Consumer Fraud

Overview

Consumers spend millions of dollars each year on deceptive business schemes and fraudulent products. In 2005, the Federal Trade Commission received over 685,000 consumer fraud and identify theft complaints, resulting in losses of over $680 million. Consumer fraud occurs when an individual purchases something that does not work as advertised. A consumer may also be a victim of fraud when they buy a defective product, donate to a non-existent charity, or invest an unreliable service or organization.

Consumer Protection Laws

Federal and state consumer protection laws regulate consumer fraud. Federal consumer protection statutes are primarily enforced by the Federal Trade Commission (FTC). The Consumer Protection Bureau of the FTC was designed to identify and eliminate unfair or deceptive trade practices. Many states have also developed specific legislation to protect consumers. States that do not have explicit consumer fraud statutes use principles of common law to target unlawful trade practices. Consumer protection laws are typically designed to encourage victims of consumer fraud to take legal action by permitting the court to award attorneys fees and punitive damages.

The Better Business Bureau

The Better Business Bureau is a national volunteer organization dedicated to regulating consumer fraud and educating the public about unfair business practices. The Bureau maintains over 120 independent agencies across the country. Among its various services, the Bureau provides business reliability reports, as well as in-depth reviews of national charities. These reports allow individuals to investigate certain organizations before investing or donating. The Bureau also allows consumers to file complaints against organizations they feel have acted unfairly. The Bureau then contacts the organization and attempts to resolve the issue without taking legal action.

Types of Consumer Fraud

Typically, consumer fraud involves the use of false or misleading statements to encourage a consumer to hand over cash, checks or credit card numbers. While the consumer will expect a benefit in return—either a product or an increase in their investment—it is unlikely that the consumer will recover anything. Frauds may be perpetrated by mail, over the telephone or through the internet, and may take a number of different forms. Online internet auctions were the most common form of consumer fraud reported to the FTC in 2005. Online auctions allow consumers to bid on specific items being promoted by individual sellers. An auction is fraudulent when the goods being auctioned don't exist or are misrepresented by the seller. Following internet auctions, the most reported consumer frauds in 2005 were foreign money offers, catalog sales, prize sweepstakes and lotteries, internet services, work-from-home offers, advance-fee loans and credit protection, and telephone services.

The internet is cited as the source of over 40 percent of consumer complaints. While the internet is a legitimate way for consumers to shop and invest, it also gives perpetrators of fraud a number of opportunities to steal credit card and identification information. The internet also provides a variety of tools to induce consumers to make illegitimate investments, including pop-up ads, spam e-mails, online bulletin boards, newsletters and chat rooms.