Educational Consumer Tips
Author: Better Business Bureau
Telemarketing has become an extremely popular way to contact numerous potential customers quickly and easily in an effort to sell a variety of products and services. Home improvements, security systems, insurance policies, light bulbs and newspaper and magazine subscriptions are examples of products sold by the telephone. You may be contacted due to past purchases or charitable contributions or because you have been identified as a new home buyer who may need a security system or insurance, or simply because you happen to have a telephone.
At the same time telephone marketing has risen in popularity as a legitimate way of selling, it has also become a common mode of defrauding the public. Some schemes are aimed specifically at businesses while others prey on individual consumers. This booklet explains the most common Telemarketing frauds, legal actions being taken against dishonest operators, and what you can do to protect yourself from being victimized.
Vacation certificate promoters notify you by telephone (or sometimes by mail) that you have been selected for a "free vacation" in the Bahamas or a cruise to some other luxurious travel spot. Or the vacation offer may include free airfare for one person with the purchase of a second fare. To receive the vacation certificate, you may be required to attend a sales promotion at a timeshare resort or membership campground or to purchase a membership in a travel club.
Consumer complaints to Better Business Bureau concerning vacation certificates have claimed that consumers received incomplete information regarding airfare and/or hotel costs and accommodations or claimed that the offer was misrepresented. "Free" vacations can end up costing hundreds or even thousands of dollars in regular coach airfares that must be purchased for the second traveler, inflated prices for hotel accommodations that must be obtained only through the promoter, and other extra charges which need to be paid in order to take advantage of the certificate. One such case involved a $31 Hawaiian vacation, which, needless to say, would cost far more once all the extra charges were included.
Many states have been actively seeking to protect consumers against misrepresentations made by some vacation certificate promoters. For example, several states sued the company offering the inexpensive Hawaiian vacation certificate, noted above. In California, the Attorney General filed a complaint against a travel club company that called consumers and asked them for a major credit card number to validate a complimentary vacation. However, the company charged fees on the consumers' credit card accounts without their permission. Better Business Bureau has known of at least one other such company that attempted to renew vacation certificates for subsequent years since it already had consumers' credit card numbers.
The Oregon Attorney General filed a civil racketeering lawsuit against a company for fraudulent practices in an operation where customers were told they had won a large prize and needed only to buy specially discounted items in order to receive the prize. The prize allegedly included cars, $5,000, and vacation trips. However, according to the legal complaint, only the vacation was available as the prize and consumers had to pay not only a redemption fee but the price of one ticket at a cost of more than two discount air tickets.
According to a conference sponsored by the American Society of Travel Agents, of all vacation vouchers sold, only 10% provide consumers with actual vacations. Most such vacation certificate vendors sell thousands of certificates at ridiculously low prices, such as the $31 trip to Hawaii, making it virtually impossible to actually furnish so many vacation packages.
Better Business Bureau suggests that if you are contacted and told you have won a prize of a vacation certificate, you should investigate carefully what payments you will be responsible for and/or what you have to buy to get the trip. For example, will you need to pay for airfare, lodging, additional fees for the peak tourist season, etc.? Before traveling, you should confirm all arrangements directly yourself. Ask the vacation certificate promoters what happens if the hotel accommodations are completely booked and under what circumstances your deposit can be returned. In general, Better Business Bureau also advises that you consider attending a sales presentation for a timeshare or other resort only if you are interested in what is for sale, not for the prize alone.
Consumers who feel they may have been victimized by vacation certificate promoters should immediately contact their local Better Business Bureau and law enforcement officials. Delays only serve to allow the promoter to change names and locales, making it even more difficult to get recourse.
"Motor Boat" And "Motor Cycle" Promotions
Another common Telemarketing gambit used by scam promoters with great success is one where, often under the guise of participating in "market research" to test the product, consumers are offered motor boats or motorcycles "free" or at substantial discounts. Consumers, however, are first asked to send the company redemption fees or shipping and handling charges, which have often turned out to be much higher than the worth of the product. Such motor boats and cycles have generally been worth far less than represented by these promoters. For example, a motor boat turns out to be a rubber raft with a small battery powered motor that can barely be propelled around a swimming pool.
