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Consumer Fraud in the United States, 2011

The Third FTC Survey

Staff Report of the Bureau of Economics

Federal Trade Commission

April 2013

Consumer Fraud in the United States, 2011:

The Third FTC Survey

Staff Report of the Bureau of Economics

Federal Trade Commission

Keith B. Anderson

April 2013

Federal Trade Commission

EDITH RAMIREZ

Chairwoman

JULIE BRILL

Commissioner

MAUREEN K. OHLHAUSEN

Commissioner

JOSHUA D. WRIGHT

Commissioner

HOWARD A. SHELANSKI

Director

PAULINE M. IPPOLITO

Deputy Director for R&D and Operations

PAUL A. PAUTLER

Deputy Director for Consumer Protection

KENNETH HEYER

Deputy Director for Antitrust

LEEMORE S. DAFNY

Deputy Director for Antitrust and Healthcare

TIMOTHY A. DEYAK

Associate Director for Competition Analysis

JANIS K. PAPPALARDO

Assistant Director for Consumer Protection

H. GABRIEL DAGEN

Assistant Director for Accounting and

Financial Analysis

DAVID SCHMIDT

Assistant Director for Applied Research & Outreach

LOUIS SILVIA, JR.

Assistant Director for Antitrust

MICHAEL G. VITA

Assistant Director for Antitrust

This is a staff report of the Bureau of Economics of the Federal Trade Commission. The views

expressed in this report are those of the staff and do not necessarily represent the views of the

Federal Trade Commission or any individual Commissioner.

Acknowledgments

Pauline Ippolito and Paul Pautler of the Bureau of Economics, Lois Greisman, Bridget Small,

and Evan Zullow of the Bureau of Consumer Protection, and Steve Baker of the Midwest

Regional Office all provided useful assistance in developing the revised survey instrument and

in reviewing drafts of the report. Assistance in developing the survey was also provided by Tim

Amsbary of Synovate, who also directed the administration of the survey. Assistance was also

provided by Dan Hanks of the Bureau of Consumer Protection and Joannie Wei of the Midwest

Regional Office. Able research assistance was provided by Ania Jaroszewicz, Jack Mountjoy,

and Eric Shaeffer of the Bureau of Economics. Jessica Skretch in the Division of Consumer and

Business Education in the Bureau of Consumer Protection handled the final formatting of the

report.

Table of Contents

Executive Summary: Findings from the 2011 Consumer Fraud Survey........................................i

Top Frauds Among Surveyed Frauds ........................................................................................ i

Changes in the Prevalence of Certain Surveyed Categories of Fraud

since 2005............................................................................................................................... iii

How Were the Surveyed Frauds Promoted? .......................................................................... iii

How Were Fraudulent Products Purchased?........................................................................... iii

Characteristics of Fraud Victims.............................................................................................. iii

Introduction......................................................................................................................1

Survey Description.............................................................................................................3

2.1

Survey Design................................................................................................................ 3

2.2

Specific Frauds Included in the Survey.......................................................................... 4

2.3

More General Types of Fraud Included in the Survey................................................. 15

Prevalence of Surveyed Categories of Fraud.....................................................................17

3.1

Overall Rates of Victimization and Number of Incidents............................................. 17

3.2

Specific Surveyed Frauds............................................................................................. 17

3.3

More General Surveyed Frauds................................................................................... 26

3.4

Incidents of Fraud by Product...................................................................................... 27

3.5

Changes in the Prevalence of Certain Surveyed Categories of Fraud since 2005........ 27

Characteristics of Transactions Involving Surveyed Frauds................................................33

4.1

How Were Fraudulent Goods and Services Purchased?.............................................. 33

4.2

How Were Fraudulent Goods and Services Promoted to Victims?............................. 33

4.3

How Much Did Consumers Pay for Fraudulent Offerings?.......................................... 39

4.4

Method of Payment for Fraudulent Offerings............................................................. 42

Basic Demographic Characteristics of Victims of Surveyed Frauds....................................47

5.1

Race and Ethnicity....................................................................................................... 47

