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Why Rip-Offs and Frauds Surround Us
The American consumer faces challenges daily when it comes to fair play in the marketplace. Some businesses practice rip-offs and deceptions; they lie and they cheat. When this happens, it puts honest sellers at a competitive disadvantage because as we are shopping for bargains we may buy from the bad sellers instead of the honest ones. The result of rip-offs and frauds is that consumers are persuaded into spending money for goods and services of inferior qualities that are not good values, and that are often extremely overpriced.
Dishonest sellers promote their schemes to consumers the same ways that legitimate sellers do – by telemarketing, direct mail, referrals, media advertising, cable television, catalogues, e-mail, web sites, online auctions and online investment bulletin boards. The fraudulent promotions may also appear in our most respected newspapers and magazines as well as local television and radio commercials.
Here is an illustration of the challenge of fighting to eliminate rip-offs and frauds. A Federal Trade Commission (FTC) study of 300 broadcast, print and Web advertisements on weight-loss and dietary topics found that 55 percent made at least one false claim. The major TV networks have screened out false advertising for years while other media do not. As a result, the FTC recently asked all media to police advertisements by refusing ads that are “grossly exaggerated and blatantly false.” Media organizations replied stating they are not regulators, they do not have the scientific expertise to determine which ads are valid, they are not capable of making these kinds of decisions on a deadline, and that screening ads would have “a chilling effect on otherwise [constitutionally] protected speech.” Government agencies are the only institutions that we, the consumers, can depend upon to police false advertising, and their budgets have never been generous to thoroughly accomplish th is task.
According to E. Thomas Garman, author of Consumer Economic Issues in America and national expert and advisor in personal finance, one in five Americans reports being a victim of a major consumer fraud at some point, and three-quarters report having “bad-buying” experience in the past twelve months. The crooks have a target market of more than 290 million American shoppers as potential customers. Sadly, many victims are repeat victims.
Why are rip-offs and frauds in the American marketplace? Among numerous reasons are
- Sellers are experts in persuasion. Consumers are amateurs.
- Consumers cannot be well informed in all areas of buying. Many lack adequate skills necessary to shop for best buys.
- Consumers are very trusting, thus making them vulnerable to advertising claims.
- Consumers believe misleading advertising. We tend to think magazines and newspapers will only accept ads from reputable sources.
- Consumers generally have no knowledge of rip-offs and frauds.
- Some sellers and companies aim to deceive.
- Some sellers lie and use high-pressure sales tactics. They may use telephone or face-to-face conversations, making their false promises and misrepresentations.
- Because consumers like to “win a prize,” “get something for nothing,” or “get a lot for a little,” a lottery or sweepstakes method lures customers.
- Deception is profitable. Research shows that less than 10 percent of consumers who say they were swindled report the crime to the proper government authorities. The crooks have been allowed to get away with their crimes because consumers have not complained, or been too embarrassed to complain.
- Crooks escape by crossing state lines and/or declaring bankruptcy. Some fraudulent businesses dissolve in 90 days.
- Penalties against deceptions are primarily civil in nature. Perpetrators have ways to negotiate or avoid criminal prosecution.
- Price-fixing and other forms of collusion exist to control supply or price and they are usually impossible for consumers to recognize. Only the government has the ability to identify and stop price fixing.
- Because of limited funding, government regulators can only pursue the most flagrant price fixers and companies that scam consumers, a relative few each year.
The Consumer Sentinel reports that Mississippi consumers filed 1,503 fraud complaints in 2003. The top ten locations of these reported fraud complaints were Jackson, Gulfport, Biloxi, Olive Branch and Brandon.
Top Fraud Complaint Categories for Mississippi Consumers |
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Rank |
Top Categories |
Complaints |
Percentage1 |
1 |
Internet Auctions |
368 |
24% |
2 |
Shop-at-Home/Catalogue Sales |
212 |
14% |
3 |
Advance-Fee Loans and Credit Protection/Repair |
169 |
11% |
4 |
Internet Services and Computer Complaints |
146 |
10% |
5 |
Prizes/Sweepstakes and Lotteries |
142 |
9% |
1Percentages are based on the total number of fraud complaints from Mississippi consumers (1,503) |
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