Fraud Could Slow Growth of Electronic Commerce: FTC

The Federal Trade Commission today told a House Committee that business on the Internet could explode -- from $2.6 billion in 1996 to $220 billion in 2001 -- but if the trend is to continue, "... consumers must feel confident that the Internet is safe from fraud."

In FTC testimony to the Subcommittee on Telecommunications, Trade and Consumer Protection of the House Commerce Committee, Eileen Harrington, Associate Director of the FTC's Bureau of Consumer Protection stated "the Commission has taken the offensive against fraud on the Internet through a three-pronged strategy that emphasizes targeted law enforcement action, complemented by education of consumers and new Internet entrepreneurs, both of whom may be venturing into cyberspace for the first time."

The Commission testimony stated that it has brought over 35 federal law enforcement actions to stop fraud and deception on the Internet. "Most of the Commission's law enforcement actions, ... have involved old-fashioned scams dressed up in high-tech garb," Harrington stated, citing the FTC's cases against pyramid schemes, as well as its recent federal court action against a seller who sold computers through online auctions but failed to deliver any goods. Harrington, however, also emphasized the FTC's cases against modem hijacking -- "one scheme that uniquely and ingeniously exploited what can be done on the Internet and only on the Internet."

In the testimony, the Commission announced a new weapon to deal with online fraud. " ... [T]he Commission has launched Consumer Sentinel, the first binational, multi-state computerized consumer fraud database that uses the Internet to provide secure access to consumer complaints for over 150 law enforcement organizations across the U.S. and Canada. Consumer Sentinel contains over 110,000 complaints, including 23,000 complaints added just since March 1998. These complaints concern telemarketing and direct mail problems, as well as Internet fraud," Harrington said. "Last month the Commission added an online complaint form to FTC.GOV, enabling consumers to file a complaint quickly and easily over the Internet. Their information can be rapidly downloaded into the Consumer Sentinel database and made available to law enforcement across the country," she said.

In addition to bringing enforcement actions, the FTC has made use of the Internet to educate consumers, the testimony states. It maintains an agency web site ( http://www.ftc.gov ) where consumer and business education material is available. It also has initiated and developed another web site ( http://www.consumer.gov ) in cooperation with other agencies to provide " ... one-stop shopping for federal information on a broad spectrum of consumer issues, ranging from auto recalls to drug safety to investor alerts." To educate consumers surfing the Net, the agency has posted several "teaser" web sites, which mimic sites where consumers might get scammed by deceptive business opportunity schemes, pyramid schemes, deceptive travel programs, false weight-loss claims or fraudulent display rack opportunities. The sites take consumers through glowing testimonials and claims of great success to warnings such as: "If you responded to an ad like this one, you could get scammed." Finally, the FTC has conducted nine different "Surf Days" in which the Commission and its law enforcement partners have targeted specific types of online fraud and sent thousands of warnings to Internet entrepreneurs who may be unwittingly violating the law.

"The Commission will continue its efforts to fight fraud and deception online by implementing a comprehensive strategy that combines traditional law enforcement with aggressive consumer and business education," the testimony notes.

The Commission vote to approve the testimony was 4-0.

Copies of the testimony are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-3128; TDD 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 File No. P97 4406)