5.2

Age .............................................................................................................................. 56

5.3

Education .................................................................................................................... 59

5.4

Other Demographic Characteristics............................................................................. 59

Other Individual Characteristics of Victims.......................................................................63

6.1

General Willingness to Take Risks................................................................................ 63

6.2

Risky Purchasing Practices........................................................................................... 66

6.3

Serious Negative Life Event......................................................................................... 70

6.4

Comfort with Current Level of Debt............................................................................ 70

6.5

Patience....................................................................................................................... 73

6.6

Numeric Skills.............................................................................................................. 78

6.7

Self-Control.................................................................................................................. 81

6.8

Expected Future Income.............................................................................................. 81

Multivariate Analysis of Victim Characteristics ................................................................87

7.1

General Willingness to Take Risks................................................................................ 93

7.2

Risky Purchasing Practices........................................................................................... 94

7.3

Patience....................................................................................................................... 94

7.4

Serious Negative Life Event......................................................................................... 95

7.5

Self-Control.................................................................................................................. 95

7.6

Comfort with Current Level of Debt............................................................................ 96

7.7

Numeric Skills.............................................................................................................. 96

7.8

Expected Future Income.............................................................................................. 97

7.9

Age............................................................................................................................... 97

7.10 Race and Ethnicity....................................................................................................... 98

7.11 Education..................................................................................................................... 99

7.12 Other Characteristics................................................................................................... 99

Conclusion.....................................................................................................................101

Appendix A. Distribution of Responses on

Key Variables................................................................................................. A-1

Appendix B. Methodological Report.................................................................................. B-1

Appendix C.

Analysis of Those Who Refused to Participate and Those Who Did Not

Complete the Survey.......................................................................................C-1

Appendix D. Survey Questionnaire..................................................................................... D-1

List of Tables

Table 1. Types of Fraud Included in the 2011 FTC Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Table 2. Estimated Number of Adults Who Were Victims of Fraud, 2011. . . . . . . . . . . . . . . . . . . . 18

Table 3. Estimated Number of Incidents of Fraud, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Table 4. Estimated Number of Incidents of Fraud by Product or Service Involved, 2011 . . . . . . . 28

Table 5. Prevalence of Fraud Victimization in 2011 and 2005 Surveys, Frauds Included in

Both Surveys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Table 6. How Fraudulent Goods and Services Were Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Table 7. How Victims First Learned About Fraudulent Offers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Table 8. Amount Paid per Incident of Fraud. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Table 9. How Victims Made Payment in Fraudulent Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . .44

Table 10. Fraud Victimization Rates, 2011, Demographic Characteristics . . . . . . . . . . . . . . . . . . . . 49

Table 11. Fraud Victimization Rates, 2011, Selected Racial and Ethnic Groups. . . . . . . . . . . . . . . . 52

Table 12. Groupings of Frauds Used in Analyzing Characteristics of Victims. . . . . . . . . . . . . . . . . . 53

Table 13. Fraud Victimization Rates, 2011, By Age. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Table 14. Fraud Victimization Rates, 2011, By Education. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61

Table 15. Fraud Victimization Rates, 2011, By General Willingness to Take Risks. . . . . . . . . . . . . . 65

Table 16. Fraud Victimization Rates, 2011, By Risky Purchasing Practices. . . . . . . . . . . . . . . . . . . . 69

Table 17. Fraud Victimization Rates, 2011, By Serious Negative Life Event in Last Two Years . . . . 72

Table 18. Fraud Victimization Rates, 2011, By Comfort with Current Debt. . . . . . . . . . . . . . . . . . . 75

Table 19. Fraud Victimization Rates, 2011, By Patience. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Table 20. Fraud Victimization Rates, 2011, By Numeric Skills. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Table 21. Fraud Victimization Rates, 2011, By Self-Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Table 22. Fraud Victimization Rates, 2011, By Expected Future Income . . . . . . . . . . . . . . . . . . . . . 85

Table 23. Fraud Victimization Rates, 2011, Multivariate Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . 88

