Quantifying Fraud and Under-Reported Fraud:  Identifying the Fraud that is not Reported and Exploring Ways to Reach Vulnerable Consumers

Moderator: 

Tracy Thorleifson, Staff Attorney, Northwest Regional Office, FTC 

Panelists:

Keith Anderson, Economist, Bureau of Economics, FTC

Sally Greenberg, Executive Director, National Consumers League

Linda Fisher, Professor of Law, Seton Hall Law School

David Szuchman, Director, Division of Consumer Affiars, New Jersey Attorney General’s Office

Nora J. Carpenter, Senior Vice President, BBB Capacity for the Council of Better Business Bureaus

Debra Deem, Victim Specialist, FBI, Los Angeles, CA

Panel 2:  11:00 am – 12:30 pm

Consumer Fraud in theUnited States: The FTC Surveys

Keith B. Anderson

Bureau of Economics

Federal Trade Commission

February 25, 2009

The views expressed here are those of the author and do not necessarily represent the views of the Federal Trade Commission or any individual Commissioner

        - How big is the problem of consumer fraud?
        - How often do fraud victims complain and to whom?
        - Are some victims more likely to complain than others?

Goal: Provide Insight Into Three Areas

FTC Fraud Surveys
        - The FTC has conducted two telephone surveys of consumer fraud – one in the spring of 2003 and a second in late 2005.
        - The results of these surveys are found in two reports available on the FTC’s website – “Consumer Fraud in the United States: An FTC Survey” and “Consumer Fraud in the United States:  The Second FTC Survey.”

FTC Fraud Surveys (cont.)
        - The FTC surveys were conducted by telephone and participants were selected at random.
        - Results are therefore projectable to the U.S. adult population as a whole.
        - Not talking about complaints collected in the FTC’s Consumer Sentinel database and elsewhere.
        - While very valuable for various purposes, complaint data cannot be projected because complaints are not random.

        - Did not ask participants “Have you been a victim of consumer fraud?”  Rather, asked about specific situations that we have found often indicate fraud.
        - Frauds were selected on the basis of our law enforcement experience and the kinds of complaints we receive in Consumer Sentinel.

Methodology

Methodology (cont.)
        - If one just asks whether the person has experienced a fraud, each person decides what is a fraud.
        - Only 1/3 of victims answered “Yes” on general question.
        - Many of those who said that they had experienced a fraud did not describe an actual fraud.

How Big is the Problem of Consumer Fraud?

The 2005 FTC Fraud Survey

        - Numbers only refer to the experiences with these particular frauds
        - 30.2 million victims of one or more of the frauds included in the survey during preceding year.  This amounts to 13.5 percent of U.S. adult population.

How Many Victims of Fraud Are There?

Victims of Different Frauds

How Often Do Fraud Victims Complain and To Whom?

The 2003 FTC Fraud Survey

To Whom Did Consumers Complain?

Are Some Victims More Likely to Complain Than Others?

The 2003 FTC Fraud Survey

Consumers Who Complained, By Type of Problem

Complaining, by Age

Complaining, by Internet Usage

Complaining, by Education

Complaining, by Gender

Complaining, by Race and Ethnicity

Sally Greenberg

Executive Director

National Consumers League Washington, D.C.

Founded in 1899, the National Consumers League is America’s pioneer consumer organization. Its mission is to protect and promote social and economic justice for consumers and workers in the United States and abroad. NCL’s Fraud Center 

About the National Consumers League

Created in 1992, the Fraud Center is a one-stop resource for learning about and reporting Internet and telemarketing scams and criminals.
        - Processed nearly 15,000 complaints in 2008
        - $13.39 million in losses reported in 2008
        - More than 80,000 monthly unique visits to Fraud.org
        - Fraud Alert System: NCL shares complaints with more than 90 federal, state, and local law enforcement and consumer protections agencies

About NCL’s Fraud Center

Headline 2008 Fraud Statistics
        - Losses are rising
        - Average loss reported = $2,332.03 (↑ $490.33 vs. 2007)
        - Internet merchandise scams increasing
        - Made up 23% of total, up 7.63% vs. 2007
        - Web and Postal Mail becoming more frequent methods of contact
        - E-mail down 14% as percentage of total vs. 2007

Effects of a Bad Economy?

