instead would 

have adversely affected millions of self-employed workers and the consumers they 

serve. Based on the public comments and the need to proceed under MagnusonMoss, the Commission has now sensibly proposed a much more targeted rule that 

addresses fraud without regulating legitimate businesses. Although the Commission 

may have retreated without the threat of hearings and cross examination, those 

threats undoubtedly helped to influence the Commission’s deliberations. 

The FTC has successfully used Magnuson-Moss Rulemaking in the past. Several 

of the rules proposed in the 1970s were eventually promulgated. Some rules, like 

the two involving eyeglasses, were well conceived initially and concluded expeditiously. More recently, the Commission has used these procedures to amend the 

Franchise Rule, and is well on its way to concluding the Business Opportunity Rule 

successfully. 

The Commission’s most prominent rulemaking endeavor, the creation of the National Do Not Call Registry, could have proceeded in a timely fashion under Magnuson-Moss procedures. It took 2 years from the time the rule was first publicly discussed until it was implemented. Although it would have been necessary to structure the proceedings differently, there would have been little, if any, additional 

delay from using Magnuson-Moss. 

C. Magnuson-Moss Procedures Should Be Retained 20

The problems that resulted from FTC rulemaking in the 1970s are not just that 

the agency needed ‘‘better’’ regulators. Instead, the problem is one of incentives and 

constraints. We are in a period of unusual government activism. Numerous groups 

will press the Commission for immediate action, whether or not the proposal is well 

thought out. In the short run, Congress may push hard for action as well. Without 

the constraints of the Magnuson-Moss procedures, the potential for mischief and 

long run harm to the Commission and to consumers is enormous. Although Congress and the courts eventually may restrain the Commission, it would be far better 

to avoid these costs from the beginning. 

It is true that part of the problem from the 1970s has been addressed with the 

Commission’s adoption of the Deception Policy Statement and the codification of the 

definition of unfairness. Nonetheless, the Commission’s authority remains extremely 

broad. The procedural safeguards of Magnuson-Moss create a strong need for the 

Commission to develop clear theories and strong incentives to develop a firm evidentiary base early in the rulemaking proceeding. When these requirements are 

met, Magnuson-Moss rulemaking is workable. 

In a number of areas, the FTC has engaged in rulemaking, pursuant to Congressional direction, using APA procedures. Congressional directives avoid a significant 

part of the problems that bedeviled the FTC in the 1970s, as they provide explicit 

political ‘‘cover’’ for the specific rulemaking at issue. That cover may subside, however, as the political tides shift or as the specific parameters of the proposal prompt 

fierce industry resistance. Moreover, Congressional directives often remove the question of what constitutes a violation, which proved to be one of the most contentious 

issues of many 1970s rulemaking. Even with congressional authorization, I would 

retain Magnuson-Moss procedures when a rulemaking is major and when Congress 

has not specifically defined the violation. 

IV. Safeguards Should Accompany Any Expansion of State Enforcement 

Authority 

As discussed above, the State Attorneys General have been important partners of 

the FTC in fighting fraud. From personal experience, I can attest to the diligence 

47 

and professionalism of those with whom we worked in Attorneys General offices 

across the United States. Nevertheless, it is important to recognize recent problems 

that have arisen in a few states involving the outsourcing of enforcement responsibilities. 

Some in Congress want to grant greater authority to State Attorneys General to 

enforce Federal law. If you choose to extend such authority to the states, I respectfully urge the Committee to consider adding safeguards to ensure that such authority is exercised in a uniform, transparent, and impartial manner. 

In recent years, Congress has enacted several statutes that expand the authority 

of state and local governments to enforce Federal laws into new areas. For example, 

State Attorneys General are now empowered to enforce Federal laws governing diverse issues such as telemarketing, online gaming, and transportation of household 

goods—to name a few. Indeed, in the past few months alone, Congress authorized 

State Attorneys General to enforce the Federal Health Insurance Portability and Accountability Act, the Federal Truth in Lending Act, and any mortgage loan rules 

promulgated by the FTC. 

Delegating Federal enforcement power to state actors gives rise to two important 

and related problems. First, Federal regulatory regimes are at a significant risk of 

being enforced in an inconsistent and unfair manner. Numerous safeguards ensure 

that Federal prosecutorial efforts are consistent, fair, and free from outside bias or 

interference. Those safeguards include statutes prohibiting bribery, ethics rules governing political activities of anyone retained by the government to assist in enforcement efforts, and Executive Order 13433, which limits the use of contingent fee arrangements with private attorneys retained by the government. By contrast, states 

are generally not subject to such safeguards. As a result, granting Federal enforcement authority to the states can result in haphazard prosecution efforts and opportunities for public corruption. 

Second, state enforcement is likely to result in an increase in contingency-fee contracts between states and private attorneys. Contingency fee agreements by their 

nature often operate to the detriment of the general public. In the public litigation 

context, contingency fee arrangements create significant conflicts of interest. A basic 

principle of good government is that public actors should not participate in decisions 

in which they have a financial stake. Deputizing plaintiffs’ attorneys with contingent fee contracts to serve as private attorneys general flouts this fundamental principle, because those attorneys get paid nothing unless they win—and they have no 

chance of winning unless they decide to prosecute claims. Accordingly, such attorneys have a clear incentive to litigate (and to continue litigating) even when doing 

so is not in the public interest. 

For all of these reasons, Congress should approach the expansion of state authority to enforce Federal laws with care—and ensure that any such expansion is accompanied by some or all of the following sensible safeguards to ensure that Federal 

laws are enforced in an open, impartial, and ethical manner: 

• Require Disclosure of Private Attorney Retention Agreements. State officials who 

retain private attorneys to enforce Federal law should be required to disclose 

the arrangement to the Federal Government for publication in the Federal Register. Requiring transparency will improve Federal oversight of state enforcement efforts, which will help ensure the objective, consistent implementation of 

Federal laws. 

• Prohibit ‘‘Pay-to-Play’’ Arrangements. Congress should sever the connection between campaign contributions and ‘‘private attorney general’’ retentions by prohibiting state and local government officials from rewarding substantial campaign contributors with potentially lucrative contracts to enforce Federal laws. 

• Prohibit Contingent Fee Arrangements Absent Necessity. Under Executive Order 

13433, Federal agencies using private attorneys to assist in the enforcement of 

Federal law may use contingent fee arrangements only where it is cost effective 

and consistent with the public interest. Congress should apply these same 

standards to state and local governments’ efforts to enforce Federal law. 

Although these safeguards would promote transparency and reduce ethical concerns about the use of contingent arrangements to reward political donors, they 

would not diminish the capacity of state and local governments to make independent, objective judgments about the best course of action in each case involving 

enforcement of Federal law. In short, if Congress wishes to delegate Federal enforcement authority to non-federal actors, these safeguards increase the likelihood of obtaining any benefits from such delegation without incurring adverse consequences. 

48 

V. Conclusion 

Once again, thank you for the opportunity to testify today. I would be glad to answer any questions. 

Senator PRYOR. Thank you. 

Again, I want to thank the panel for all of their testimony today, 

and your hard work, and the fact that you’re here right now. 

Mr. Vladeck, let me start with you, and let me ask about Operation Short Change. I think you covered some of this in your opening statement, but tell the Subcommittee here what prompted you 

all to do Operation Short Change. I know it’s still fairly new, but 

please give your sense of how it’s working so far. 

Mr. VLADECK. Let me start by explaining the genesis of these 

kinds of sweeps. We want to target our enforcement efforts, particularly these kinds of economic-downturn-related enforcement 

cases, to those who are the most vulnerable. And Operation Short 

Change focused on those kinds of frauds that tend to affect the 

most vulnerable among us—the poor, the elderly, those deeply in 

debt. And so, we focused on five areas: phony income-generating 

opportunities; job placement scams, the one that entrapped Beverly 

Stewart; government grant scams, the stimulus package grants 

that General Koster talked about in his opening statement; creditrelated scams; and mortgage loan-modification scams. 

This was a coordinated effort with our partners in the states and 

with the Department of Justice. And so, our aim was to try to send 

a signal, as loudly and as clearly as we could, that we intend to 

target these kinds of scams, going forward, and, in part, to generate some publicity, because I think, as Sally Greenberg mentioned, consumer education is a vital part of our enforcement effort. 

We need to get the word out to the American people that these 

scam artists are trying to pick their pocket. And so, that was the 

genesis of the sweep, and that’s why it had the focus that it did. 

Senator PRYOR. And again, I know it’s fairly early in the process, 

but, so far—as I understand it, there has been several TROs and 

things like that going on around the country. Can you give us just 

a quick status? I know it’s still a fairly new—— 

Mr. VLADECK. In most of the cases in which a defendant has appeared, we’ve obtained preliminary injunctive relief; that is, we’ve 

gotten a TRO preventing the scam from moving forward. In many 

of the cases, as well, we’ve gotten an asset freeze. So, we’ve 

grabbed whatever money there is. Hopefully, at some point we’ll be 

able to use that money to return the money that’s been taken from 

consumers to the consumers. And consumer redress, getting money 

back to consumers who have been scammed, is an integral part of 

our enforcement efforts. I don’t have the statistics at ready, but I 

think that, of the 15 cases that we brought, we’ve gotten preliminary relief in virtually all of them. 