Many state Attorneys General as well as the Federal Trade Commission and the U.S. Postal Inspection Service have taken actions against promoters of "free" prizes and motor boat and motorcycle offers. In some cases, the companies have been accused of illegally conducting lotteries since consumers must purchase merchandise in order to be eligible for any prize. In other cases, prizes were never received, or investigations revealed that companies charged shipping fees of $89 for boats valued at $40 and which really cost $9 to ship. Consumers should be aware that companies cannot afford to give genuinely valuable prizes to thousands of people nationwide and they should always view such offers, whether received by mail or over the telephone, with skepticism. In addition, companies which engage in genuine market research do not initially ask consumers to participate in a survey and then attempt to sell a product or service.
Advertising Specialty Products
Businesses are often the target of dishonest Telemarketing operators. Advertising specialty products are items such as pens or desk calendars imprinted with a business's name and address. Some telemarketers sell these products along with the promise of wonderful prizes like cash, appliances, cruises, and cars. In order to receive the prize of which you are a "guaranteed winner," the business person is usually required to forward a shipping and handling fee or "redemption charge" along with the order for the advertising specialty products.
According to the U.S. Postal Service, 99.99% of the prizes won in these promotions are "throw-away" gifts. For instance, a personal computer may turn out to be a hand-held calculator. Additionally, the advertising specialty products ordered may turn out to be of inferior quality and overpriced compared to similar merchandise which could be purchased from a local vendor. The U.S. Postal Service has obtained numerous consent orders against advertising specialty product companies. Without admitting to any wrongdoing, the companies agreed to cease misrepresenting the value of their goods. The U.S. Postal Service reminds consumers that offers which require a purchase in order to win a prize violate federal lottery laws.
Since advertising specialty promoters generally send their products Collect on Delivery (COD), some protection has been afforded to consumers and business by a change in the COD law. The rule, enacted in 1987, allows recipients of COD packages to pay the charges with a check made payable to the sender rather than to the U.S. Postal Service. This enables you to stop payment on your check if you find the offer was misrepresented.
Some telemarketers attempt to sell substandard office equipment and supplies to businesses by posing as their regular supplier and offering what they claim are tremendous discounts from the regular prices. The "paper pirate" must first learn what brand and model of photocopy machine is in a particular office. Once that information has been obtained, the pirate then claims the supplier is in distress and is being forced to liquidate stock and that a decision has to be made right away. When the supplies arrive, the product which is "just like Xerox's" is inferior to the brand name item, in some cases can actually damage the business machine and is much higher in price. In one case in Missouri, a company had charged nearly $70 for a dozen "3x5" note pads. The Attorney General is suing the firm. Once billed, it is usually very difficult to get the office supply company to adjust the invoice and you may continue getting dunned or even threatened with legal action to make payment. Most companies will also refuse to accept returns.
Better Business Bureau suggests that businesses not deal with a new supplier until its existence and reliability have been verified, particularly when you have been contacted on the phone by a stranger. Also, it is wise to caution employees answering your firm's phone not to give information out to callers requesting details regarding your office equipment and not to authorize delivery of supplies from an unknown company. Never accept or pay for shipments without being sure they were authorized.
If your business receives merchandise through the U.S. mail which it did not order, the merchandise can be kept as a free gift, according to federal law. The same law makes it illegal to mail bills or dunning communications for unordered merchandise sent through the U.S. mail. You can also refuse a shipment arriving by mail if you do not open it. However, this same protection does not apply to packages sent via United Parcel Service or other private delivery services. Therefore, your best protection is careful scrutiny of any such office supply offers.
