Growth of Deceptive "Spam" Could Undermine Consumer Confidence in Internet Commerce: FTC

The Federal Trade Commission today told the Senate Commerce, Science and Transportation Committee that the proliferation of deceptive, unsolicited commercial e-mail -- "spam" -- could undermine consumer confidence and slow the growth of Internet commerce. Speaking before the Subcommittee on Communication, FTC Commissioner Sheila F. Anthony told the panel the Commission views the problem of deception as a significant issue in the debate over unsolicited commercial e-mail (UCE).

"The Commission has steadfastly called for self-regulation as the most desirable approach to Internet governance," Anthony said. "The Commission still believes that economic issues related to the development and growth of electronic commerce should be left to industry, consumers and the marketplace to resolve. For problems involving deception and fraud, however, the Commission is committed to law enforcement as a necessary response," she said.

The Commission said it closely monitors the development of commerce on the Internet and is monitoring UCE for deception and fraud. An FTC e-mail address where consumers can forward fraudulent e-mail ( uce@ftc.gov ) has collected over 100,000 pieces of UCE and is receiving up to 1,500 new pieces daily. The testimony noted that the fraudulent spam mirrors schemes that have proliferated in other media -- pyramid schemes posing as legitimate multi-level marketing plans; chain letters; business opportunity offers and work-at-home schemes; guaranteed credit cards and loans; credit repair schemes; and diet or health products making false or unsubstantiated claims. "Last February, with the assistance of the United States Postal Inspection Service, the Commission put more than 1,000 junk e-mailers sending UCE on notice that law enforcement agencies are monitoring UCE for deception and fraud and keeping track of the senders," the testimony said.

In its testimony, the Commission said it has a "long history of promoting competition and protecting consumers in once new marketing media. These past innovations have included door-to-door sales, television and print advertising, direct mail marketing, 900 number sales and telemarketing. The development of each of these media was marked by early struggles between legitimate merchants and fraud artists as each sought to capitalize on the efficiencies and potential profits of the new marketplace."

The Commission said that Congress, law enforcement and regulatory authorities, industry leaders and consumers are faced with important decisions about the roles of self-regulation, consumer education, law enforcement and government regulation in the development of electronic commerce on the Internet. It noted that in the early 1990s, " ... the advent of the first and still the most universal interactive technology -- 900 number, telephone-based "pay-per-call" technology -- held great promise. Unfortunately, unscrupulous marketers quickly became the technology's most notorious users," the testimony said. Scores of thousands of consumers were billed for calls they thought were free or that were made by their children without their consent. Industry did not move quickly or forcefully to halt the widespread deception and Congress enacted legislation directing the FTC and the Federal Communication Commission to regulate 900 number vendors, she said. "All of this came at a considerable cost, however, because consumers lost confidence in pay-per-call commerce and stayed away from it in droves. Only now, some four years after federal regulations took effect, has there been growth in pay-per-call services as a means of electronic commerce."

The testimony said that the FTC has been aggressive in combating fraudulent UCE through law enforcement initiatives and consumer education. "Should the Congress enact legislation granting the Commission new authority to combat deceptive UCE, the Commission will act carefully but swiftly to use it," the testimony said.

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

Copies of the FTC's testimony and consumer education publications about unsolicited commercial e-mail, "Trouble@ the In-box," "How to be Web Ready," and "Net-based Business Opportunities: Are Some Flop-portunities?" 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-FTC-HELP (202-382-4357); 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.

(FTC File No. P97 4416)