Loyola Consumer Law Review

Volume 11 | Issue 1 Article 2

1998 Telemarketing Fraud upon the Elderly Shows No Signs of Slowing Mark Allan Baginskis

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Recommended Citation Mark A. Baginskis Telemarketing Fraud upon the Elderly Shows No Signs of Slowing, 11 Loy. Consumer L. Rev. 4 (1998). Available at: http://lawecommons.luc.edu/lclr/vol11/iss1/2

This Consumer News is brought to you for free and open access by LAW eCommons. It has been accepted for inclusion in Loyola Consumer Law Review by an authorized administrator of LAW eCommons. For more information, please contact [email protected]. CONSUMER NEWS by Mark Allan Baginskis

Telemarketing Fraud Upon the Elderly Shows No Signs of Slowing

Telemarketing is attractive to those unless there is uniformity in how who partake in a legitimate business deceptive telephone practices are and to those who are willing to punished, the opportunity will always swindle unsuspected consumers out of exists for fraudulent perpetrators to billions of dollars a year. The National "forum shop" for an area that does not Consumer League receives hundreds restrict their deceptive practices. of calls daily relating to fraud, and 60% Perpetrators target the elderly for a of those calls involve the elderly.' variety of reasons. According to one Through the use of well-rehearsed and fraudulent telemarketer, it is because polished sales pitches, fraudulent the elderly are often homebound, and telemarketers prey upon the weaknesses they are more accessible during the of the elderly. For example, one elderly day than the working class.6 Others woman lost over $74,000 due to repeated prey upon the elderly's feelings of 2 victimization by a telemarketing firm. loneliness.7 Since many elderly people Embarrassed victims often do not live alone, they may be more receptive report the incident to either their to having social contact than younger family or to law enforcement officials. individuals. These scenarios are open In other cases, victims may not know invitations to fraudulent operators. For where to report such incidents.3 example, one elderly woman explained Recent federal legislation has to an interested telemarketer that she facilitated the prosecution of would consider his pitch if it would telemarketing in federal courts. provide financial security.9 The However, state and local authorities telemarketer then focused on financial still face many obstacles in attempting security as one of his selling points.'0 to fight telephone fraud.4 While many Only later did she learn, via repeated states do have anti-telemarketing phone calls and frequent statutes, not all states have consumer conversations, that she had been protection statutes that protect the victimized due to her loneliness. 1 elderly.' As more states enhance As long as the elderly population protection of the elderly, the ability to continues to grow and the perpetrators discourage fraudulent activity against of fraud are successful, there will be a the elderly may increase. However, need to educate potential victims to

4" Loyola Consumer Law Review Volume 11, number I 2 help prevent fraudulent telemarketing is most frequently targeted at women. 1 schemes. A potential victim receives a notification letter or postcard which Telemarketing Fraud Schemes identifies the individual as the winner of a prize. The letter then instructs the Telemarketing has grown immensely victim to call a particular number to over the last decade. 2 Because the redeem the prize. The victim industry has become so large, there are eventually realizes that to receive the countless opportunities to run a prize he or she must pay a fee to cover deceptive practice by disguising it as a taxes, shipping and handling, or legitimate operation. Telemarketing is processing.22 Unfortunately for the any plan which induces the purchase customer, there is either no prize at all of goods or services, or the or the consumer pays exorbitant participation in a contest or amounts of money for a low-priced sweepstakes, by the use of one or more object. interstate telephone calls, regardless of Sweepstake giveaways frequently who initiates the call. 3 Telemarketing lure customers to buy products. is a highly selective operation which Fraudulent telemarketers may offer can be focused to reach only a prizes if the customer sits through a particular demograpic. 14 sales presentation. Legitimate Two of the more prevalent types of businesses are careful in their telemarketing fraud are the investment operations not to violate state and scam and the sweepstakes scam. 7 The federal laws prohibiting private fake investment is usually targeted lotteries.23 towards males 18 and may include the Fraudulent telemarketers, however, sale of investment opportunities, FCC often do promote scams such as illegal licenses, gem stones, foreign currency lotteries.24 In this type of scam, the or commodities. 9 In making the initial telemarketers misinform the consumer pitch, the seller tells the victim that this that she must purchase a product to is a safe and financially rewarding increase the chances of winning. Most investment. To further convince the state's laws forbid prizes being given customer, the customer may be away based upon skill and requires referred to a "previously satisifed instead that the award of a prize is to investor." These investors are often be based upon chance. "shills" paid by the telemarketers for Still another method employed by their fraudulent and misrepresenated telemarketers is the use of 900 endorsement.2 ° Only after having paid numbers. For example, the caller to a out large amounts of money does the 900 number has to pay a charge just to victim learn that the investment is hear what may be offered by the worthless or nonexistent. promoter of the product or service. At The sweepstakes scam, in contrast, times, the cost of simply getting