Senator PRYOR. And I know that when you take on an effort like 

this, you have to coordinate with DOJ, and they have an important 

piece of this, as well as the states—they have an important piece 

of it. From your experience, how is that coordination going between 

various Federal and State agencies? 

Mr. VLADECK. I would say that it is going well, but we need to 

do better. Our job is sort of a biblical one. We need to take the resources we have and multiply them. And the way to do that is 

49 

through strategic partnerships, both within the Federal establishment, strengthening our ties to the Department of Justice, with 

other agencies that have an enforcement role—the Postal Service, 

the Food and Drug Administration, on some of these health scams, 

and with HHS, their Office of Aging. So, we need to strengthen 

those partnerships. We need to strengthen our partnerships with 

the State Attorney Generals. We’re delighted that we were able to 

work with the Missouri AG’s office in Operation Short Change. The 

sweep that will be announced tomorrow will reflect very close ties 

with the California AG’s office and with county offices within California, and other states. And we need to do a better job reaching 

out to the legal services providers, who are often on the front lines 

of this. They are part of the team, here, in terms of combating 

fraud. We do not have, at the moment, adequate ties to legal services providers, and we will be reaching out to them. 

And then, there are local law enforcement agencies around the 

country, county attorneys offices and so forth, that are involved in 

consumer protection efforts. We need to reach them, as well. We 

now distribute our materials, our publications, to over 10,000 organizations, from State Attorney Generals to counties to extension 

service programs. We need to do more. 

Senator PRYOR. Thank you. 

Senator Wicker, if you’d like to make an opening statement, that 

would be great with the Subcommittee, or if you—— 

STATEMENT OF ROGER F. WICKER, 

U.S. SENATOR FROM MISSISSIPPI 

Senator WICKER. Thank you. 

Senator PRYOR.—have any questions. 

Senator WICKER. Thank you, Mr. Chairman. 

I think I will ask unanimous consent to enter my opening statement in the record. 

Senator PRYOR. Without objection. 

Senator WICKER. OK. And I appreciate that. I know we’re trying 

to carry on several conversations at one time. 

[The prepared statement of Senator Wicker follows:] 

PREPARED STATEMENT OF HON. ROGER F. WICKER, U.S. SENATOR FROM MISSISSIPPI

Mr. Chairman, I want to thank you for holding this hearing today. 

With the downturn in the economy and rise in unemployment rates, everyone is 

feeling the effects of our economic crisis. Americans are working to pay down their 

debt and clean up their finances. Unfortunately, some are trying to take advantage 

of those most in need. Scammers are using the economic downturn to prey upon 

those who have been most affected. 

If someone is unemployed, scams offering ‘‘get rich quick’’ plans appear very inviting. For only a small investment in a work-at-home kit you can make over $5,000 

a month from the comfort of your own home. 

The opportunity to receive a Federal grant for personal use to pay off debt or renovate your house sounds appealing even during the best of economic times. For a 

small fee you can receive access to available Federal grants and receive free money. 

A phone call alerting you to the process for redeeming your sweepstakes winnings 

can also sound enticing. If you just pay the taxes due on the winnings, you can have 

the prize monies deposited directly into your bank account. 

Eventually the people who fall for scams like the Federal grant scams, the ‘‘get 

rich quick’’ schemes, or employment scams don’t realize they’ve been taken advantage of until it’s too late. The small fees pile up and the victim is left in further 

debt with their personal financial information compromised. 

50 

Scammers have even used recent public events or government action to take advantage of Americans. Opportunities to receive your ‘‘Cash for Clunkers’’ rebate over 

the Internet or to receive your personal cut of the economic stimulus program appeared online very quickly, even before the programs became law. Consumers are 

duped into believing these online offers are legitimate government programs. 

The Federal Trade Commission is actively working to catch these criminals. The 

Commission, working with other Federal and state law enforcement agencies, regularly conducts large sweeps targeting these scams and other fraudulent activities. 

I look forward to Mr. Vladeck’s testimony and hope he discusses these efforts in 

more detail. 

Public education relating to these scams and other fraudulent activities is a good 

tool to combat these threats. While the Commission’s actions after the scam has occurred are necessary, the American public would be well served by being better educated to recognize these scams upon solicitation. I hope our witnesses today will discuss how we can help increase the public’s education on these frauds. 

I also appreciate former Commission Chairman Tim Muris for joining us today. 

While the specifics of the scams we will hear about today are new and relate to current events, such as the stimulus or the housing market, the way these scams are 

carried out is not new. His testimony will help us get a broader understanding of 

how the Commission has successfully combated these scams in the past. I also look 

forward to hearing his views regarding the Commission’s ability to fight these fraudulent activities. 

Thank you again, Mr. Chairman, for holding this hearing. 

Senator WICKER. I appreciate the Chair’s indulgence. And I want 

to say, I also appreciate punctuality, and I didn’t observe that virtue today. 

Let me start with Mr. Vladeck, and then perhaps others will join 

in. 

Clearly, there has been an effort at education, at consumer 

awareness programs. We certainly had our share of scams in Mississippi, following Hurricane Katrina. When these crises or unfortunate circumstances arise, there are always people there, as Mr. 

Muris says, to steal from. Fraud is stealing. Chinese drywall is a 

problem that this Congress is looking into. We need to increase 

consumers’ awareness of these scams. We need to jump on it as 

quickly as possible, at the onset of a scam, so that individuals— 

vulnerable individuals can get the message. 

I know the FTC and consumer groups are working to get messages out, but how do we review education programs to see which 

ones are working? I mean, something might look good to me on television, and it might make sense to someone who looks at this 

issue every day, but how do we determine best practices for effectively educating consumers? And how do we measure effective education? 

I’ll start with you, Mr. Vladeck. 

Mr. VLADECK. Well, that’s a great question, and one that we 

spend a lot of time thinking about. 

With respect to the Internet, our Internet education efforts, we 

can track pretty well the people who use them, at least in terms 

of the sheer numbers. But, with respect to the other kinds of information that we disseminate—printed material and so forth—the 

only measure that we really have is the demand for them. That is, 

when I talk to other State Attorney Generals—for example, Attorney General Roy Cooper, from North Carolina, was up for Operation Short Change—the first thing he said to me was, ‘‘Keep on 

sending us these educational materials,’’ because in every regional 

office of the State, they distribute them. So, one way to do it is just 

51 

to take a look and get the feedback from the constituents that we 

provide these materials to, and get feedback from them. 

The feedback we get is quite good, but I’m not sure how a newspaper would go about trying to figure out, not simply how many 

people get reached, but how many people actually read the stories 

and actually took away the right message. 

Senator WICKER. I do believe they do that. 

Mr. VLADECK. We are looking at ways of measuring that kind of 

impact. Of course, unlike a newspaper, our materials are distributed to every State, through every extension service, through county attorneys offices, through police departments, and through universities. The distribution is quite wide. And I’m not sure that we 

have the capacity, really, to answer your question in the concrete 

way that I think that you want it. 

Senator WICKER. Ms. Greenberg, you might want to be next on 

this. I believe you hinted at an alliance of groups and industries 

to create uniform messages for consumers. So, would you expand 

on that? And do you have some suggestions for this panel today on 

determining best practices and making sure that our education efforts actually penetrate? 

Ms. GREENBERG. Well, one recent example is an effort that was 

undertaken by the U.S. Postal Inspection Service to deal with a 

fake-check scam. This was in October of 2007. USPIS launched $12 

million, I believe was the figure, outreach campaign that involved 

a very sophisticated series of advertisements. And it really penetrated the airwaves. I think they found it was quite successful and 

colleagues of ours and people that we work with at American Express said that they saw the number of fake-check problems and 

complaints go down significantly during the course of this campaign. And it was advertisements—it was, like, you take a Vitale 

guy, and you have an actor play this guy, and they were doing role 

playing. So, he would go in, sit down at a—let’s say, on a bus, and 

say, ‘‘Hey, would you like to write me a check for $50,000?’’ The 

person says, ‘‘Of course not.’’ So, it’s that sort of thing. And then 

he says, ‘‘Well, why would you do it in any other context?’’ And it 

was very focused. I’m sure the FTC was involved in the fake-check 

campaign, as were a number of other Federal agencies. 

So, what we’re talking about is money, a sophisticated media 

outreach using Web 2.0 efforts, new media efforts, you know, all 

the Facebook and Twitter tools that we have. It takes money, and 

it takes a really focused effort. But, I think the kind of work that 

David Vladeck is doing at the FTC really makes a big difference. 

I saw an FTC person on CNN. That gets out—she’s in the 

room—a lawyer. And she was talking about, ‘‘Don’t fall for it.’’ I 

mean, these kinds of outreach efforts are really, really effective, but 

if we put the money there, I think that we can make a dent. 

Senator WICKER. Mr. Vladeck, was the FTC involved with the 

Postal Service in that specific incident? 