The Federal Trade Commission (FTC) estimates that every year American consumers lose nearly $1 billion dollars in investments that turn out to be fraudulent. There has been a dramatic increase in Telemarketing investment fraud because of the ease of establishing fraudulent operations and the popularity of telephone marketing. Typical investments sold by dishonest operators have included those for coins, gemstones, artworks, oil and gas leases, applications for cellular telephone licenses, and precious metals such as gold and silver or strategic metals such as chromium, used in defense and high-tech industries.
You could also be called about an investment opportunity where you are told you will get huge profits in a very short period simply by recruiting others to invest, who, in turn, will recruit others and so on. The merchandise or service you would be investing in is largely ignored by the person making the pitch to you because there is no merchandise or service. Instead, in a "pyramid scheme," people are required to recruit others who all must pay large amounts of money to participate. Eventually the supply of recruits runs out, the pyramid collapses and most participants lose their investment.
Investment Telemarketing operations, like other Telemarketing promotions, are usually run from a "boiler room," typically a low-rent office filled with salespeople who call hundreds of prospects every day all over the country. Boiler room operators call people who may have indicated interest in other investments or who may have already been victims of a previous scam. These salespersons will generally inform their prospect that he or she has been specially selected to participate in an unusual investment opportunity where virtually no risk is involved. Large profits are guaranteed but the investor must pay his money immediately to get in on the deal.
Better Business Bureau and the Federal Trade Commission offer the following precautionary advice when approached by anyone selling an investment opportunity:
- Do not be high-pressured into buying. When you are urged to buy now or forever lose your opportunity to profit, you should realize you will probably never see your money again.
- If you are promised that the investment is risk-free, a red flag should go up cautioning you against investing with this promoter. Few investments involve little risk.
- Be extremely skeptical and cautious about any unsolicited phone calls you may receive about investments.
- Invest only in business opportunities you know something about. Get all the information you can about the company and then verify the data.
- If any doubt, do not part with your money.
The National Futures Association (NFA), a Congressionally authorized self-regulatory organization, lists a series of questions designed to turn off a dishonest investment promoter. These questions are contained in NFA's booklet "Investment Swindles: How They Work and How to Avoid Them," available by calling the NFA toll-free at 800-621-3570 (In Illinois, 800-572-9400). Other organizations which are involved in investments and which can be contacted before investing are:
- Your state Securities Commission, Securities Department or Department of Corporations;
- The Commodity and Exchange Commission, which regulates the public offer and sale of securities; and
- The National Association of Securities Dealers, which is a self-regulatory organization governing stockbrokers.
Better Business Bureau and the North American Securities Administrators Association, the national organization which represents securities regulators in the U.S. and Canada, regularly warn the public of questionable investments via their joint Investor Alert project. Investor Alerts on such topics as Investing in Coins, Commodity Investments, Oil and Gas Investment Frauds, Blind Pool Investment Offerings, Precious Metals Bank Financing Programs, and Investigate Before You Invest as well as others are available from your local Better Business Bureau or the North American Securities Administrators Association (55 New Jersey Avenue, N.W., Washington, DC 20001). These Alerts have also been combined into a book available from BBB.
In addition, state Attorneys General, local district attorney's offices, the U.S. Postal Inspector, and the Federal Bureau of Investigation all investigate and prosecute fraud cases concerning investments.
The Direct Marketing Association (DMA), a trade association which works to improve the practices of direct marketers, has developed voluntary guidelines for telephone marketing. The DMA promotes adherence to its guidelines since it believes that dishonest and misleading telemarketers injure the telephone marketing industry as a whole. Such guidelines include telemarketers promptly disclosing the primary purpose of the contact, not using deceptive or fraudulent claims and promptly delivering any ordered goods. The DMA also states that telephone marketers should avoid calling telephone subscribers who have unlisted numbers. Furthermore, random dialing and sequential dialing techniques should not be used, whether by a manual or automated process. Such computerized dialing, in addition to being irritating, is against the law in some states.