1998 Loyola Consumer Law Review * 5 connected to the 900 number can complete the sale. exceed of $15 per call. Once a sale is made, the fronter may pass that purchaser's name along to a Fraudulent Telemarketers' "reloader" who does not work off a Operations script but instead relies on his or her own persuasive powers to make Telemarketers find the name and further sales to the customer.30 Repeat addresses of potential victims via customers are victimized until victim phone books, magazines, brokers with becomes insolvent. The process lists and various club rosters. The continues until an impasse is reached initial pitch comes from a group of or the authorities begin to move in on people who work out of phone rooms the operation. If an impasse is reached, called "boiler rooms."2 5 Boiler rooms fraudulent telemarketers offer larger can be quickly shut down and discounts or more substantial prizes. relocated if law enforcement officials Another operation is the "recovery discover them. 26 These rooms often room." 31 This is where an offer is made have a large number of sales people to a telemarketing victim to recover his and telephones. Since telemarketing lost money. Lost money is rarely fraud operations can close quickly, law recovered, and even more is lost in this enforcement officials often have subsequent fraud. Of the sweepstakes- difficulty investigating such fraud victims who responded to a operations. survey conducted by the American The "fronter" is the first person to Association of Retired Persons contact a telemarketing fraud victim. ("AARP"), 27% claimed they were Fronters read from a prepared script contacted by a recovery room.32 designed to induce the individual to buy a product or service.27 These prewritten Challenges to Stopping Fraudulent scripts list different responses to Telemarketers common customer objections and answers to frequently asked Stopping deceptive practices against questions. a The scripts are set up in the elderly is difficult for a number of such a way that the fronter can often reasons.33 Too often fraudulent overcome any objection that a telemarketers pick up and move their customer provides.29 If it appears there shop to another location which makes is a chance of sale, the fronter may pass it difficult for authorities to catch the call along to a "closer." Closers are these offenders. Despite the boom, specifically used to overcome most states have not correspondingly objections raised by a customer; the increased funding to enforcement closers are more experienced sales agencies. 34 Many elderly victims are people, and therefore, are able to reluctant to report a fraud, which provide a stronger sales pitch to help makes it difficult for the government to

6. Loyola Consumer Law Review Volume 11, number 1 stop fraudulent practices. Since no because it must also be a conspiracy. 39 single statute encompasses all the Early in the 1990s, legislation was fraudulent practices that exist, it is proposed to combat fraudulent difficult for law enforcement officials to telemarketing, but it was not until 1994 stop the problem.3 s that the "Telemarketing and Consumer Local and state governments have Fraud and Abuse Prevention Act" was made efforts to curtail the growth of passed .4 The passage of the Act finally fraudulent telemarketing practices.36 provided for a federal definition of While a state may enforce and actually telemarketing. In addition, the Act stop the practice within its boundaries, made disclosure of the purpose of the injunctions and restraining orders do call such as selling of goods or not prevent the operation from services, as well as the nature and the continuing in other states. For example, price of the goods, a necessary part of in California, one successful a telemarketing call. The act also investigation could address only one placed restrictions on the hours of type of telemarketing fraud because of when telemarketing companies can budgetary contraints.37 Also, when an make calls.41 The Act also stated that calls enforcement agency does break up an were not be coercive or abusive. operation, seldom are all of the Additionally, in 1994, the Senior individuals involved charged. The low- Citizens Against Marketing Scams Act end fronters, who learn how the was passed to enhance penalties for schemes operate, are able to go off on violations of federal telemarketing their own and restart the fraudulent statutes.42 process elsewhere. With stiffer and stiffer penalties, states are trying to AARP Survey Changes Common curtail the operations and preventing Myths new ones from opening. On the federal level, those who While it has often been felt that commit fraud can be charged under telemarketers target the elderly federal statutes for mail or wire fraud because of isolation and vulnerability, a and conspiracy.38 Under 18 U.S.C. § study sponsored by AARP revealed 1343, mail fraud involves any some surprising findings.43 In 1996, correspondence that is part of a AARP initiated a large scale survey to consumer fraud scheme and is sent gain a better understanding of through the U.S. mail or any other telemarketing fraud and how it affects carrier. This includes any fraud that older Americans. Telemarketing Fraud involves a mailed payment. Victimization of Older Americans: An Telemarketing scams also fall under the AARP Study was one of four studies federal wire fraud statute. However, to conducted to better understand the trigger the wire fraud statute more victims and why they may be such a than one perpetrator must be involved, vulnerable group.44