Table A-1. Distribution of Values for Key Variables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

Table C-1. Analysis of Those Who Refused to Participate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-3

Table C-2. Prevalence of Fraud Victimization, By Difficulty of Reaching Respondents . . . . . . . . . . C-5

Table D-1. Questions in the 2011 FTC Fraud Survey Used to

Define Each Type of Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1

List of Figures

Figure 1. Specific Surveyed Frauds, by Number of Victims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Figure 2. Specific Surveyed Frauds, by Number of Incidents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Figure 3. Fraud Prevalence, Unchanged Frauds, Aggregate Figures, 2005 and 2011 . . . . . . . . . . . 29

Figure 4. Prevalence of Specific Unchanged Frauds, 2005 and 2011. . . . . . . . . . . . . . . . . . . . . . . . 30

Figure 5. How Fraudulent Goods and Services Were Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Figure 6. How Fraudulent Items Were Purchased, 2005 and 2011. . . . . . . . . . . . . . . . . . . . . . . . . . 36

Figure 7. How Fraudulent Offers Were Promoted to Victims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Figure 8. How Fraudulent Offers Were Promoted, 2005 and 2011. . . . . . . . . . . . . . . . . . . . . . . . . . 40

Figure 9. How Victims Made Payment in Fraudulent Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . 43

Figure 10. How Victims Made Payment in Fraudulent Transactions, 2005 and 2011. . . . . . . . . . . 45

Figure 11. Aggregate Likelihood of Being a Victim of Fraud, by Race and Ethnicity . . . . . . . . . . . . 48

Figure 12. Victimization Rates, by Race and Ethnicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Figure 13. Victimization Rates, by Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Figure 14. Victimization Rates, by Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Figure 15. Victimization Rates, by General Willingness to Take Risks. . . . . . . . . . . . . . . . . . . . . . . . 64

Figure 16. Victimization Rates, by Risky Purchasing Practices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

Figure 17. Victimization Rates, by Serious Negative Life Event. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Figure 18. Victimization Rates, by Debt Level. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Figure 19. Victimization Rates, by Patience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Figure 20. Victimization Rates, by Numeric Skills. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Figure 21. Victimization Rates, by Self-Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Figure 22. Victimization Rates, by Expected Future Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Executive Summary

Executive Summary: Findings from the 2011

Consumer Fraud Survey

•• This report discusses the findings of the third survey commissioned by the Federal Trade

Commission to examine consumer experiences involving fraud. This survey, which was

conducted in late 2011 and early 2012, provides insights into the prevalence of certain types of

consumer fraud in 2011 and how the incidence of such frauds has changed since the last survey

in 2005. It also provides information about the mechanisms through which such transactions

occur. Finally, to improve understanding of why certain people are more likely to be victimized

by fraudulent offers and to improve consumer education efforts, the survey also explores the

relationship between certain consumer characteristics, including demographics, and the likelihood

of having been a victim of the surveyed frauds.

•• As in the two earlier FTC fraud surveys, consumers were asked questions designed to learn

whether they had been victims of certain types of fraudulent transactions (See Table 1), rather

than being asked more generally whether the consumer had been a victim of a consumer fraud. In

selecting the frauds to include in the survey, an attempt was made to be as consistent as possible

with the previous surveys – in order to obtain information about trends in these areas – and

to include those frauds that have generated the most fraud complaints in the FTC’s Consumer

Sentinel complaint system or been the subject of concerted FTC enforcement activity in recent

years. Most of the frauds covered by the survey were also included in the 2005 FTC survey.

However, two new areas – mortgage relief fraud and grant fraud – were added to the 2011

survey. 1

•• During 2011, an estimated 10.8 percent of U.S. adults – 25.6 million people – were victims of one

or more of the frauds included in the 2011 FTC Consumer Fraud Survey (Table 2). There were an

estimated total of 37.8 million incidents of these frauds during 2011 (Table 3).2

Top Frauds Among Surveyed Frauds

•• The specific types of fraud most frequently reported by survey participants included fraudulent

weight-loss products, fraudulent prize promotions, being billed for a buyers’ club membership

that one had not agreed to purchase, being billed for Internet services that one had not agreed to

purchase, and fraudulent work-at-home programs.