Mr. VLADECK. I’m not certain, but I’ll get back to you on that. 

Senator WICKER. Thank you. 

Mr. VLADECK. Thank you. 

Senator PRYOR. Thank you. 

And next we have, Senator Bill Nelson. And Bill has a very important Finance Committee hearing to get to, and to demonstrate 

52 

his commitment to consumer protection, he stayed in order to ask 

questions. 

Thank you for being here. 

STATEMENT OF HON. BILL NELSON, 

U.S. SENATOR FROM FLORIDA 

Senator NELSON. Thank you, Mr. Chairman. 

The purpose of this hearing is to see if the U.S. Government is 

protecting the consumer in these down times. The FTC labors 

under a very cumbersome rulemaking process so that you attack a 

lot of the problem after the scam has occurred. 

So, Mr. Vladeck, what are we going to do to get these rules in 

place so that everybody knows, if you cross that line, immediately 

you jump on them? 

Mr. VLADECK. Well, since 1947, the standard way Federal agencies make rules is under the Administrative Procedure Act. It sets 

forth a notice-and-comment system, it provides the public an opportunity to weigh in, and provides for judicial review at the end of 

the process. The FTC, by and large, may not use that ordinary 

mainstream rulemaking process to issue its rules; we are saddled 

with a very cumbersome rulemaking process—— 

Senator NELSON. So, are you saying that you can’t adopt brightline rules that, when they cross that threshold, you can jump 

them? 

Mr. VLADECK. We can adopt those rules, 5 or 6 years down the 

road. We cannot use that rulemaking process, in a situation like 

this, to respond quickly to emerging problems in the economy. 

Senator NELSON. So, is the FTC impotent to attack these scams? 

Mr. VLADECK. No male is ever going to use that word, Senator. 

[Laughter.] 

Mr. VLADECK. We are—— 

Senator NELSON. Well, I just did. 

Mr. VLADECK.—we are hobbled, because, instead of using rulemaking, we have to proceed, case by case. 

Senator NELSON. All right. 

Mr. VLADECK. And so—— 

Senator NELSON. Well, obviously, it isn’t working. 

What do you think, Mr. Muris? 

Mr. MURIS. I could not disagree more with the premise of Mr. 

Vladeck. These people are crooks. We already have rules against 

their behavior. And what we need is strong, aggressive enforcement. 

In one year when I was Chairman, we got over $900 million back 

for consumers. We’ve worked with criminal authorities, as the 

Commission does, to this day, and has put hundreds of people in 

jail. 

Rules are distractions. Let me tell you what happened in the 

1970s. The FTC tried to compete with you, and indeed, be a legislative body. That does not work. The FTC has five unelected officials. 

The rulemaking procedures that Mr. Vladeck discusses are procedures that were put in place by Congress because the FTC’s jurisdiction is so broad. Rather than wasting their time writing rules, 

which would apply to legitimate, as well as illegitimate businesses, 

53 

in the fraud area, the Commission needs to do what it’s doing, 

which is going after the bad actors. I believe it can do even more. 

A final point is, when another committee and then the Congress 

passed reauthorization of the Fair Credit Reporting Act, we asked 

for one rule. The Congress gave us something like 15 or 16. The 

people who worked on those rules and studies got taken away from 

working on cases. I do believe the FTC needs the adequate resources, but you just can’t go out and hire people. You need to train 

them, you need to work with them. 

So, I believe the rulemaking effort is a distraction. You should 

retain the FTC’s current rulemaking authority. 

Senator NELSON. Well, Mr. Chairman, if—any other questions 

from me would be superfluous. I think we’ve seen there’s an inability of the system to react to a circumstance to try to head it off in 

the first place. 

Mr. VLADECK. May I respond briefly to Mr. Muris? 

We are currently working on two rules, pursuant to APA procedures, because Congress authorized us to do this. These are the 

mortgage rescue, mortgage foreclosure rules. 

We do not have parallel authority for debt. We are doing debt 

workshops, we are looking at debt issues. But, it would have been 

helpful to be able to jump on some of these issues more quickly 

with rulemaking authority. 

Mr. Muris is right, in one sense. Rules take time, they can be 

distractions. You have to be strategic about the rules that you want 

to issue. 

Everyone learned the lesson of the 1970s. I don’t think this Commission wants to be a junior legislature. What we want to do is be 

able to protect consumers from emerging threats of the kind that 

we’ve seen over the last 2 years, and the rulemaking authority that 

we currently have does not permit us to do that. That is the view 

of the Commission. 

Senator NELSON. Sounds like we’ve got a lot of work on this to 

do, Mr. Chairman, to protect consumers from scams. 

Senator PRYOR. It does. And we’ll—— 

Senator NELSON. Now, the Attorneys General certainly have that 

power. I had that power, as a regulator, as a State cabinet officer, 

before I came to the Senate. But, it doesn’t seem like we’ve got the 

ability for an immediate response here. 

Senator PRYOR. I think we’ll have a robust discussion about that 

as we do our FTC reauthorization over the next several months. I 

know there’s a difference of opinion and I appreciate everybody’s 

input. 

Thank you for being here, and I know you need to race out to 

your Finance Committee hearing. 

Senator McCaskill? Thank you. 

STATEMENT OF HON. CLAIRE MCCASKILL, 

U.S. SENATOR FROM MISSOURI 

Senator MCCASKILL. Thank you very much. 

I want to, first, on a personal note, say how terrific it is to see 

the Attorney General from Missouri here. Chris and I have known 

each other a long time, and there are many chapters to our friendship that goes back to the time that I was the elected prosecutor 

54 

in Kansas City and he was the elected prosecutor in the county immediately south of Jackson County. And we worked together then, 

he is a very talented and is going to be a terrific Attorney General 

for the State of Missouri. I couldn’t be happier to see him here 

today. 

As you know, Mr. Chairman, and as Mr. Bell referenced, I’ve 

been trying to do a lot of work in the area of reverse mortgages. 

We have had a series of three hearings on reverse mortgages—one 

in Washington, two field hearings in Missouri. It is very clear to 

me that these are complicated, expensive financial instruments, 

that, while maybe appropriate, in limited circumstances for some 

seniors, with appropriate counseling and appropriate information, 

they are being marketed now in ways that make my blood boil. 

And one of the things we discovered in one of the hearings is that 

there are actually people out there that are on marketing lists, 

with titles like ‘‘Lonely Seniors,’’ ‘‘They Will Talk to Anyone’’ lists— 

‘‘People Who Play the Lottery,’’ and ‘‘Easy Prey.’’ 

I’m curious, General Koster, in the investigations that you all 

have done and that you continue to do in this wide area of scams 

against consumers, and particularly the elderly, have you looked at 

ways that people are being targeted, in terms of what information 

is being gathered and how people are being selected to receive the 

mail solicitations, to receive the phony checks? Have you all had 

an opportunity to look at that part of it? 

Mr. KOSTER. Candidly, a lot of the information that has come out 

in our state has been as a result of the work that you have done 

when you brought your committee and conducted hearings around 

the state. I was listening to the comments about, ‘‘How do we raise 

public awareness?’’ And I believe that the political community, in 

conjunction with the media, still does a great job of raising awareness. 

So, I am aware of the targeting that is occurring, as though they 

were marketing different types of magazines to seniors. My experience is that nine out of ten of these reverse mortgages, and increasingly these sale-leaseback arrangements, which are nothing more 

than stealing the equity from senior citizens, largely, and then 

renting them their house at an elevated price, have been tremendous advantage-taking opportunities by scammers. 

Senator MCCASKILL. I know, Mr. Vladeck, at the FTC, that you 

are looking into reverse mortgage advertising and marketing. And 

it’s my understanding that there is a task force, headed by the 

FTC, with Treasury and HUD, that is looking into these advertising practices in this way. And—by the way, I got a Tweet yesterday from someone who said that there was a mailing in Illinois 

that had gone out from one of these institutions, marketing these 

reverse mortgages, saying that this was, in fact, a stimulus benefit, 

an American Recovery and Reinvestment Act benefit, similar to 

what you all have spoken about this morning; whether it’s bailout 

or stimulus, those are the scam phrases of the day, but it doesn’t 

matter what the economic climate is, they always manage to find 

a scam phrase. 

Tell me, Mr. Vladeck, how is that task force going? And what, 

if any, action are you all taking as it relates to the advertising? 

55 

Mr. VLADECK. Well, as you know, we are in the midst of a rulemaking that will address the entire life cycle of the mortgage process, including the advertising. So, we’re hoping to address, at least 

in part, that question through rulemaking. The rulemaking has already commenced. We’re hoping to have this done as quickly as we 

can. We’re also looking for cases like these equity-stripping scams, 

that General Koster described. So, if you have that Twitter, please 

forward it to me and we’ll take a look at it—— 

Senator MCCASKILL. Well, in fact, I just put out a Twitter while 

I was sitting here listening to the testimony—— 

Mr. VLADECK. Please. 