Unclear from data – Number of complainants reporting losses remained fairly constant, however...
        - Phone-based Phishing/Spoofing scams were up 20% vs. 2007.  Rise in such “social engineering” scams may suggest increased susceptibility, fear of ID theft, and greater scammer sophistication.
        - 7.63% increase in scams featuring Internet merchandise (generally undelivered merchandise) may point to consumers going online to look for bargains to help stretch their dollars.

One Quick Story...
        - Consumer from Ohio contacted by scammer for mystery shopping work-at-home opportunity, originally ignored it.
        - Husband is laid off and victim gets back in touch with scammer to follow-up on the “opportunity,” and is sent a check to fund mystery shopping.
        - Scammer asks that $3,000 overpayment be wired back prior to the check bouncing.  Victim’s losses force her to refinance her car to repay bank for fake check.
        - NCL’s Fraud Center is seeing a small, but steady increase in victims citing economic hardship as a motivating factor for becoming involved with a scam.

“Fraud Center 2.0”

Hypothesis

Extending the reach of the Fraud Center using next-generation tools will increase the impact of the consumer resources on Fraud.org and empower victims.

Tactics for Reaching the Next Generation of Fraud Victims
        - Online social networks
        - Friend relationships leveraged to direct to useful content
        - Viral nature of networks holds potential for wide dissemination
        - Challenges
        - Make content impactful (funny sells)
        - Diverse platforms require different strategies
        - What works on Facebook doesn’t work on Twitter

Fraud Center 2.0 (cont’d)
        - Goal: Increase the amount of complaint data coming in to the Fraud Center.
        - Tactics
        - Enlisting consumer and fraud-focused bloggers to extend the Fraud.org brand via cross-linking (increased traffic to website)
        - Make the Fraud.org online complaint form distributable on multiple social networking platforms via an online widget
        - Create a Fraud.org Twitter account to “name and shame” scammers, quickly disseminate fraud alerts

Fraud Center 2.0 (cont’d)
        - Goal: Publicize Fraud Center data in new ways
        - Tactics
        - Create a “scam counter” that would show the losses entered into Fraud.org in real/near-time
        - Create an opt-in mechanism that puts scam victims in touch with local media and policy-makers
        - Partner with established “victim’s communities” (Scam Victims United, ScamWarners) to put victims in touch with each other, reduce shame. 
        - Make anonymous Fraud Center data publicly available for mash-up purposes

“Old School” Tactics Still a Vital Educational Tool
        - In-Person Trainings
        - Community Centers
        - Assisted Living facilities
        - Congressional District Town Hall Events
        - Train-the-trainer for children of elderly
        - Educational materials in trusted sources (AARP Bulletin, Readers Digest, etc.)
        - Highlight high-profile victims to reduce embarrassment (if it happened to them...) 

Linda Fisher

Professor of Law, Seton Hall Law School, Newark, NJ

        - Mortgage & related Real Estate Fraud –  
        - A high % of Subprime & Alt-A foreclosures involve fraud.  Minorities are frequently targeted, though all financially distressed groups are vulnerable. 
        - The schemes fall into patterns, including:
        - Fraudulent property-flipping: selling overappraised properties with hidden defects to uneducated first-time homebuyers;
        - Home improvement contractor fraud;
        - Predatory loan-flipping: unscrupulous mortgage brokers & lenders inducing borrowers to refinance & charging exorbitant fees;
        - Foreclosure rescue schemes:  taking title from  homeowners in default on their mortgages with the false promise that they can rent their homes and repurchase them later;
        - Mortgage modification fraud: falsely promising to negotiate better mortgage terms with lenders & charging high fees..

Linda E. Fisher:  Underreported Mortgage Fraud 

*

Linda E. FisherSlide Two
        - Similar schemes have been perpetrated for a long time, but little attention was paid to them until recently.
        - Reporting and enforcement have improved (though much remains to be done).  
        - What caused the improvement? What lessons can be drawn  from this experience  and replicated?
        - Advocates & government agencies have worked together to identify patterns of fraud and to develop effective enforcement agendas, including legislation; 
        - Advocates have worked with the media to publicize fraudulent schemes;
        - Legal advocates have educated courts about the existence, prevalence & illegality of the schemes, leading to favorable court decisions & additional publicity.

