FTC Testimony Addresses Scholarship Services Scams

"The College Scholarship Fraud Prevention Act of 1999 provides some useful tools to help combat scholarship fraud," said Federal Trade Commissioner Sheila F. Anthony in delivering FTC testimony today before the Senate Committee on the Judiciary on bill S. 1455. The bill, co-sponsored by Senators Spencer Abraham and Russell Feingold, "would enhance criminal penalties for fraud in connection with obtaining and providing scholarships," Anthony said.

The FTC testimony to the Senate Committee focuses on the Commission's law enforcement and consumer education efforts to combat fraudulent purveyors of so-called "scholarship services." It highlights "Project ScholarScam" -- an ongoing joint law enforcement and consumer education effort aimed at fraudulent college scholarship services initiated in the fall of 1996. Commissioner Anthony gave a brief description of how the scam was perpetrated in the Commission's cases.

"We estimate that the companies involved in these cases scammed, in total, approximately 175,000 consumers to the tune of $22 million," Commissioner Anthony said. The testimony noted that Commission litigation resulted in permanent injunctions obtained either through court order or in settlements. The FTC orders either ban defendants from engaging in telemarketing or scholarship services, or require them to post performance bonds in significant amounts to protect consumers from future fraudulent activities. In several instances, the FTC obtained partial or complete redress for consumers. In one case, the FTC defendant was criminally prosecuted and convicted of seven counts of mail fraud and sentenced to 36 months in prison. "Tough penalties are needed for these scam artists. The civil remedies afforded by an FTC action can deprive defendants of their ill-gotten gain through restitution, but only if the victims' money can be found. The penalties resulting from criminal prosecutions by the U.S. Department of Justice and state authorities send the strongest possible message ... ," Anthony said.

The testimony also highlighted some of the FTC's consumer education accomplishments. The FTC has teamed up with a variety of private and public partners -- including Sallie Mae

Who's Who Among American High School Students, The College Board and the Educational Testing Service -- and distributed over 2 ½ million pieces of our consumer education materials (bookmarks, posters and consumer alerts warning students and their parents of the red flags to look for when evaluating scholarship service sales materials and sales pitches) to 2,000 college bookstores across the country. The FTC also has the materials posted on its Web site. In addition, the FTC posted a "teaser Web site" of a fictitious scholarship service company that had "the typical claims we saw in our cases," Anthony said, and described that when consumers clicked to sign up for the service, they were warned that they could have been scammed.

To further raise public awareness of the scholarship scams, in May 1999, the FTC issued a new Consumer Alert informing consumers about the most recent trend: the seminar for financial aid or scholarships. The FTC warns consumers to take their time when attending these seminars and to avoid high-pressure sales pitches. Consumers should investigate the organization by talking with a high school or college guidance counselor or financial aid advisor before spending money, the testimony cautions.

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

The written statement reflects the views of the Federal Trade Commission. Responses to the questions reflect Commissioner Anthony's views and do not necessarily reflect the views of the FTC or any other Commissioner.

Copies of the news release and the full text of Commssioner Anthony's 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, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580;1-877-FTC-HELP (877-382-4357); 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.