Senator MCCASKILL.—asking people who follow me to give me 

examples—other examples of scam advertising that they may encounter as it relates to these folks promising government benefits 

that—and, by the way, Time magazine had an article this week 

on—and I know I’m almost out of time, but I want to mention this 

for the record—Time magazine had an article about reverse mortgages this week, which was great, except they got one part wrong, 

and I want to point out the part they got wrong. If, in fact, these 

homes lose value, which obviously none of us thought would ever 

happen, and it has happened—and, of course, that is really one of 

the reasons we are in this incredible economic crisis right now— 

if these homes lose value, and, at the end of this process, when the 

home is finally sold, and it is not sufficient money there to pay the 

loan, it said in the article that the lenders got left holding the bag. 

I want to point out for the record that it’s the taxpayers that get 

left holding the bag, because we are insuring 90 percent plus of 

these loans that are being made right now, and we just upped the 

limit of the amount that could be loaned, and these are increasing 

by huge margins, and this is, in fact, potentially the subprime 

scam—the subprime problem, 4, 5, 10 years from now, and it won’t 

come due for a while, because we’re not going to know that we’re 

going to be caught in these loans until these homes are sold. So, 

I encourage all of you to continue to be vigilant in that particular 

area because these seniors really deserve more protection than 

they’re getting right now. 

And once again, thank you, General Koster, for being here today. 

We’re—it’s terrific you’re here, and I hope you come back often to 

show off what a great job we do in Missouri, protecting people. 

Thank you, Mr. Chairman. 

Senator WICKER. Mr. Chairman, in order to have a complete 

record, here, I wonder if Senator McCaskill would join me in asking 

unanimous consent that that article be placed in the record at this 

point. 

Senator MCCASKILL. Absolutely. Absolutely. And we will put in 

the response letter we’re sending Time magazine that corrects that 

inaccuracy in the article—that it’s the taxpayers that are on the 

hook for these loans and not the banks. 

Senator PRYOR. No objection. 

Senator MCCASKILL. Thank you. 

[The information referred to follows:] 

56 

TIME Magazine, July 20, 2009 

REVERSE MORTGAGES

By Cybele Weisser 

While the recession hasn’t spared any age group, it’s been particularly brutal for 

older Americans who were counting on their (now shrunken) nest eggs to last 

through their retirement years. To supplement their stash, an increasing number 

of seniors are turning to reverse mortgages, which function essentially as a cash advance on their home equity, repaid only when they sell their home or die. The loans 

are available to those 62 and over, and lenders have to eat the difference if a home 

ends up declining in value. In the three months after February—when a provision 

in the economic-stimulus package raised the eligible home-value limit from $417,000 

to $625,500—the number of federally insured reverse-mortgage originations jumped 

10 percent compared with the same period last year. Industry experts predict that 

reverse mortgages will play an increasingly important role in the coming years as 

some 70 million baby boomers hit their 60s—often with a lot less saved than they’d 

hoped. 

This has some folks in Washington concerned. In June, the Government Accountability Office said it had uncovered misleading marketing practices in the reversemortgage industry, and Missouri Senator Claire McCaskill, a longtime consumer advocate, chaired a hearing to investigate predatory lending tactics. A big no-no is 

cross-selling, e.g., trying to persuade a senior to get a reverse mortgage and use the 

funds to buy an annuity or other financial product. 

Comptroller of the Currency John Dugan recently noted that reverse mortgages, 

like some flavors of the infamous subprime mortgages, are too complex for many 

seniors to understand. ‘‘Millions of older Americans still have a lot of equity in their 

homes, and it’s tempting for them to tap into this pot of money,’’ he says. 

Still, under the right conditions, these loans can be a sensible solution to a tough 

financial situation. So if you or your parents are considering one, here’s what you 

need to know: 

The amount you can borrow is based on interest rates, your age and the value 

of your home. (Use the calculator at rmaarp.com for an estimate.) There are no credit or income requirements to get a reverse mortgage, but you must be able to keep 

up with property taxes and insurance bills—or you could lose your home. The upfront costs are high. Generally, $10,000 to $15,000 in fees are lopped off the amount 

you can borrow. Finally, if someone is pressuring you to take one of these loans in 

order to buy something else, that’s a huge red flag. Walk away. 

Lenders aren’t allowed to close on a federally-insured reverse mortgage until borrowers meet with a HUD-approved counselor, who is required to help them explore 

alternatives such as selling their home or lowering their expenses. That’s because 

the greatest reverse-mortgage risk, especially for younger borrowers, may be that 

they will live longer than they expected and drain all the available equity from their 

home. Says reverse-mortgage specialist Bronwyn Belling: ‘‘If you borrow the money 

now, you may not have it when you need it later on.’’ 

LETTER TO TIME MAGAZINE

While I applaud Cybele Weisser’s piece concerning reverse mortgages, I want to 

take issue with one conclusion stated in the article: ‘‘Lenders have to eat the difference if a home ends up declining in value’’ [July 20]. Wrong. Taxpayers make up 

the difference, not lenders. A little over a month ago, the Department of Housing 

and Urban Development (HUD) asked for $800 million to cover losses on its reversemortgage program. That is because HUD insurance allows lenders to assign loans 

to HUD once the value of the home has dropped to nearly the value of the loan. 

So far, more than $1 billion in loans has been passed on to HUD. With fluctuating 

home values and interest rates, it is difficult to know how much more money HUD 

will have to come up with. The more loans it insures, the greater the risk to taxpayers. Without greater oversight, that initial $800 million will just be the start. 

While reverse mortgages can provide financial help to seniors, they are expensive 

and complicated, and ultimately, taxpayers will foot the bill if the loan goes bad. 

After the subprime mess, we cannot afford to let history repeat itself. 

CLAIRE MCCASKILL, 

U.S. Senator, St. Louis, MO. 

Senator PRYOR. Senator Klobuchar, welcome back. 

Senator KLOBUCHAR. Thank you very much, Mr. Chairman. 

57 

When I was out, my staff told me that you, Mr. Bell, haven’t 

been asked a question yet, so I guess I have to—— 

[Laughter.] 

Senator KLOBUCHAR.—I have to fix that, as well as you, Ms. 

Greenberg. So, there we go. 

You know, in your testimony, Mr. Bell, I was struck by what I 

think is good common sense for financially troubled consumers facing foreclosure, and that is one of your commonsense ideas, something that Prentice Cox, from the University of Minnesota, has 

talked about. If someone asks for a fee up front for counseling, it’s 

a probable signal that there may be a possible predator. Do you 

want to talk about that? And also, what other things we can do, 

and maybe launch a little into what you think of this idea of setting up a special agency to deal with financial documents and financial fraud. 

Mr. Bell? 

Mr. BELL. Thank you very much. 

Well, I would just observe that consumers are by and large a 

very trusting lot, and when people come forward, often with a lot 

of media muscle behind them, offering help and assistance in a financial downturn where they have credit problems, people are inclined to trust those sorts of information. So, I think it’s a big job 

for us to teach consumers to be more skeptical, to not sign contracts or other agreements without seeking independent sources of 

information. One thing that we do have a lot of in this country are 

nonprofits, mortgage counseling and financial counseling agencies, 

and also HUD foreclosure counseling centers. We would urge consumers to avail themselves of those sources of independent information and counseling, and not just believe what salespeople are 

telling them. 

And I’d also raised the issue of media responsibility in my testimony. I do believe that an awful lot of money is being invested in 

both television and Internet commercials to try to promote services 

that are questionable, including many services that charge advance 

fees for debt settlement or foreclosure rescue. We have heard from 

a lot of enforcement officials on the ground, in states like California, that an advance fee is almost a sure indicator of a scam or 

a service that may be suspect, so we’re trying to get that message 

out to consumers. 

We also believe that we—one of the reasons we have this profound, deep financial crisis has been sort of disarray at the Federal 

level, in terms of the many different regulators we have, a system 

that does not provide comprehensive premarket review of financial 

products that are introduced and intensively marketed to consumers. And for that reason, we’ve been supporting the Obama Administration’s proposal for a consumer financial protection agency, 

which we think would have—would need to have very comprehensive powers to look across the entire marketplace, including at 

products that are competing with each other but right now are 

often regulated by different regulators—— 

Senator KLOBUCHAR. OK, thank you. 

Mr. BELL. Yes. 

Senator KLOBUCHAR. Ms. Greenberg? Just your reaction to that 

proposal? 

58 

Ms. GREENBERG. The financial safety Product Commission? 

Senator KLOBUCHAR. Yes. 

Ms. GREENBERG. We’re—we join with the testimony that—of the 

other consumer groups—testified on. I guess they’re testifying 

today in the Senate. I just—you know, it occurs to me, I really 

think, Senator Klobuchar and other members of the Subcommittee, 

that—you know, we talked about what happened with the USPIS 

spending $12 million, which was actually ill-gotten-gained money, 

so it wasn’t taxpayer money—that we really have to go toe-to-toe 

with these fraudsters. That means they are spending billions of 

dollars reaching out—you know, hundreds of millions of dollars 

reaching out to get—to entrap consumers. We have to use the same 

methods that they use to—whether it’s newspapers, whether it’s 

magazines—to—whether it’s the Internet, whether it’s using Twitter or Facebook—they’re very successful at this. And we—— 

Senator KLOBUCHAR. So, you mean we have to be as sophisticated as the crooks we’re trying to get. 

