FTC Testifies About Crackdown on Scams Tied to the Economic Downturn

The Federal Trade Commission testified before the U.S. Senate today on the agency’s campaign to crack down on scammers who are trying to take advantage of the economic downturn to push a variety of scams, such as phony job-placement and debt-reduction services, get-rich-quick schemes, and bogus government grants.

David Vladeck, Director of the FTC’s Bureau of Consumer Protection, told the Senate Committee on Commerce, Science, and Transportation’s Subcommittee on Consumer Protection, Product Safety, and Insurance that the Commission is taking steps to protect consumers, who are especially vulnerable to these “financial distress” scams during tough economic times.

"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, access to credit cards, or debt-relief services,” Vladeck told the subcommittee.

In response to the rise in financial distress scams, on July 1, 2009, the Commission announced “Operation Short Change,” a joint initiative with 14 states, the Department of Justice, and other agencies that included more than 120 law enforcement actions, Vladeck testified. As part of this operation, the FTC brought eight new cases against companies that have conned consumers, and took action in seven additional cases earlier this year challenging similar misconduct. The new cases include one against the marketers of the widely publicized get-rich-quick schemes called “John Beck’s Free & Clear Real Estate System,” “John Alexander’s Real Estate Riches in 14 Days,” and “Jeff Paul’s Shortcuts to Internet Millions.” The Commission alleged that these schemes alone, promoted on the Internet and through misleading infomercials, have duped hundreds of thousands of consumers out of about $300 million.

“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,” Vladeck said. Vladeck told the subcommittee that the Commission's recently filed cases targeted fraudulent schemes in five general categories: (1) phony business opportunities, (2) job placement scams, (3) government grant scams, (4) credit-related scams, and (5) mortgage loan modification scams. The Commission’s main weapon in combating these scams, he said, is enforcement of Section 5 of the Federal Trade Commission Act, which prohibits unfair or deceptive acts or practices. The Commission also has invoked two FTC rules, the Telemarketing Sales Rule and the Business Opportunity Rule, to crack down on frauds perpetrated though telemarketing, print advertising, and, in a growing number of cases, online. Vladeck added that the Commission supports legislation that would increase its resources, authorize it to issue additional rules, expand its civil penalty authority, and challenge practices that aid or abet violations of the FTC Act.

Vladeck also testified about the FTC’s consumer education initiatives, which are designed to help people recognize these scams and avoid being victimized. As part of Operation Short Change, for example, the Commission produced a new educational video featuring a former scammer who sold phony business opportunities and ultimately served prison time for deceiving investors. In the video, this former con artist discusses the way the scams work and explains how consumers can protect themselves. In conjunction with another law enforcement sweep, the FTC also has produced a toolbox of mortgage-related resources for homeowners in distress. It is featured on a new Web page at www.ftc.gov/moneymatters.

The Commission vote authorizing the testimony was 4-0. Commissioner William E. Kovacic dissented from those portions of the testimony that seek across-the-board authority for the Commission to use, for promulgating all rules respecting unfair or deceptive acts or practices under the FTC Act, the notice and comment procedures of the Administrative Procedure Act, although he would be willing to consider whether all the procedures currently required to issue, repeal, or amend these rules are necessary. Commissioner Kovacic also dissented from the Commission's endorsement of across-the-board civil penalty authority.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.