Fraudulent Weight-Loss Products

•• More consumers were victims of fraudulent weight-loss products than of any of the other frauds

covered by the 2011 survey. An estimated 2.1 percent of consumers – 5.1 million U.S. adults –

purchased and used such fraudulent weight-loss products during 2011 (Table 2 and Figure 1).

There were an estimated 7.6 million incidents of weight-loss fraud during the year (Table 3 and

Figure 2).

The 2011 survey consisted of interviews with 3,638 U.S. adults at least 18 years of age. Interviews were conducted via telephone –

both cell and landline – and in both English and Spanish.

The number of incidents of fraud is greater than the number of victims, because some consumers were victims of more than one of the

frauds covered by the survey and because some consumers experienced a particular type of fraud more than once during 2011.

Consumer Fraud in the United States

•• For purposes of this report, weight-loss products are considered to be fraudulent if they were

promoted as enabling consumers who used the product to easily lose a substantial amount of

weight or to lose the weight without diet or exercise. However, when consumers purchased and

used the product, they lost less than half of the weight they had expected to lose, if they lost any

weight at all. Weight-loss products were considered to include nonprescription drugs, dietary

supplements, skin patches, creams, wraps, or earrings.

Fraudulent Prize Promotions

•• The second most common type of fraud among those covered by the survey was fraudulent prize

promotions. An estimated 2.4 million U.S. adults – 1.0 percent of the population – were victims

of fraudulent prize promotions during 2011 (Table 2 and Figure 1). There were an estimated 2.9

million incidents of prize promotion fraud during 2011 (Table 3 and Figure 2).

•• In this study, a prize promotion was considered to be fraudulent if consumers were told that they

had to make a payment, purchase a product, or attend a sales presentation in order to receive

a prize or other award. However, after making the purchase or payment or attending the sales

presentation, the promised prize was not received or the prize was not what was promised.

Unauthorized Billing for Buyers’ Club Memberships and Internet Services

•• Tied for third place were two types of unauthorized billing fraud, situations in which consumers

received and paid bills for two types of services they had not agreed to purchase.

•• The first of these involved consumers being billed without their permission for memberships in

buyers’ clubs. A buyers’ club is designed to permit consumers to purchase products at a lower

price than is generally available.

•• The second involved consumers being billed by a company with which they had not previously

done business, and with which they had not agreed to do business, for Internet-related services

such as Internet access or website hosting or development.

•• There were an estimated 1.9 million victims – 0.8 percent of the U.S. adult population – of

unauthorized billing for buyers’ clubs memberships and, also, 1.9 million victims of unauthorized

billing for Internet services during 2011 (Table 2 and Figure 1).

Fraudulent Work-at-Home Programs

•• Fraudulent work-at-home programs – programs where purchasers paid for a program that was

promoted as enabling consumers to earn money by working at home and where purchasers did not

earn at least half of the amount they were told they would earn – ranked fifth among the specific

frauds included in the survey, with an estimated 1.8 million victims – 0.7 percent of the adult

population (Table 2 and Figure 1).

•• Victims of fraudulent work-at-home programs were more likely to have purchased more than one

such program during the year than were victims of most of the other frauds included in the survey.

As a result, fraudulent work-at-home programs ranked third, behind fraudulent weight-loss

products and fraudulent prize promotions, in terms of the number of incidents during 2011. There

were an estimated 2.8 million incidents of this type of fraud (Table 3 and Figure 2).

Executive Summary

Changes in the Prevalence of Certain Surveyed Categories of Fraud

since 2005

•• For 12 of the 17 frauds included in the 2011 survey, the questions in the survey were essentially

unchanged from the FTC’s 2005 fraud survey.

•• Comparing the percentage of consumers who were victims of these 12 types of fraud in 2011 with

the percentage in 2005 shows that the prevalence of these frauds in 2011 was slightly lower than

in 2005 (9.2 percent versus 10.7 percent, Table 5 and Figure 3).