Ms. GREENBERG. Absolutely. And we—and once those messages 

get out there, people listen. The problem is, they just don’t hear 

enough from us, but they do hear from the fraudsters. 

Senator KLOBUCHAR. Right. 

Mr. Vladeck, in your testimony, you talked about scam artists 

that have been attempting to exploit the American Recovery and 

Reinvestment Act by claiming to offer consumers, for a price, help 

with applying for, supposedly, free government grant funds. And 

you’ve mentioned that the FTC has kind of taken that on. Could 

you explain that, and also maybe get at Ms. Greenberg’s point 

about how we’re going to be as sophisticated as they’re developing 

new techniques over the Internet? 

Mr. VLADECK. Well, let me invite you to come look at our Internet lab which is truly state-of-the-art. We are using that to try to 

track and figure out who the proponents of these scams are, so that 

we can find them and we can go after them. 

As you know, the stimulus money is like honey to scam artists. 

They are using, as Attorney General Koster noted, all of the 

trappings of government to portray their services as related to the 

government. Indeed, there was an Internet scam that stole people 

who went to the HUD website and captured that traffic, and the 

FTC was able to get an injunction to stop this scam quite quickly. 

But, most of the scams that we see are related to grant money, and 

so, we’ve brought a series of cases, and where we have other investigations ongoing to try to go after these grant scams that promise 

people easy access to government grants to pay off their own debts. 

And we’ve been very successful, so far, in stopping some of the big 

ones. But, it’s like playing Whack-a-Mole. We go after some of the 

big ones, and another one of these scams emerge. And as long as 

there is this talk of the government stimulus money, I think we’re 

going to be in the business of going after these scam artists. 

Senator KLOBUCHAR. OK. Thank you very much. 

Senator PRYOR. Thank you. 

Ms. Greenberg, I’d like to start with you, if I may. And we’ll just 

do a second round of questions, here. We’ll do 5 minutes again if 

it’s OK with the Senators. 

59 

But, you had mentioned that you would like access to the Sentinel database. And I’d like to get your concept of how that could 

work and should work. 

Ms. GREENBERG. Well, this will be a familiar theme for you since 

it relates a little bit to how we tried to get into the Consumer Product Safety Commission database. And you’ve spent so much time 

and done such great work in that area. Really, it’s a tool for consumers to be able to do their own investigation. Here’s a company, 

let me go check them out and see, you know, if they appear on this 

database and whether they’ve, you know, been involved in fraudulent activity. We want to get—we think consumers could benefit 

from having access to that information. And right now it’s really 

a law enforcement tool. So, you know, I’d like to work with the 

folks at the FTC and see whether there is a possibility for doing 

that. 

Senator PRYOR. Now, as I asked you that question, I noticed that 

Mr. Muris and Mr. Vladeck scrambled for their notepads there and 

were jotting down some notes. Did you have any comments on that, 

Mr. Muris? 

Mr. MURIS. The Commission does a great job in creating this 

partnership. There are issues that I’m sure Mr. Vladeck can comment on, in terms of how the partnership works with law enforcement and some of the sensitivities. These are Freedom of Information Act and other issues. 

I wanted to say, generally, Mr. Chairman, that the points about 

reverse mortgages illustrate exactly the point that I’m making 

about rulemaking. I don’t know the subject matter, but, if there 

are, indeed, crooks, the Commission needs to get out and deal with 

those crooks now, and rulemaking is a distraction. If there are legitimate reverse mortgage businesses, the Commission will have a 

great deal of difficulty drafting a rule to separate the two. 

A final brief comment. The Commission had a business opportunities rule. There are 14 million people in all your districts—Mary 

Kay, Amway, Avon—and the Commission thought it was writing a 

rule about fraud. It turned out to be writing a rule that would have 

put many of these people out of business, and the Commission, of 

course, has retreated from that. But, it’s a very difficult process. 

There already are rules. If indeed these reverse mortgage people 

are scam artists, there’s an elaborate law of deception, and let’s get 

on with the business of going after them and not the distraction 

of rulewriting. 

Senator PRYOR. Mr. Vladeck, did you have a comment about the 

database? And I do want to ask you about his point on reverse 

mortgage. 

Mr. VLADECK. OK. Well, let me start with the database. I share 

Ms. Greenberg’s concerns about public availability, but there are 

tremendous practical problems that we need to overcome. We have 

personal identifier information in many of the complaints, and 

there are deep, entrenched privacy concerns about letting the database be searched by members of the general public. 

In order to take out the fields that might contain personal identifying information, we would have to, I am informed, manually go 

through the database and block that information out. 

60 

I completely agree with giving the consumers access to information that might help them make informed choices. At the same 

time, we depend so heavily on consumer complaints for our enforcement efforts. A huge volume of complaints gives us an indication 

that this is a widespread scam causing serious consumer injury. 

The last thing in the world anyone wants is for us to deter any individual from filing a complaint or for any law enforcement agency 

sharing complaint data with us because of privacy concerns. And 

so, I’m always happy to sit down with Ms. Greenberg and talk 

about this issue, but I—I’m fearful that, until we can overcome the 

legitimate privacy issues, general public access to our database is 

not possible. 

Senator PRYOR. Well, let me—thank you—and let me follow up 

on the reverse mortgage issue that he raised. Could you give the 

Subcommittee a sense of—or maybe a specific example of practices 

that you’re seeing out there that you cannot currently deal with because you don’t—because you would need to make a rulemaking? 

Mr. VLADECK. Well, let’s take the advance fee issue. I think 

there’s general agreement among consumer advocates that these 

advance fees for foreclosure rescue or mortgage scams or debt 

scams—debt counseling scams—are principal indicators of a scam. 

We have gone after mortgage rescue scams and credit repair scams 

that charge an advance fee. I think that the best way to have tackled this problem—and we’re doing it now through a rulemaking authorized by Congress—is to set a clear rule. We cannot, the states 

cannot, local governments cannot, go after all of these scammers. 

If there was a clear rule that simply said ‘‘no advance fees’’ in these 

mortgage rescue situations—and some states—my understanding 

is, many states are now passing state laws that require that, we 

would be better off. And Congress has authorized us to do that, but 

we’ve lost an awful lot of time. 

Mr. VLADECK. An awful lot of people have been hurt because of 

the delays in our ability to get this rule on the books. 

Senator PRYOR. Mr. Muris, did you have a follow-up? 

Mr. MURIS. If there are legitimate businesses here, and Mr. 

Vladeck made a speech and said, ‘‘We will attack anyone with advance fees,’’ they would stop doing them. The other people are 

crooks, and a rule isn’t going to help. The crooks are crooks to 

begin with. They know they’re crooks, quite frankly, and you don’t 

need a rule to deal with them. In a speech or a case, the FTC 

could—for the legitimate businesses—accomplish the purpose that 

he wants. 

Senator PRYOR. Senator Wicker? 

Senator WICKER. Thank you. And I’ll observe, Mr. Chairman, 

that this hearing is even more interesting than I expected it to be, 

and I appreciate the panel dealing with us on this. 

We have two items of agreement between Mr. Vladeck and Mr. 

Muris. One, that rulemaking is a distraction. Mr. Vladeck, I believe, would contend that it’s a distraction that’s worth it in certain 

limited instances. The second bit of agreement that I’d like to ask 

both of you about is to tell us exactly what the experience of the 

1970s teaches us and how did the FTC fail? I guess since you 

brought it up, Mr. Muris, I’ll let you go first. 

61 

Mr. MURIS. I was there. The first job I had out of law school, was 

as a staffer in the Federal Trade Commission. The Commission 

took upon itself—and frankly, it was pushed early in the 1970s by 

Congress—to transform entire businesses. And, as I said, it issued 

a rule a month for 15 months. A big part of the problem was, obviously, that the rules were not well thought out. Congress reacted 

and required the FTC, because it has such enormously broad jurisdiction and is not an expert agency on a specific area, like the EPA 

or the SEC—Congress said, ‘‘You have to have tougher procedures. 

And what you need to do is allow disputed issues of material fact 

and allow’’—— 

Senator WICKER. Tougher rulemaking—— 

Mr. MURIS. Yes, tougher rulemaking procedures. And those procedures work, if you use them appropriately. I’m not opposed to 

rules. My 15 minutes of fame in life was the creation of the National Do Not Call Registry. We did that with a rule. We did it 

quickly. I believe that we could have used these procedures and accomplished it. A problem is, if you go ahead with this reauthorization and it passes the Congress, I predict—and I suspect that you 

all may try to stop some of this—but I predict that it will be like 

the FACT Act, the Fair Credit Reporting Reauthorization. It will 

come with a request for the Commission to do a dozen rules, and 

that would be an enormous distraction and disservice to American 

consumers. And—— 

Senator WICKER. Why did Congress react? Were they hearing 

from the people—— 

Mr. MURIS. Congress reacted for a variety of reasons—because 

the FTC was doing so much, and because the FTC’s jurisdiction is 

so broad. Again, if you take the EPA or you take the SEC or you 

take the FCC, they’re expert agencies over a relatively narrow 

area. The FTC is an expert, but it’s an expert on consumer protection and how to interpret advertising and how to go after fraud. In 

a specific area, like the mortgage area that Director Vladeck is discussing, the Commission has exactly a handful of cases dealing 

with, for example, mortgage servicing, yet they’re going to write a 

servicing rule. Instead, the way the law should develop, I believe, 

is for the Commission to bring cases and follow the common-law 

process of evolution. Because at the beginning, particularly in an 

area you don’t understand, it’s very hard to start a rule and to do 

the rule right. 