The DMA also suggests that telephone marketers remove the name of any individual from their lists when requested to do so. Telephone Preference Service (TPS) is a DMA operated service which helps consumers receive less telephone solicitations from national companies. Consumers interested in this service may contact the Direct Marketing Association, 6 E. 43rd Street, New York, NY 10017. TPS is similar to the DMA's Mail Preference Service which offers a way to get off many mailing lists.
Combating Telemarketing Fraud
In January of 1987 the National Association of Attorneys General (NAAG) and the Federal Trade Commission announced a joint effort to reduce Telemarketing fraud. As part of this effort, an information clearing house was established so that these government agencies could collect and share data about suspected Telemarketing scams on an expedited basis. Representatives of both the FTC and NAAG stated that cases against fraudulent telemarketers have been difficult to prosecute because of the ease with which operators move across state lines and change their names. For this reason, NAAG has also adopted a resolution calling on Congress to authorize states to sue telemarketers in federal court to get nationwide injunctions.
The FTC reports that since 1983, $23.5 million has been secured for Telemarketing scam victims. More than 6,650 people have received redress checks in amounts ranging from $50 to $15,000. Additionally, as of January 1988, the Commission closed down 20 major Telemarketing scams and obtained federal court orders against 124 corporations and individuals.
Lawsuits have been filed by state attorneys general against numerous companies allegedly using deceptive methods to sell low-cost travel packages and vacation certificates, copy machine toner and other products and services which are the subject of this booklet. One attorney general is investigating a "trivia contest" in which consumers are receiving computerized phone calls with recorded messages. Initially, consumers answer three easy trivia questions, after which they are asked to pay a $20-35 entry fee to go on to the next level of competition, which offers large cash prizes. The attorney general states that this type of contest by telephone could constitute illegal gambling under state law.
The FTC and NAAG urge consumers to report any questionable Telemarketing companies by sending a complaint with details on the suspect company to: Federal Trade Commission, Telemarketing Fraud Project, 6th & Pennsylvania Avenue, N.W., Washington, DC 20580 and also to their state attorney general.
Some states and counties have enacted legislation specifically concerning Telemarketing operators. For instance, Florida's law, effective October 1, 1987, states that telephone solicitors must identify the purpose of the call within 30 seconds and may not attempt to call persons with unlisted numbers. Also, consumers can order an extra line in their telephone directory indicating that they do not wish to receive unsolicited telephone calls. Clark County, Nevada effected an ordinance on March 1, 1988 which states that selling companies cannot offer a prize as an inducement to make a purchase and that redemption or other fees cannot be charged to acquire a prize. A California law, enacted in 1985 with revisions in 1987, requires telemarketers to register every year and to disclose their sales presentation and written materials to state officials. Telemarketing companies also have to reveal their owners, place of business, the names of their management and sales staff, and any prior government or bankruptcy actions.
Tips to Remember
We have outlined the most common Telemarketing schemes against individuals and businesses, given examples of legislation and legal actions taken against some fraudulent promoters, and mentioned several governmental and nongovernmental sources of help. But the fact remains that your awareness is your own best protection. When you receive a telephone sales call, find out who is calling, ask the caller to mail more information should you be interested, or ask the caller to take your name off their list if desired. It is always your choice to hang up when called by a stranger.
Better Business Bureau advises that you be particularly careful about supplying your credit card number over the telephone when you did not place the call and you are not familiar with the party on the other end of the line. Be extremely cautious if the caller says a decision concerning an investment or purchase must be made immediately. Be wary of offers for free merchandise or prizes. As explained previously, offers that sound too good to be true generally are not true. Additionally, as some companies claim that a certain percentage of their sales go to charities or charities themselves may falsely represent the disbursement of their funds, be sure to thoroughly check on these companies and charities as well. Lastly, if you suspect you have been the victim of Telemarketing fraud, do not hesitate to report it to your Better Business Bureau, Federal Trade Commission, state attorney general, U.S. Postal Inspector, or other appropriate agencies.
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