How Were the Surveyed Frauds Promoted?

•• The Internet was the most common way victims first learned about offers that turned out to be

fraudulent. The Internet was the source of information in almost one-third of instances (Table 7

and Figure 7). The Internet has increased from being the source of information in just over 20

percent to just under 33 percent of incidents (Figure 8).

•• Print media – direct mail solicitations, newspaper or magazine advertisements, and posters or

flyers – were the second-most frequent source of information about offers that turned out to be

fraudulent, accounting for almost 20 percent of incidents (Table 7 and Figure 7). This was a

decline of about 8 percentage points since 2005 (Figure 8).

•• Telemarketing was the source of information in just under 10 percent of incidents, a figure that

was essentially unchanged since the 2005 survey (Table 7, Figures 7 and 8).

How Were Fraudulent Products Purchased?

•• Orders were placed using the Internet in almost 40 percent of fraudulent incidents in 2011 (Table

6 and Figure 5). This was an increase of 20 percentage points since the 2005 survey when roughly

20 percent of frauds were ordered via the Internet (Figure 6).

•• Orders were placed by telephone in another 30 percent of incidents (Table 6 and Figure 5). This

figure was largely unchanged from the results of the 2005 survey (Figure 6).

•• The percentage of orders placed by mail decreased from just over 20 percent to 12 percent, while

the proportion of orders that were placed at the sellers’ place of business fell from around 16

percent to 12 percent (Table 6, Figures 5 and 6).

•• Credit cards were used as the method of payment in over half – 56 percent – of all fraudulent

transactions (Table 9 and Figure 9). In another 15 percent of incidents, consumers paid for a

fraudulent product or service directly from their checking account. These include cases where the

seller obtained the money by using the consumer’s debit card or card number and cases in which

the seller took the money directly from the account after obtaining the account number, as well as

cases where the consumer wrote a check to the seller.

Characteristics of Fraud Victims

•• In addition to examining the prevalence of certain types of fraud in the United States and

the mechanisms through which such fraudulent transactions occurred, the survey also asked

participants about various personal characteristics that may be related to the likelihood of having

iii

Consumer Fraud in the United States

been a victim. The results of this analysis contribute the understanding of why certain people

are more likely than others to be victimized by fraudulent offers. They should also help improve

consumer education efforts.

Risk Takers Were More Likely to Be Victims of Fraud

•• The relationship between risk taking and the likelihood of having been victimized by a fraudulent

offering was examined using two measures of consumers’ willingness to take risks. The more

general measure was based on survey participants’ self-reported willingness to take risks, while

the other looked at whether consumers had engaged in Risky Purchasing Practices. Using either

measure, those who were more willing to take risks were found to be at greater risk of being

victimized.3

•• Looking at the more general measure, those who reported a high general willingness to take

risks were more than twice as likely to have been victimized as were those who reported a low

willingness. Among those who had a high willingness, the prevalence of victimization was 15.8

percent, compared to 7.5 percent of those with a low willingness (Table 15 and Figure 15).

• Those who reported a high willingness to take risks were over six times as likely to have

been victims of Income-Related Fraud as those whose willingness was low. They were also

three times as likely to have been victims of fraudulent prize promotions.

•• The second measure – “Risky Purchasing Practices” – looked at consumers’ willingness to

take risks in terms of the settings in which they were willing to make purchases. Some types of

purchases may be riskier than others because consumers have more limited information about the

seller and the product.

• To serve as a proxy for the willingness to take risks in this context, a consumer was

considered to have engaged in Risky Purchasing Practices if (i) the consumer purchased a

product or service as a result of a telemarketing call, after seeing a television advertisement

or infomercial, or after receiving an unsolicited commercial (“SPAM”) email, (ii) the

purchase was from a company with whom the consumer had not previously done business,

and (iii) the consumer did not make the purchase at a store or the seller’s place of business,

but rather purchased the item via the Internet or by telephone.