1998 Loyola Consumer Law Review * 7 The survey compiled responses difference arose between those who 45 from 745 telemarketing fraud victims. were conned and those who were not. All participants were identified as Those who did not fall for the scam victims of at least one type of scheme either hung up or stayed alert for detailed as fraudulent by state or signals that might tip them off to a federal law. The usual victim of potential scam. Those who were telemarketing fraud is older than one victimized were less likely to hang up might expect. Over half of the and may have even listened for signals participants (56%) were of the age of that would in some way confirm the fifty or older.47 Surprisingly, some legitimacy of the telemarketer. survey participants are affluent, well- Some victims did not seem to have educated and well-informed.46 Another the skills necessary to end the call if surprise is that these individuals are they felt that the call was the scammer's active in their community. only way to make a living. AARP's survey also indicated that Significantly, few older people many respondents were contacted surveyed knew that telemarketing within the past six months. Some fraud is a crime (only 2%).13 Furthermore, reported that they receive more than survey respondents did not view twenty calls. Of those surveyed, only fraudulent telemarketing as stealing. 7% said the last time they received a Victims felt that telemarketers were in telemarketing solicitation was over a a business and it was up to the year ago. consumer to refuse the product, even The survey found that these though the these victims also felt the fraudulent telemarketing schemes business had an obligation to operate build off one another. For example, honestly. after an individual has been scammed, The survey results strongly suggest a person may be "reloaded" so that he the need for education. The elderly can be contacted once again to be taken need to know that fraudulent for more money.48 The survey also telemarketing is a crime. Further, the suggests that telemarketers buy and elderly need to know how this crime 49 sell "mooch lists" for one another. operates so that they can proceed more These "mooch lists" include people with caution speaking on the phone who have been frequently scammed.50 with telemarketers. Over half (57%) of the survey's The AARP has developed a new respondents felt the prizes offered in slogan directed at the victims: the telephone scams were going to be "Fraudulent Telemarketers are worth what was paid out.5 Since the Criminals. Don't Fall for the Telephone victims did not know when someone Line." Through their workshops, fliers was selling them worthless products or and public service announcements, services, they felt it was difficult to AARP aims to educate victims and identify potential fraud.52 However, a potential victims of telemarketing

89 Loyola Consumer Law Review Volume 11, number I fraud. The target audience is not just House Hearing];FRED SCHULTE, FLEECED! elderly individuals but also all those TELEMARKETING Rip-OFFS AND How TO AVOID who may be involved with the elderly, THEM 21 (1995). such as AARP members, previous 4 See Patrick E. Michela, Comment, You victims and their families, local police May Have Already Won, 21 PEPP. L.REv. 553, and law enforcement officials, and the 585-87 (1992). general public. 5 See e.g., CoLo. REV. STAT. § 6-1-301 Conclusion (1993), OHIO REV. CODE ANN. 4719.03 (1998), KAN. STAT. ANN. 50-671 (1997).

Fraudulent telemarketers will 6 See They Can't Hang Up, supra note 1. continue to take other people's money because there is simply too much 7 See SCHULTE, supra note 3. money to be made. The programs 8 See id. already in place may slow down swindlers, but the con-artists scams 9 See id. continue to evolve, and demand constant reassessment by the 10 See id. enforcement and education communities. The Senior Citizens 11 See id. Against Marketing Scams Act is a good step by the federal government toward 12 See Richard Starnes, Consumer Fraud decreasing tolerance that exists for and the Elderly, 4 ELD. L.J. 201, 206 (1996).

their activity. However, a uniform 13 See 18 U.S.C. § 2325 (1995). definition of telemarketing fraud is still necessary at the state level, as is a 14 See Michela, supra, note 4 at 555. continued focus on educating the elderly public on how to identify 15 See They Can't Hang Up, supra note 1. fraudulent schemes so as to avoid 16 See Michela, supra, note 4 at 564. becoming targets themselves.

supra, note 12. Endnotes 17 See Starnes,

18 See They Can't Hang Up, supra note 1. 1 They Can't Hang Up, National Consumers League Video, 1996. 19 See id.

2 See id. 20 See United States v. Judd, 889 F.2d 1410, 1412 (5th Cir. 1989). 3 See Consumer Fraud Prevention Act of 1995: Hearing Before the Subcommittee on 21 See They Can't Hang Up, supra note 1. Crime, Committee on the Judiciary,104th Cong., 2nd Sess. 20-21 (1996) [hereinafter 1996 2 See id.

1998 Loyola Consumer Law Review * 9 2 See Michela, supra, note 4 at 566. 43 See PRINCETON SURVEY RESEARCH

24 See id. ASSOCIATES,supra note 31.

44 See id., at Introduction. 25 See id. at 559.

45 See id., at 26 See id. at 562; Hebe R. Smythe, 37. Fighting Telemarketing Scanes, 17 HASTINGS 46 See id., at 7. COMM. & ENT. L.J. 347, 351 (1994). 47 See id., at 27 See Michela, supra, note 4 at 559-60. 4.

48 See id., at 9. 28 See id. at 560. 49 See id. 29 See id.

50 See id. 30 See id. at 561-62.

51 See id., at 17. 31 PRINCETON SURVEY RESEARCH ASSOCIATES,

TELEMARKETING FRAUD AND OLDER AMERICANS, 52 See id., at 18. AN AARP SURVEY, 9 (1996). 53 See They Can't Hang Up, supra 32 See id. note 1.

33 See SCHULTE, supra, note 3, at 245-261.

M H.R. REP. No. 421, 102nd Cong. 1st Sess. 3 (1991).

35 See PRINCETON SURVEY RESEARCH ASSOCIATES, supra note 31.

36 See Michela, supra, note 4 at 584.

37 See CAL. BUS. PROF. CODE, § 17511.1(a)(8).

38 18 U.S.C. § 1341 (1988).

39 18 U.S.C. § 371 (1988).

40 18 U.S.C. § 2325 (1988).

41 See id.

42 See id.

10" Loyola Consumer Law Review Volume 11, number I