- The Washington Times - Monday, April 24, 2000

Internet fraud is growing rapidly, with consumers losing more than $3 million last year in bogus transactions, according to reports to the National Consumers League's Internet Fraud Watch.

The group, which educates and advises consumers about shopping safely on line, had nearly 11,000 complaints from victims of Internet fraud last year compared with 689 reports in 1996.

And, as the Internet's popularity continues to grow, the number of complaints about fraudulent practices will increase, says Susan Grant, director of the National Fraud Information Center's Internet Fraud Watch.

Question: How did the Internet Fraud Watch evolve from the National Fraud Information Center?

Answer: It was a logical evolution. The telemarketing fraud program, the original National Fraud Information Center, was created in 1992. That was at the height of concern of the social and economic impact of telemarketing fraud. The [National Consumers] League saw the need for a central place [where] consumers could get advice to avoid being victimized and report fraud. It's often confusing for people to know where to go.

In 1996 the Internet Fraud Watch was born out of the realization that Internet fraud was starting to become an issue. It seemed as though many of the kinds of problems you saw on the Internet were similar to those in telemarketing fraud. The Web site www.fraud.org was created then to be a vehicle for educating people and also to have an on-line fraud reporting form for either telemarketing or Internet fraud.

Q: Why are Internet auctions the most common type of fraud on line?

A: Well, 87 percent of the Internet fraud complaints that we received last year were about auction transactions. It's hard to know exactly why. If I were to make some educated guesses I would say that one reason is on-line auctions are so popular right now. There are millions of people going on them to sell things and buy things. I'm sure that the fraudulent transactions only account for a tiny minority of the total, nonetheless that is the biggest thing we are hearing about. The complaints are the same as all the other Internet fraud complaints: I paid my money and I either never received anything or what I got isn't remotely like what I was promised.

Q: So there could be fraudulent transactions happening on popular sites like E-Bay?

A: Sure. What people may not realize but need to know about E-Bay and other auction sites that act similar to the classified ad section of the newspaper is that they just take the information from the seller and put it up. They don't have any way of verifying that in fact the items exist or that they meet the description that is being made. They ultimately put the high bidder and the seller together to consummate the transaction directly between them.

Q: Are credit cards the safest way to purchase things on line?

A: Yes, but we know consumers are nervous about that still. In fact, in a survey we did last August of consumers' on-line shopping experiences and beliefs, we found that a high percentage of consumers 69 percent thought it was safer to pay by check or money order for an on-line purchase than by credit card.

In the Internet fraud complaints we get, the vast majority of payments are made by check or money order. Only a very small percentage are made by credit cards because of the fear that consumers have which is largely unfounded but understandable that somehow their credit card information will be stolen by someone in transmission. It's actually more likely that the business you are dealing with on the other end is a crook.

People don't understand that encryption technology is widely used and works well. So instead they send forms of payment, including cash in many cases, to sellers and then when they find out later they have a problem, their money is gone. That's a big problem.

Q: Last year there was $3.2 million in Internet fraud. Was that a surprising number to you?

A: No. The number of Internet fraud reports we receive rises every year and the average loss is somewhere in the neighborhood of $300 a person, although it can vary widely. So it was not surprising to me. I think that while telemarketing fraud has gone down for a number of reasons, Internet fraud will probably continue to rise for a while.

[There has been] success in fighting telemarketing fraud because of a number of efforts on the part of everyone concerned government, business and the nonprofit community. The government has passed new laws and has been very aggressive in prosecuting telemarketing fraud not only on the federal level but state and local levels as well. It's been a concerted effort among everyone. I think all the various education efforts [about telemarketing] have paid off.

And now I think we need to think about Internet fraud and how to fight that. It may not be exactly the same. It's possible the audience is different. We certainly know that the age of consumers is a different subset for Internet fraud. It's a generally younger target audience than with telemarketing fraud. There may be other demographic differences as well. When fashioning consumer education campaigns you need to study who your audience is and what makes them tick in order to come up with effective anti-fraud messages.

Law enforcement is also looking at Internet fraud as something that there may need to be some new strategies to deal with. Most of the laws that protect consumers in the physical world apply to scams in cyberspace. Whether there should be new laws or changes to existing laws is something that I think is being discussed on all levels of government.

Q: When do you think the number of Internet fraud reports will start to decrease?

A: I don't know. We're at the point where not everyone has a computer yet and not everyone who does has Internet access. And I think it is fair to assume that we are on the up curve of more and more people getting computers and going on line. As that happens more and more people get exposed to all the good stuff as well as all the troublesome stuff that you can find on there.

Also a lot of people only learn the hard way. When people start having problems or know people who have had problems they begin to think about it more and take precautions.

I also think as different means of payment on line are developed it may actually make it easier to rip people off. Cyber wallets and other means that will make it easier for people to conduct legitimate transactions will undoubtedly be abused by con artists.

I'm not sure who the gatekeepers will be to keep them out of those kinds of systems. I have been just urging not only regulators but members of the industry who might be involved in the creation of such systems to keep in mind that there needs to be some way to screen out the bad guys.

Q: What do you think are the top things consumers can do to prevent themselves from being victims of Internet fraud?

A: Knowing who you are dealing with is still the first thing. You should make sure you know where the seller is in the physical world not just in cyberspace not only in case you have problems later but also to help decide if you should go through with the transaction in the first place.

I'm not saying not to do business with somebody in another part of the country or another country but I do think one of the things consumers need to realize is the farther away the seller is the harder it is to resolve your problem. And if it's across national boundaries, it's even more complicated.

You need to be sure that you know all of the terms and conditions of what's being offered including all of the costs, any restrictions or limitations or any other details. You need to know when it's going to be delivered to you.

You also need to know what rights you don't have. One of the things that our survey showed was that people mistakenly believed they had three days to cancel on-line purchases when they don't.

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