•• Almost one-quarter of those who engaged in Risky Purchasing Practices as defined were victims

of one or more of the included frauds (Table 16 and Figure 16). This is almost three times the rate

of those who did not meet the definition (24.8 percent v. 8.5 percent). The likelihood that those

who engaged in Risky Purchasing Practices were victims was higher than the likelihood for any

other group of consumers considered in this report.

• Those who met the definition of Risky Purchasing Practices were more than four times as

likely to have been victims of fraudulent weight-loss products. They were almost four times

as likely to have been victims of fraudulent prize promotions.

Two different methodologies were used in examining how differences in the various characteristics are correlated with the likelihood

of having experienced various frauds. The first, which forms the basis of the results reported in Chapters 5 and 6, relies on simple

cross-tabulations of the characteristic being considered and whether a person reported being a victim. As such, any effects of other

characteristics on the reported relationship are not considered. The second approach, which is used in Chapter 7, includes all of the

characteristics in a joint multivariate analysis. As such, the results show how a change in a single characteristic is correlated with the

likelihood of having been a victim of fraud after controlling for everything else. Unless otherwise noted, the results reported in this

summary are taken from the cross-tabulation results.

Executive Summary

Those Who Experienced a Serious Negative Life Event Were More Likely to Be Victims

•• Survey participants who had experienced a serious negative life event in the last two years –

events such as a divorce, the death of a family member or close friend, a serious injury or illness

in their family, or the loss of a job – were more than two-and-a-half times as likely to have

experienced fraud as were those who had not suffered such a negative event (Table 17 and Figure

17). Of those who had experienced a serious negative event, 15.8 percent had been a victim of one

or more of the surveyed frauds during 2011. For those who had not experienced a negative life

event, only 6.1 percent had been a victim.

• Those who had experienced a serious negative life event were 3.75 times as likely to have

been a victim of Debt-Related Fraud as were those who had not experienced a negative

event.

• Those who had experienced a serious negative life event were more than three times as likely

to have been a victim of a fraudulent prize promotion.

More Patient Consumers Experienced Less Fraud

•• Victimization rates were lower among those who self-reported themselves as more patient. The

differences across categories, however, were relatively small: 12.1 percent for those with low

patience, 9.7 percent for those with high patience in the simple cross-tabulations (Table 19 and

Figure 19).

•• After controlling for other characteristics, patience was more important and more significant.

In the multivariate analysis, those who reported being highly patient were 7.0 percentage points

less likely to have been a victim of one or more of the frauds in the survey than those with low

patience (Table 23). Those reporting medium patience were 3.8 percentage points less likely to

have been victims than those with low patience.

• Those with low patience were 2.6 percentage points more likely to have purchased and used

a fraudulent weight-loss product and 2.6 percentage points more likely to have been a victim

of Debt-Related Fraud than those who had high patience.

Those with Limited Numeric Skills Were More Likely to Be Victims

•• Those with the lowest numeric skills were at least 50 percent more likely to have been victims

of the frauds covered by the survey than were those with greater numeric skills: 13.5 percent of

those with the lowest numeric skills were victims, compared to 8.4 percent of those whose skills

were rated high and 9.0 percent of those rated highest (Table 20 and Figure 20).

• Those with the lowest numeric skills were particularly susceptible to prize promotion frauds.

While overall 1.0 percent of survey participants were victims of prize promotion frauds, 2.1

percent of those in the lowest scoring group were victims. For those whose skills were rated

as high or highest, the rates were 0.2 percent and 0.8 percent respectively.

Consumers with More Debt than They Could Handle Financially Were More Likely to Be

Victims of Surveyed Frauds

•• In the simple cross-tabulation analysis, those who indicated that they had more personal debt

than they could handle financially were significantly more likely to have been a victim than those

with less debt. Of those who felt that their debt was more than they could handle financially, 18.8

percent were victims. This is almost twice the rate of 9.6 percent for those who felt that they could

Consumer Fraud in the United States

handle more debt and more than twice the 8.3 percent for those who indicated that they did not

have any personal debt (Table 18 and Figure 18).