Senator WICKER. Mr. Vladeck, what do you have to tell us about 

the failure of the 1970s approach? 

Mr. VLADECK. Well, fortunately, I was not really present at the 

early days of the FTC. I’m a little younger than Tim. I think Tim 

is accurately portraying the lesson, which is that the agency overreached, and it overreached and was punished by Congress for 

overreaching. 

I think Congress’s punishment did not fit the offense. That is, 

we’ve been saddled with a rulemaking process that is unlike that 

used by every other agency. It requires, essentially, a trial-type 

proceeding to finalize a rule. And make no mistake, it would take 

years to promulgate a rule under those conditions, which is why 

the agency, by and large shies away from rules like that, particularly in areas like the one we’re seeing now, where there is a fastVerDate Nov 24 2008 11:53 Jun 15, 2010 Jkt 055982 PO 00000 Frm 00065 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\55982.TXT SCOM1 PsN: JACKIE
62 

developing crisis that jeopardizes consumers. The problem here is 

that the economic downturn has given fuel to scammers who prey 

on the most vulnerable in our society. And while we can go case 

by case, which is what we’re doing, it’s the difference between 

being able to do something wholesale or resale. We’re—retail— 

we’re doing these, case by case by case. We’ve made inroads. But, 

the more efficient, the quicker way to get redress to more consumers is to place a rule in place which has the force and effect 

of law. The simple violation of that gives rise to an offense, it 

makes our enforcement much easier. We could do a far higher volume of cases, and we could do a better job protecting American consumers. 

Senator WICKER. Mr. Muris, during your term as Chairman, did 

you have any difficulty bringing enforcement actions against 

scammers? Were you limited in your ability to protect consumers 

from fraudulent activity? 

Mr. MURIS. Absolutely not. Two points. These scammers are already violating rules. We don’t think of them as rules, but these 

common-law principles against lying, against fraud, against breaking your contract are rules. And an additional rule, I don’t think 

would deter the scammers. 

Second, you don’t need civil penalties. The Commission as Mr. 

Vladeck said, can freeze the assets. That gets all the money that 

is there to get. I don’t think Mr. Vladeck would spend his time, 

frankly—I hope he wouldn’t—writing rules against fraudsters. But, 

the premise that he just made was the premise of the 1970s: We 

need to write rules, and then we’ll bring cases enforcing the rules. 

Because we already have basic rules of the road, the rules the FTC, 

indeed, writes—and it should write some; I believe Do Not Call was 

a great example—should be few and far between. The procedures 

that they have are adequate. 

But, in special cases, perhaps Congress, in its wisdom, should 

say, ‘‘Go ahead and use APA procedures.’’ The Commission can already go to Congress to get that done, in the rare case if the Commission believes it should do a rule. 

Senator WICKER. Well, I have one final line of questioning. And 

that goes to Mr. Muris’s point with regard to private attorneys— 

to Attorneys General enforcing State laws. We know that some of 

these Attorneys General turn around, then, and hire private attorneys to litigate claims. Mr. Muris, clearly you are fearful that further expansion of this authority presents problems. How has the 

practice by State Attorneys General to retain private attorneys affected the implementation of Federal law? And what needs to be 

done to ensure that enforcement in this regard is consistent and 

fair? 

And then, Mr. Koster, as Attorney General, I’d like for you to 

weigh in on responding to Mr. Muris’s point, then. 

Mr. MURIS. Well, let’s be clear what we’re discussing. First of all, 

I’m not discussing the day-to-day work of the Attorneys General 

with their own staff. My experience has been spectacular. I could 

talk for days about the excellent cooperation in antitrust and consumer protection. We’re talking about a problem that has arisen recently in a few states with the outsourcing of litigation responsibilities, particularly coupled with contingent-fee contracts, and some 

63 

of them to significant campaign contributors. I think that’s a very 

dangerous situation. And if Congress—if you, indeed, increase the 

authority of State Attorneys General to enforce Federal laws, you 

should put in place guidelines for transparency, and fairness in 

dealing with outsourcing. That’s what I’m suggesting. 

Senator WICKER. Mr. Koster? 

Mr. KOSTER. I’ve agreed with everything Professor Muris has 

said today, with the exception, perhaps, of this point. The reality 

is that General Cuomo, in New York, is a different type of Attorney 

General because he has so much more power than the rest of us 

have out in the states. I have 20—no, I have 17 lawyers in my consumer division. He is able, in New York, to take on the kinds of 

cases that you probably think that every Attorney General in the 

country can take on just by flipping on a switch in their AG’s office. 

In many of these cases, the scope of the litigation is so large that 

to ask two or three $42,000-a-year attorneys in the Midwest to take 

on an auction-rate securities case against Merrill Lynch or another 

large investment bank is nearly impossible. There are a variety of 

types of consumer cases that are sort of outside the scope of what 

we’ve been discussing here today, which are smaller-type cases, but 

the auction-rate security cases around the country are just as much 

a consumer case as these reverse mortgage cases that affect smaller consumers. 

Having a position of strength where you can release power into 

the litigation marketplace and accomplish larger consumer ends, I 

think, is something that the local political process should be allowed to work itself through and would be ill-advised for Congress 

to constrain. 

Senator WICKER. Even in regard to transparency and in this specific issue of large contingency fees to campaign contributors? You 

would rather the Congress be hands-off there and allow each state 

to make those decisions? 

Mr. KOSTER. Speaking for my own state, I believe that a transparent Request for Proposal process should always be utilized with 

regard to the awarding of contracts. But, the local political process 

does tend to work its way through these issues, and politicians who 

give contracts to political friends without an RFP will have to answer for those actions when it comes time for elections. 

Senator WICKER. And finally—and the Chair has been indulgent—Ms. Greenberg mentioned that the FTC staff has been reduced in real numbers. Mr. Muris, did you preside over that? And 

are you saying that we don’t necessarily need to fund the staff back 

up to the 100-percent level that we had years ago without adequate 

training? 

Mr. MURIS. Here’s the problem of the 1970s. Congress gave the 

Commission so many resources so fast that the supervisors could 

not adequately control, and you created individual fiefdoms of people who were essentially on their own. I supported an increase in 

resources when I was chairman. We increased from 1,000 to something—I think now it’s about 1,100. You should recognize that, in 

normal times, with that 1,100, the Commission will lose something 

like 100 a year. And that means you’ve got to hire a lot of people 

just to stay still. 

64 

So, I’m not opposed to adequate resources or measured increases, 

but I think to repeat the 1970s and throw a bunch of money at the 

Commission would be a mistake. 

Something that needs to happen, and something we did—and Do 

Not Call was a great boon to this involved Consumer Sentinel. We 

completely rebuilt Consumer Sentinel, spent a lot of money to do 

that, money that we got from Congress. It has been a few years 

since that happened, and technology changes. I don’t know if Mr. 

Vladeck wants that money again, but at some stage it will need to 

be rebuilt to keep up with the most modern enforcement techniques. So, it’s not just people; it’s support, as well. 

Look, I’m an FTC guy. I’ve spent my life in and out of the Federal Trade Commission. I believe strongly in the FTC’s mission and 

the way the FTC is now. And I certainly believe that it needs adequate resources. 

Senator WICKER. Thank you. 

Senator PRYOR. Senator McCaskill? 

Senator MCCASKILL. I am just—curious. I want to make sure I 

understand. Are you complaining, Mr. Muris, about States Attorneys General working to enforce Federal law, and worried about 

contingent fees and contract lawyers? 

Mr. MURIS. Yes, that is my point. There should be guidelines and 

transparency. There are Federal rules about contingent fees. The 

Federal Government occasionally outsources, and I think only in 

the dire situations should you use contingent fees. We certainly 

ought to have transparency. The so-called Pay for Play money to 

campaign contributors, that’s—— 

Senator MCCASKILL. We’ve—— 

Mr. MURIS.—that’s the sort of thing that shouldn’t happen. 

But, again my relationship and the relationship of the FTC with 

the states has been—the only word to describe it, again, has been 

spectacular. 

Senator MCCASKILL. Well, I’m just—I just am very reluctant—I 

always find it ironic when folks start talking about the situational—of when the Federal Government should interfere with 

states. The notion that an elected Attorney General needs the Federal Government to tell him how to conduct the business of his office in a way that is going to provide transparency and accountability to the people he serves, or she serves, it seems to me the 

heavy hand of the Federal Government. And I think that those people—those Attorney Generals who engage in inappropriate Pay to 

Play contractual arrangements with campaign contributors will 

hear the wrath of the voters at the ballot box and will hear the 

wrath of their constituents at the State level. And frankly, I’m reluctant for the heavy hand of Federal Government to interfere with 

those State officials. I don’t think, frankly, that’s our place. 

