Mark Whitehouse thought the salesman’s pitch made a lot of sense. For $300 a year Whitehouse’s car washing business would be advertised through a virtual shopping mall on the Internet.
The only problem was that the salesman didn’t fulfill his end of the deal and the virtual mall disappeared into thin air in three months, taking with it Whitehouse’s $300 and the money paid by other business owners who bought into the cyber rip-off.
“It was really a good idea he had. Unfortunately, the follow through (stunk). I ended up paying for something I never got,” said Whitehouse of Belleville, Mich.
Whitehouse is just one of thousands of unknowing consumers who have fallen into the web of Internet scam artists, a growing breed with the dramatic growth of online shopping.
Internet fraud is often the same fraud attempted over the phone or in mailings for years. Only online scams are more rampant because the dispensing of information over the Internet is easier and inexpensive.
Con artists are using the technology to get consumers to invest in a plethora of products, businesses opportunities, pyramid schemes, sweepstakes and contests. Internet fraud also includes illegally taking someone’s financial information to be used without the consumer’s permission.
Just two weeks ago, the Federal Trade Commission cracked down on a ring of people who were allegedly billing or debiting consumers’ credit card accounts for unordered or made-up Internet services.
The FTC said the defendants repeatedly charged consumers’ credit and debit cards for Internet entertainment services they had not ordered. This kind of fraud is referred to as “cramming.”
FTC has been tracking such scams to catch people and also to educate the public about the various methods employed by these people. FTC officials early last year testified before a House Committee that while Internet sales are expected to explode – from $2.6 billion in 1996 to $220 billion by 2001 – there are many consumers who refuse to shop via the computer because of the potential for fraud.
“Most of the Commission’s law enforcement actionshave involved old-fashioned scams dressed up in high-tech garb,” Eileen Harrington, associate director of the FTC’s Bureau of Consumer Protection, told lawmakers last June.
A recent Better Business Bureau survey on consumer Internet Behavior supports the FTC’s beliefs. The survey found the follow:
83 percent of respondents cited security of payment as a main concern about online shopping. Nonetheless, 59 percent of the respondents have used their credit card online.
Other concerns included the reliability of business (73 percent of purchasers), privacy (71 percent), possibility of returning items (65 percent) and resolving differences with online merchants (45 percent).
Approximately half of the respondents agreed that there are many disreputable companies offering products for sale online.
To combat the fraud the FTC has used the Internet to educate people about the dangers of the world wide web. It maintains a web site, www.ftc.gov, where consumer and business education is available.
One example of its attempt to educate consumers is setting up “teaser” web sites, which mimic sites where consumers might get scammed by deceptive business opportunity schemes, pyramid schemes, deceptive travel programs, etc. When a consumer clicks on those web sites a message pops up like: “If you responded to an ad like this one, you could get scammed.”
Also, the FTC created Consumer Sentinel, a computerized consumer fraud database that uses the Internet to provide secure access to consumer complaints for over 150 law enforcement organizations throughout the U.S. and Canada.
One group also keeping a list of Internet fraud is Call For Action, a non-profit help line for victims of fraud.
Shirley Rooker, the organization’s president, said the possibilities of fraud are unlimited.
“This is a big problem that will continue to get bigger as more and more people get online,” Rooker explained. “Many of the scams out there are for services and products provided by legitimate companies. The trick is trying to find out who the crooks are.”
She said a major target for con artists is small business. Business owners are getting ripped off by people promising to create web sites for them, or offering small business loans or potential business and franchise start-ups.
“For example, the crooks are describing ways they can set you up in a business opportunity, but never provide the product or the business plan to follow through with it. They take your money and you don’t get anything,” Rooker said.
Call For Action, which can be reached at 800-647-1756, has 1,200 volunteers around the country who look into reported complaints with the hopes of returning the money scammed from a consumer.
“If that does not prove successful we can conduct education campaigns and put out an alert out about the newest fraud out there,” Rooker added. The group also offers a fraud brochure funded by the Bell Atlantic.
Another form of fraud – not necessarily illegal – is to trick people into thinking information provided to them is legitimate.
Online investment newsletters, for example, can be distributed by just about anyone. While many are reliable sources of information, others could simply be biased money-making schemes.
The FTC said a growing problem is companies paying people who write online newsletters to recommend their stocks with no sound reason to do so. The newsletter poses as a credible publication, when in fact the writers profit by helping convince investors to buy or sell particular stocks.
While this isn’t illegal, federal securities laws require the publications to disclose who paid them, the amount and the type of payment. However, officials at the FTC believe many lie about its sponsorship.
The National Fraud Information Center, an organization formed in 1992 by the National Consumers League, has some advice for consumers at its web site “Internet Fraud Watch.”
Tips include:
Do business with companies you know and trust. The web site states, “Resolving problems with companies that are unfamiliar can be more complicated in long-distance or cross-border transactions.”
Understanding the offer is key. Look for pertinent information and if it’s not there ask for more information.
Watch who you give financial information to. “Don’t provide your bank account numbers, credit card numbers, social security number or other personal information unless you know the company is legitimate and the information is necessary for the transaction.”
Check the company’s track record. Contacting the Better Business Bureau in the area for complaints is a good start.
An option for companies looking to ease consumers’ minds is to join the Better Business Bureau Reliability Program.
Companies that meet and agree to the bureau’s standards are awarded the BBBOnLine seal to post on their web site. Also companies can be listed on BBBOnLine’s database, a resource for anyone seeking out trustworthy businesses.
Mike Marino, president of the Better Business Bureau of Rhode Island, said the BBB’s national Internet program tries to get behind the flashy web sites of a company.
“The obvious problem with shopping over the Internet is you don’t know who you are dealing with. The firm could be operating out of a basement in Hong Kong and have an attractive web site that makes one think they are a large, well respected company,” Marino said.
As part of the BBB’s reliability program, members of the bureau’s local chapters go out to the businesses to inspect its physical site.
“While it is not a guarantee, it is certainly one important dimension of finding out the reliability of a company,” said Marino. He added that if a problem does arise the BBB at least knows where to go and who to speak to at the company to get the problem resolved.
Consumers who believe they have been deceptively billed by Internet scams can call the Federal Trade Commission’s Hotline at (202) 326.3144.