•• However, after controlling for other characteristics, the differences across debt levels were smaller

and no longer statistically significant (Table 23).

African Americans Experienced More of the Frauds Covered by the Survey

•• African Americans were almost twice as likely to have experienced one or more of the surveyed

frauds as were non-Hispanic whites (Table 10a and Figure 11). During 2011, 17.3 percent of

African Americans were victims, compared to 9.0 percent for non-Hispanic whites.

• African Americans were more than three times as likely to have been a victim of DebtRelated Fraud (4.4 percent of African Americans were victims of Debt-Related Fraud,

compared to 1.3 percent for non-Hispanic whites, Table 11 and Figure 12).

• African Americans were also 2.75 times as likely to have been a victim of Income-Related

Fraud.

•• After controlling for other characteristics, African Americans were still estimated to be more

likely than non-Hispanic whites to have been victims of fraud. However, the estimated differences

were considerably smaller (3.9 percentage points for having been a victim of any included fraud

compared to 8.3 percentage points in the simple cross-tabulation analysis) and the differences

were not statistically significant (Table 23).

Hispanics Experienced More of the Frauds Covered by the Survey

•• Hispanics were also more likely than non-Hispanic whites to have been victims of the surveyed

frauds. During 2011, 13.4 percent of Hispanics were victims – almost 50 percent higher than the

rate for non-Hispanic whites (Table 10a and Figure 11).

•• Hispanics were more likely to have been a victim of each of the groupings of fraud included in

Table 11 and Figure 12. The differences were greatest for Debt-Related Fraud, where Hispanics

were more than 2.5 times as likely to have been a victim as non-Hispanic whites and fraudulent

weight-loss products where they were almost 60 percent more likely to be victims.

•• The difference between Hispanics and non-Hispanic whites in the likelihood of being a victim

was slightly greater after controlling for the effect of other characteristics. Other things being

equal, Hispanics were 5.4 percentage points more likely to have been a victim of one or more of

the frauds included in the survey during 2011. In contrast, when looking just at race and ethnicity,

the difference was 4.4 percentage points (Table 23 and Table 11).

•• Among the approximately one quarter of Hispanic participants in the survey who were not

comfortable doing business in English, the probability of being a victim was 9.2 percent. For the

quarter of Hispanics who only did business in English, 10.2 percent were victims. On the other

hand, among the half of Hispanic participants who said that they would be comfortable doing

a business transaction in English, but also indicated that they sometimes used Spanish in such

situations, the probability of being a victim was 17.0 percent.

• In addition, in almost all cases where someone who said that they were not comfortable

doing business in English was a victim, they indicated that the fraudulent transaction was

presented to them in Spanish.

Executive Summary

Age and Fraud

•• Those between 55 and 74 had the greatest chance of being victims of fraudulent prize promotions:

2.8 percent of those between 65 and 74 were victims of fraudulent prize promotions as were 1.8

percent of those between 55 and 64 (Table 13 and Figure 13).

•• More generally, consumers age 55 and older were less likely to have been victims than those

between the ages of 45 and 54. The rate of victimization for any fraud included in the survey was

14.3 percent for those between 45 and 54. It was more than one-third lower (9.1 percent) for those

between 55 and 64. The rate for those 65 to 75 (7.3 percent) was just over half the 45 to 54 rate,

and for those 75 and older the rate was 6.5 percent.

•• Consumers under the age of 45 were somewhat less likely to have been victims than those

between 45 and 54. However, they were more likely to have been victims than those ages 55 and

above.

vii

Introduction

1. Introduction

This report discusses the findings of the third survey commissioned by the Federal Trade Commission

to examine consumer experiences involving fraud.4 This survey, which was conducted in late 2011 and

early 2012, provides insights into the prevalence of certain types of consumer fraud in 2011 and how

the incidence of such frauds has changed since the last survey in 2005. It also provides information

about the mechanisms through which such transactions occur. Finally, to improve understanding of why

certain people are more likely to be victimized by fraudulent offers and to improve consumer education

efforts, the survey also explores the relationship between certain consumer characteristics, including

demographics, and the likelihood of having been a victim of the surveyed frauds.