Mr. MURIS. But that’s why the premise of your question is what 

I’m discussing. When they have the authority to enforce Federal 

regulations is when I would apply the kind of rules that apply to 

Federal regulators. 

Senator MCCASKILL. It’s just always situational when we think 

Washington knows best, and when we don’t. So, I think this is one 

of these situations where Washington probably doesn’t know best. 

Thank you, Mr. Chairman. 

65 

Senator PRYOR. Thank you. 

And I just have a couple of follow-ups just to—in the spirit of 

closing the loop on a couple of points. 

Mr. Vladeck, with you, you’ve heard Mr. Muris say, a couple of 

times, that we basically—the current law is sufficient; we have 

common-law, case-by-case enforcement, and that should be sufficient. Nonetheless, you still are saying that you need the ability for 

rulemaking and to change the Magnuson-Moss procedures that you 

live under. Could you just respond to what Mr. Muris says, and tell 

us why you think—given what he says, case-by-case common-law— 

give a—tell us why you think your idea is better for the American 

consumer. 

Mr. VLADECK. Let me be intensely practical. Without a rule in 

place for each case, we have to prove the elements of a violation 

under Section 5 of the FTC Act. If there’s a rule in place, we have 

to show a violation of the rule. Now, anyone who’s ever litigated 

a case—and I’ve spent 33 years as a litigator—wants to litigate the 

second case, not the first. The proofs are quicker. It allows for more 

orderly dispensation of justice. It allows us to go after the 

scammers quickly, efficiently, and to bring more cases. If we have 

to go case by case and prove FTC Act violations each time, we will 

do it, and we are doing it. That’s why there are long lists of cases 

of mortgage foreclosure rescue scams and so forth. But, the nature 

of the litigation is very different. And having a rule in place—and 

a rule of the kind that we are likely to promulgate under the mortgages does not simply reflect the rules of fraud, as Mr. Muris 

claims, they embellish the rules of fraud. They clarify and bring 

into context the rules that we believe ought to apply. And on this 

issue, I think there’s widespread agreement that the scam artists 

who are bilking American consumers, by and large, do it through 

up-front fees. 

Senator PRYOR. Yes. 

Mr. VLADECK. So, we can simply adopt a rule—we may or may 

not, but we could adopt a rule the way states have done, saying 

that any up-front fee is a violation of our rule. And it simplifies the 

litigation, frees us to do more of these cases more quickly, and better protect American consumers. 

Mr. MURIS. Mr. Vladeck is wrong, on two accounts. 

First of all, FTC deception standards, which the fraud cases 

apply, are strict liability. 

Second, to get civil penalties under a rule, you have to prove 

scienter, in any event, because that’s what Congress has required 

and that’s what it should require. 

The problem actually is worse than I thought, in hearing Mr. 

Vladeck. If he wants the FTC to distract itself and write rules 

against fraud, that would be a much bigger mistake than I thought 

the FTC had proposed for rulemaking. Again, it’s strict liability already. 

Mr. VLADECK. With all respect, we have to prove fraud in order 

to get strict liability. We don’t have—prove violation of rule. 

Mr. VLADECK. Second, the rule that we are looking at for mortgages would adopt a rule against advance fees. That is a rule that 

would permit us to litigate these cases more quickly. 

And third—— 

66 

Mr. MURIS. No. 

Mr. VLADECK.—we’re not talking about civil penalties, here. 

That’s a different issue. I don’t quite understand why Mr. Muris 

wants to conflate the two. 

Mr. MURIS. Well, I wrote the FTC’s deception standard, David. 

It is strict liability. 

Second, if you have a rule, civil penalties is what you get under 

the rule. And civil penalties require scienter. 

Senator PRYOR. Well, it sounds like we have an honest disagreement here, and we’re not going to solve it today. But, I really do 

appreciate your input. 

My last question is really more in the form of a request. And I 

think everybody on the panel has mentioned the importance of outreach and educating the public. I would hope that you all would 

give us your thoughts as we go forward about how to best do that 

and how to be the most effective and get the best bang for the 

buck. And also, I think we have to think about—even though it 

would be unpopular in some circles—we have to think about the 

Internet component to fraud today. There are a lot of Internet companies that are very legitimate name-brand companies that are 

permitting some of these fraudulent schemes to either pay for advertising on their sites or at least show up on their sites, one way 

or another. So, there may be some Internet component to this 

that—you know, again, we’re not—none of us, I think, are experts 

in that. But, I do think it’s something that we need to consider as 

we move forward. 

I want to thank everybody for being here today. This has been 

a very, very informative discussion. I know that we had several 

Senators that were coming and going for committees. Thank you 

very much. 

And with that—we’ll leave the record open for 2 weeks, allow 

members who weren’t here to ask questions and do follow-ups. Appreciate your responses on those. 

Senator PRYOR. We’ll adjourn. Thank you. 

[Whereupon, at 11:45 a.m., the hearing was adjourned.] 

(67) 

A P P E N D I X 

PREPARED STATEMENT OF HON. TOM UDALL, U.S. SENATOR FROM NEW MEXICO

The economic challenges we face as a nation have resulted in increased fraud and 

consumer scams. Fraudsters are taking advantage of consumers, senior citizens, job 

seekers, and other vulnerable people at a time of economic hardship for many Americans. 

My state, New Mexico, has been especially hard-hit by employment-related fraud. 

These deceptive schemes offer New Mexicans easy work, high wages for unskilled 

labor, and other attractive opportunities. As a result of the fraud, New Mexicans 

lose money, time, and other valuable resources at a time when they need them 

most. 

The recent Federal Trade Commission (FTC) sweep to crack down on fraud—‘‘Operation Short Change’’—is a promising example of Federal and state agencies working together to protect consumers against fraud. 

But this action is not enough. Americans need more than the occasional high publicity raid to fully protect them from a wide range of fraud and consumer scams. 

The FTC must develop a sound strategy for protecting consumers that coordinates 

efforts among the Department of Justice, state attorney generals, and state agencies. 

Greater cooperation among Federal and state officials will be necessary to combat 

those who seek to take advantage of people in this current economic climate. 

This Committee plays an important role in the fight. We must ensure that the 

FTC has both the authority and resources to be the ‘‘nation’s consumer protection 

agency.’’ 

I thank the witnesses for joining us today and look forward to their testimony and 

recommendations for how the FTC—and all of us—can do a better job of protecting 

Americans against fraud. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. TOM UDALL TO

SALLY GREENBERG

Question 1. What is the appropriate level of voluntary industry self-regulation? 

Answer. The development of sound self-regulatory standards for consumer products and services helps ensure the physical and economic welfare of consumers. Selfregulation helps industry players know what the norm is for actions within their 

industry. It sets parameters that help to identify bad actors within the industry. It 

also encourages industry to condemn bad actors and take action to address the 

issue. NCL strongly supports industry self-regulatory models that include competent 

consumer contributions to the development of product and service standards. Such 

consumer input should be applied in the development of both mandatory and voluntary industry self-regulation standards. 

With regards to advertising industry self-regulation, NCL believes the standards 

and rules set by the industry should reflect the following core principles: 

• The goal of self-regulation should be to promote policies and standards that better inform consumers of product and service performance characteristics. 

• There should be an endorsement and support of the role that strong and effective government regulatory and enforcement agencies play in overseeing industry. 

• There should be an acknowledgment that disclosure alone is never an acceptable substitute for quality safety standards and careful design and production 

of the advertised product. 

To the specific question of the level of voluntary industry self-regulation, we support vigorous industry-based review of all advertising, including in the new media 

market. Unfortunately, we find that the advertising industry too often fails to balVerDate Nov 24 2008 11:53 Jun 15, 2010 Jkt 055982 PO 00000 Frm 00071 Fmt 6601 Sfmt 6621 S:\WPSHR\GPO\DOCS\55982.TXT SCOM1 PsN: JACKIE
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1 National Advertising Review Council. ‘‘About the National Advertising Review Council 

(NARC),’’ Accessed August 21, 2009. Online: http://www.narcpartners.org/about/index.aspx. 

ance the competitive desires of the standards—making body’s members against need 

for consumers to understand the true nature of a product or service advertised. 

Time and again, it has been shown that when consumers are presented with all 

the facts about a product or service in a clear, easy-to-understand fashion, they will 

make an informed choice. This is no less true in ‘‘new media’’ advertising than in 

traditional advertising. Unfortunately, it is apparent to our organization that advertisers too often think first of how their advertisements can give as little substantive 

information as possible without running afoul of government regulators. Instead, 

they should focus on how to properly inform their target audience to enable them 

to make informed choices. 

It is illuminative to note that the three goals of the National Advertising Review 

Council, a leading advertising industry self-regulatory body, are as follow: 

• minimize governmental involvement in the advertising business. 

• maintain a level playing field for settling disputes among competing advertisers. 