Linda E. FisherSlide Three
        - The Newark-Essex Foreclosure Task Force in urban north New Jersey has been particularly effective in bringing all interested parties together to communicate & plan strategy to combat foreclosures and associated fraud.
        - Participants include public agencies (city, state & federal), as well as private advocates (housing counselors, economic development agencies, community organizations, lawyers & academic researchers);
        - Monthly meetings to educate & update participants;
        - Effective recent outreach efforts have included a bus tour & roundtable with Queen Latifah, a Newark native; door-to-door neighborhood surveys to gather information & educate residents; and a volunteer event to tear down foreclosure rescue solicitations; 
        - Effective advocacy efforts have included promotion of state legislation to provide assistance to homeowners victimized by predatory lending, as well as sponsorship of loan workout fairs.

Linda E. FisherSlide Four
        - The Task Force provides a useful mechanism for improving reporting & enforcement by:
        - Bringing housing counselors and community groups – who have daily contact with victims – together with government agencies and lawyers;
        - Providing a forum for members of the community to educate policymakers and law enforcement agencies about local situations;
        - Providing a forum for government agencies to inform community representatives of enforcement efforts and to gain information about those victimized by fraud;
        - Providing a forum for academic researchers to educate stakeholders about foreclosures, including the fraud that frequently leads low- and moderate-income borrowers to foreclosure.

David Szuchman

Director, Division of Consumer Affairs, New Jersey Attorney General’s Office, Newark, NJ

Nora J. Carpenter

Senior Vice President, BBB Capacity for the Council of Better Business Bureaus

BBB Charity Reporting
        - Produce Evaluative Reports on Charities
        - BBB Wise Giving Alliance – national charities
        - Local BBBs – local charities 
        - Educate Donors on Wise Giving Practices

Charity Fraud     

Charity Fraud

Established Charity Internal Fraud
        - Embezzlement
        - Breach of Security
        - Donor ID theft

Likely to discovered by outside auditor or co-worker.

Media attention may be first notice to law enforcement.

Heart Strings to Purse StringsFake Charity Fraud
        - Internet Driven
        - Immediate, even in advance of new
        - Viral: websites, FaceBook, YouTube, Twitter
        - Offshore
        - Opportunists
        - Disasters
        - Animal or human abuse in media
        - Feed off high profile media stories

Heart Strings to Purse Strings
        - Victims never know they are victims.
        - Low/No expectation of accountability.
        - No expectation of tangible evidence.
        - Memories are short.
        - Embarrassment may be a factor.

BBB Charitable Review & Fraud
        - Potential Fraud Rarely Comes Up in BBB Charity Evaluations
        - Most Problems Discovered Raise Ethical Concerns, But Not Violation of Law
        - On Rare Occasions that Serious Problems Are Found, Appropriate State Attorney General’s Office is Contacted

Work with a BBB

www.bbb.org

Debra Deem

Victim Specialist 

FBI, Los Angeles, CA

When Trust Becomes A Weapon
        - Working With Chronic Or Compliant Fraud Victims

Debbie Deem

Victim Specialist

FBI Los Angeles 

Disclaimer

The information, views and opinions provided are that of the speaker/author and do not express the official policy of the FBI or Department of Justice. 

 21st Century Crime Increasingly Financial, Involves Many Victims and Is Often International

Chronic/Compliant Fraud Victims

Little or no safety net available.

Serious risk of continued re-victimization.

May involve ‘undue influence’ 

Usually a long process to ‘rehabilitate’.

May not generalize from crimes committed.

May not recognize fraud as a crime- don’t understand mass mailing, spam, sucker list, counterfeit checks & risk of identity theft related crimes as well.

May perceive perpetrator as friend/sweetheart, police.(may involve long term ‘relationships’)

May lie that they are not involved, or not perceive phone friends as stranger/telemarketers.  (“Don’t talk to strangers”)

Warning Signs At Risk
        - Receives, responds to & saves ‘junk mail’ and email- contests, prizes, charities, psychics, investments, work at home, sweepstakes.
        - Get frequent calls from people offering awards, ways to make money, lotteries, mortgage help, credit repair, charities
        - Get a lot of spam, don’t recognize as such
        - Has sent checks or withdrawals for unfamiliar, out of state companies.
        - Dealing with ‘companies’ not in US.
        - Usually know little about the ‘company’ calling with winnings.
        - Secretive about phone calls/phone friends, emails, mailings.
        - Wiring money through Western Union, Money Gram or overnight mail.
        - Person is having sudden problems paying bills, utilities, buying food, etc or borrowing money.
        - Counterfeit checks and banking problems.
        - May be smurfing,sending money to other victims who forward it to predator.

