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Prize promotions and sweepstakes offers represent the largest source of complaints to a federal/state telemarketing fraud database and older consumers often are the targets of such scams, a Federal Trade Commission official told a Congressional panel today. Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection, said prize-promotion telemarketers promise “valuable” prizes in return for the purchase of overpriced goods or donations to charities that get very little, if any, of the donated money. The FTC has been attacking this and other telemarketing fraud very aggressively, Bernstein said, noting that since July 1993 the agency has filed approximately 55 cases in federal district court and recovered more than $25 million for victims. Two other tools in the FTC’s broad-based effort to attack this “growth industry” are coordinated federal/state crackdowns on specific types of fraud, and enforcing and educating consumers about the newly-adopted Telemarketing Sales Rule, Bernstein said.

Bernstein delivered the FTC testimony this morning at a hearing on telemarketing fraud held by the U.S. Senate Special Committee on Aging.

Other types of telemarketing fraud that tend to victimize large numbers of older consumers are:

  • “reloading” schemes, the specific targeting of consumers who previously have been victimized by fraud, made possible by the buying and selling of “sucker” lists;
  • “telefunding” scams, a relatively new variation in prize promotions that promise what turn out to be almost worthless prizes and where the telemarketers, rather than any charity, are the principal beneficiaries of donations;
  • “recovery rooms,” or companies that make cold calls to victims of earlier telemarketing schemes and promise to help them recover their lost money or prizes that previously were promised to them (often, the recovery rooms pose as law enforcement officials or represent that they somehow are affiliated with the government); and
  • scams in which overseas telemarketers prey on U.S. consumers.

Reloading is partly responsible for the dramatic growth in individual consumer losses to telemarketing fraud, according to the Commission testimony. For prize promotion scams, “instead of individual transactions costing the consumer hundreds of dollars, as they did in the early 1980s, individual transactions have frequently cost the consumer thousands of dollars,” Bernstein said. Investment frauds also involve high individual losses and older Americans often represent a significant proportion of the consumers who fall victim to these scams, sometimes losing their entire life savings, she added.

Bernstein highlighted some of the more egregious telemarketing frauds that the Commission has attacked in recent cases. She also summarized Senior Sentinel and Project Roadblock, two examples of the coordinated federal/state crackdown approach to targeting telemarketing fraud. Senior Sentinel, a project led by the Justice Department and the FBI that focused primarily on prize promotion and recovery room operators, led to the arrest of more than 400 telemarketers and included five FTC actions. Project Roadblock culminated in 85 actions by the FTC and state securities regulators against telemarketers pitching high-tech investments such as paging licenses and pay-per-call services partnerships.

The FTC’s Telemarketing Sales Rule, violations of which can result in civil penalties of up to $10,000 each, has several specific provisions that can help expose potential frauds in the categories that tend to target older consumers. For instance, the rule prohibits charging an advance fee to recover money lost to a telemarketing scheme and requires prize promotion telemarketers to disclose the odds of winning, any material costs or conditions for receiving the prize, and the fact that no purchase or payment is necessary to win. Bernstein said the FTC is working closely with consumer groups, state law enforcement agencies and private industry to educate consumers about these provisions and to train state law enforcement agencies to enforce them.

The Commission vote on the testimony was 5-0.

Copies of the testimony, as well as several free FTC brochures for consumers on protecting themselves from various kinds of telemarketing fraud, are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov

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