• foster brand loyalty by increasing public Trust in the credibility of advertising. 1

That effectively informing consumers about the benefits, risks, and effectiveness 

of products advertised is not mentioned as a goal indicates to us that the self-regulatory objectives of the advertising industry may be insufficient. Further, given the 

opposition shown by the advertising industry to even the modest revisions proposed 

to the Federal Trade Commission’s (FTC) Guides Concerning Use Of Endorsements 

and Testimonials in Advertising, we feel that there is a lack of ambition on the part 

of the industry to set such a goal in the future. 

Question 2. Where do we need greater FTC authority and activity to protect consumers? 

Answer. First, the proposed revisions to the FTC’s Guides Concerning Use Of Endorsements and Testimonials in Advertising should be adopted by the Commission. 

These changes are long overdue and will help to stop some of the most egregiously 

harmful advertising industry practices, particularly with regards to weight-loss 

drugs, business opportunities, and other medical services such as baldness cures. 

Second, replacing the FTC’s current Magnusson-Moss Act-based rulemaking authority with Administrative Procedures Act (APA) rulemaking authority would do 

much to enhance the FTC’s ability to proactively protect consumers from dishonest 

advertisers. For example, under its current rulemaking regime, when the FTC takes 

action against a dishonest advertiser, such an action requires a lengthy investigation that all too often leaves inordinate amounts of time for dishonest marketers to 

reap the rewards of their bogus advertisements. We believe that APA rulemaking 

authority would allow the FTC to much more quickly take action against dishonest 

marketers and thus protect more consumers, particularly in the ever-evolving new 

media landscape. 

Finally, we would endorse more FTC activity to initiate actions against deceptive 

advertisers. Unfortunately, the FTC’s stretched resources have in recent years 

forced it to only choose high-profile targets, relying on the media exposure gained 

from its actions to attempt to scare other bad actors out of the market. Given the 

proliferation of advertising we find to be manipulative at best and fraudulent at 

worst, especially online, we do not believe that this strategy is sufficient to control 

the problem. While a more vigorous rulemaking authority would give the FTC the 

legal tools it needs to tackle fraudulent advertisers, the agency will also require the 

sufficient financial and staff resources to support vigorous enforcement. 

Question 3. Does the FTC need new authority to protect consumers in a new 

media landscape that includes Internet videos, web blogs, and Twitter accounts? 

Answer. NCL supports the inclusion of new media content channels such as blogs 

and viral video in the Guides Concerning Use Of Endorsements and Testimonials in 

Advertising. We believe that consumers are increasingly relying on such new media 

outlets to inform themselves about products and services in the marketplace. The 

increasing resources advertisers are devoting to these advertising channels, suggests 

that they are of a similar mind on this issue. 

Given the complexities of the new media landscape and the evolving nature of 

user-generated content we believe the revisions to the FTC’s Guides are a good first 

step in ensuring that these new advertising channels do not become a haven for deceptive advertising. We would urge the Commission to remain vigilant and periodically review the effectiveness of its policies regarding testimonial advertising in 

user-generated content to determine if greater authority is needed in the future. 

69 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. TOM UDALL TO

DAVID VLADECK

Question 1. Mr. Vladeck, what lessons learned for the FTC have come from ‘‘Operation Short Change’’? 

Answer. The lesson learned from ‘‘Operation Short Change’’ is that law enforcement sweeps continue to be highly successful in halting fraud and educating consumers about how to avoid, prevent, and report fraud. Operation Short Change 

brought together Federal and state partners to demonstrate that law enforcement 

is actively pursuing scams that prey on economically-distressed consumers. 

The Commission is committed to finding ways to expand its partnership and cooperation with state and Federal law enforcement and consumer protection agencies. In particular, the Commission works closely with the Department of Justice’s 

Office of Consumer Litigation, the U.S. Postal Inspection Service, and numerous 

state attorneys general. These relationships have been fostered and forged through 

involvement in past law enforcement sweeps, information-sharing on specific cases 

or investigations, communication with the Commission’s regional offices, and ongoing involvement in multi-agency task forces. In addition, staff routinely works with 

the National Association of Attorneys General (‘‘NAAG’’) Consumer Protection 

Project to solicit and encourage participation from all 50 states in law enforcement 

sweeps. 

The Commission has actively encouraged state and Federal law enforcement partners to utilize and contribute data to Sentinel, the FTC’s database of consumer complaints. Through Sentinel, law enforcers can search consumer complaint data, identify targets, track trends, and create ‘‘consumer alerts’’ to warn other Sentinel users 

about ongoing investigations of particular targets. Over 1,700 law enforcement agencies are currently members of Sentinel who may access complaint information on 

targets. The Commission is working to expand the number of law enforcement agencies that contribute complaint data to Sentinel. 

Question 2. Is this an effective, coordinated approach that should be used regularly? 

Answer. A coordinated law enforcement sweep like Operation Short Change is an 

important tool that has been and will continue to be used by the Commission to leverage our limited resources to halt and prevent fraud. This approach not only leads 

to the initiation of new law enforcement cases brought as part of the sweep, but 

generates a great deal of attention from local and national media outlets, which 

serves to educate the public about how to detect and avoid fraud. For example, 161 

television news stories about Operation Short Change ran on news stations across 

the country, reaching more than 35 million Americans. In addition, news stories 

about Operation Short Change were aired on radio stations and appeared in over 

30 print and online media sources. 

Question 3. Have we seen changes in the marketplace as a result of these raids 

and YouTube video? If not, what follow-up is required or what else needs to be 

done? 

Answer. The cases initiated by the FTC as part of Operation Short Change have 

halted frauds that took in at least $300 million and injured over 700,000 consumers. 

It is too soon to determine the general deterrent effect or changes in consumer behavior as a result of the announcement of Operation Short Change and the rollout 

of the Commission’s consumer outreach video. In the meantime, the Commission 

will continue to investigate and bring cases against new perpetrators of fraud, alert 

the public to emerging scams, and educate consumers on ways to avoid becoming 

victims. 

Question 4. I would appreciate learning the panelists’ thoughts on how best to 

help inform non-English speaking populations about how to avoid fraud. In New 

Mexico, for example, the state Attorney General now publishes bilingual ‘‘Foto 

Novela’’ picture pamphlets that illustrate how to avoid common scams. Foto-novelas 

have been used in other fields, such as community health and social work, with success. This format has proved effective in reaching older Hispanic adults, often the 

target of fraud. Are there projects like this currently under development? 

Answer. Since July 2002, the FTC has focused on reaching out to Spanish-speakers to promote consumer education. Bilingual FTC staff has developed information 

in print and online for Hispanic consumers who prefer to receive information in 

Spanish, as well as those who like their information in both Spanish and English. 

The Commission has launched campaigns for Spanish-speakers on identity theft, online safety and security, being an informed consumer, managing money, and more. 

In addition, staff has developed a Spanish-language web portal where consumers 

can access the FTC’s complete library of information in Spanish. See www.ftc.gov/ 

70 

indexles.shtml. In 2008, the Commission’s Spanish-language websites logged almost 1.5 million page views, and staff distributed more than half a million Spanishlanguage publications. 

Question 5. Do you have any other ideas or thoughts on how to improve public 

outreach to non-English speaking consumers? 

Answer. The Commission believes that it is vital to reach out to non-English 

speaking consumers using a variety of channels, including Hispanic media outlets, 

national Hispanic organizations, as well as state and local organizations. To that 

end, the Commission employs two full-time bilingual staff who regularly appear on 

nationally televised morning programs on Univision and Telemundo to deliver consumer tips to millions of viewers. Staff also conducts interviews for local and national TV and radio programs, newspapers, and websites. This ongoing relationship 

with Hispanic media outlets results in regular coverage of all our enforcement action announcements and educational campaign launches. 

In addition, the Commission works with national organizations that serve Hispanic communities to disseminate consumer materials. National partner organizations include the National Council of La Raza and its Housing Network Agencies; 

League of United Latin American Citizens; Cuban American National Council; Hispanic Chamber of Commerce, Labor Council for Latin American Advancement; and 

American GI Forum, among others. Similarly, staff has actively worked with local 

consumer protection agencies and the Hispanic affairs offices of many governors and 

mayors, as well as the staffs of the Congressional Hispanic Caucus Institute and 

the Congressional Hispanic Leadership Institute. 

In order to promote financial literacy among young adults and high school students, the Commission has worked with community colleges in Miami, New York, 

Cleveland, LA, and Phoenix and the New York City Department of Education to disseminate Getting Credit, in Spanish and in English. 

Using its database of more than 1,500 organizations that serve Hispanic consumers across the country, the Commission updates community leaders about the 

latest issues in consumer fraud so they can pass on the information of protection 

to their community members. The Commission sends out regular notifications of 

case announcements, new consumer publications, and Ojo!, the FTC’s newsletter for 

Hispanic communities that includes articles in Spanish and in English on relevant 

and current consumer issues. 

These are just a few examples of the new and innovative ways the Commission 

is reaching out to the public, including non-English speaking consumers, to educate 

them on how to spot the signs of fraud and report fraud when it occurs. 

Æ