Financial Crime May Be Lethal
        - Ann Mowle, had $248,000 stolen in Jamaican lottery.  When realized authorities unable to return money, committed suicide.
        - Rose Urbanski, age 70, died March 2000.

She committed suicide after being defrauded of $50,000 from Canadian telemarketers. (Bay Area, California) She was too ashamed to tell family and feared they would discover it.
        - Customs Agent said he ‘thought’ he had talked her out of it.

Basic Intervention With Victims
        - Educate about scams, at risk in future, ways to reduce risks by changing their behavior
        - Develop and practice‘  Safety Plan
        - Reporting crime to local police, Postal, FBI, FTC, Phonebusters, APS, IC3 others/
        - Finding resources to assist with victimization (legal, creditor, counseling, medical, utilities, food, housing
        - May need to work on associated schemes first/id theft risks- Each contact is opportunity. 
        - Work with families and victims
        - My work includes that they can access me on cell 24 hours a day if unsure of what to do.  CALL FIRST.
        - Continued follow up/coaching with victims (some for 5 years), information on new scams, 
        - Catch them doing something right & reinforce.

Final Thoughts Re Chronic Fraud Victims
        - If dealing with chronic victim- one time intervention won’t work.
        - Assume all victims chronic/compliant until further assessment and tests
        - Listen to descriptions of scams 
        - Intelligence to share with other victims and police.  
        - Help victims to understand correlation between bait mailings and phone calls.
        - Assume identity theft or  fraudulent charges or account ‘takeover’ in most cases.
        - Many will lie to you at first.
        - When you are working to decrease or hopefully extinguish a behavior- what are you replacing it with?
        - What other local agencies can you connect to help victim?
        - Urging victim to file reports with police, FTC/ Phone Busters.
        - Are you a positive reinforcer/coach in all contacts with the victim?
        - May believe whoever talked to last- you or scammer- so will be long term process- just as often long term process to get involved.
        - Safety plan with the victim.

New Beginnings: Help for Individual Chronic/Compliant Victims in U.S.

Financial Abuse Specialist Teams (FAST) Teams

Faith Based Programs (Denver District Attorney’s)

CARE (Riverside County California)

Adult Protective Services (some counties/states), Legal Aid

Legal and Creditor intervention may be very critical– especially counterfeit check help, mortgage fraud help.

States: Requires financial institutions report elder financial exploitation

(DOJ) Office for Victims of Crime funded 4 new programs for identity theft and fraud.  (Traditionally funded violent crime victim programs).

VICARS   (www.idvictim.org)

Do crime victim rights laws apply for these victims under state/federal law?

** Yet focus of these groups is often not on chronic/compliant victims- need for long term contact, support- provision resources remains an unmet need.

        -  “My father, age 85, spent over $10,000 on the scams these crooks inflicted.  He had a garage full of unopened boxes, closets and drawers.  He hid the junk, hoping to win the big sweepstakes prize.
        - He was writing 3-4 checks daily.  He received fraudulent letters urging him to continue.  He stopped buying food and paying  bills.  When the family took over, we couldn’t believe it. 
        - It was reported to the Attorney General, but nothing happened.  When the Bank was contacted, they thought it comical.”

Issue Underreporting
        - Additional thoughts?  
        - Nothing happens when report
        - Chronic/compliant victims may need ‘relationship’ in reporting/accepting assistance and advice.
        - Many report- feel report/information not valued
        - Many places mention different places to report- may only want if scam- they want to tell about solicitations too, if encouraged.
        - Reports not taken- Police, federal agencies, Adult Protective Services or ‘just the facts’.
        - Idea in England- place to take scam mail- (libraries, police departments etc.) 
        - Reporting numbers not user friendly- or kept on hold- or not available right after scam (9-5).
        - Laws- issues counterfeit checks, calls on phone bill charged, recurring credit card issues- difficult for victim to resolve.

In Conclusion

“I am 85 years old..... This all started when I wanted to help my sister buy a house.

  Now, I will lose mine.”     

			Ruth (Had $250,000 stolen from 			Canadian lottery scams).

Ruth did not lose her home.  FBI, police and timely referral and active long term intervention and collaboration with Victim Services, APS and NGO’s can make a difference.

Questions?

12:30 – 1:30 pm