The next chapter briefly discusses the approach used in the survey and the types of frauds included in the

survey. Chapter 3 provides the basic results of the survey. What percentage of consumers were victims?

Which types of fraud were experienced the most often? In Chapter 4, the mechanisms involved in the

transactions that involved fraudulent products or services are explored. How did consumers first learn

about offers that turned out to be fraudulent? How did they place orders for fraudulent items?

Chapters 5, 6, and 7 examine how the likelihood of being a victim of fraud varied with consumer

characteristics. In Chapter 5, the relationship between consumer demographics and the likelihood of

being a victim is explored. Chapter 6 considers the role of certain other individual characteristics –

including the willingness to take risks, whether consumers had experienced a serious negative life event,

whether they felt like they had too much debt, and how they thought their income would change in the

next few years. Finally, Chapter 7 reports the results of an analysis that looks at the impact of all of these

characteristics – both demographic characteristics and the other individual characteristics – at the same

time.

The first FTC fraud survey was conducted between May 20 and June 3, 2003. The findings from that survey are reported in

Keith B. Anderson, Consumer Fraud in the United States: An FTC Survey, published in August 2004. Interviews for the second

survey were conducted between November 16 and December 20, 2005, and the results are found in Keith B. Anderson, Consumer

Fraud in the United States: The Second FTC Survey, which was published in October 2007. (These reports can be found at

http://www.ftc.gov/reports/consumerfraud/040805confraudrpt.pdf and http://www.ftc.gov/opa/2007/10/fraud.pdf, respectively.)

Consumer Fraud in the United States

Survey Description

2. Survey Description

This chapter provides an overview of the 2011 Consumer Fraud Survey commissioned by the Federal

Trade Commission, including the design of the survey and the types of fraud that were included.

2.1 Survey Design

Interviews for the 2011 FTC Consumer Fraud Survey were conducted between November 28, 2011,

and February 5, 2012.5 The survey was conducted by telephone by Synovate, a commercial survey

research firm. Interviews were conducted in both English and Spanish using computer-assisted telephone

interviewing (“CATI”) and random digit dialing. A total of 3,638 interviews were completed with U.S.

adults who were at least 18 years of age.6 Because of the increasing importance of cell phones, both cell

and landline phone numbers were included in the sample. Interviews were conducted with consumers in

all 50 states and the District of Columbia. As is standard practice in such surveys, weights were applied

to the survey data to ensure that the overall results are as representative as possible of the national

population.

As in the two earlier FTC fraud surveys, consumers were asked if they had particular experiences

rather than asking more generally whether the consumer had been a victim of a consumer fraud. A

problem with asking whether the consumer has been the victim of a consumer fraud in an open-ended

manner is that each survey participant is left to define what is, and what is not, a fraud. This will lead to

inconsistencies in the survey responses, a problem that is avoided by asking about specific event patterns

and applying clearly articulated standards to determine whether a particular set of responses is taken to

represent a fraud or not. Inconsistencies are further reduced because the survey questions never use the

term fraud.

As part of the first FTC fraud survey in 2003, participants were asked generally if they felt that they

had been the subject of a consumer fraud and then were also asked about specific experiences. The

analysis of these responses showed that many consumers who reported having experienced one of the

specifically-defined frauds said that they had not experienced a consumer fraud when asked the more

general question. In addition, many of the consumers who said that they had been the subject of a

consumer fraud described something other than the problems included in the specific questions.7

Interviewing was suspended for a few days around Christmas and New Years.

The sampling procedures were designed to over-sample members of certain minority groups.

A total of 51,192 working telephone numbers were called while conducting the survey. If a call to a particular telephone number did

not result in contact with a consumer – e.g., if no one answered the call – the number was redialed, up to at least seven attempts, in

order to increase the chances of finding a potential participant at that number. The response rate for the survey was 14 percent using

Response Rate 3 as defined by the American Association for Public Opinion Research. (See The American Association for Public

Opinion Research, Standard Definitions: Final Dispositions of Case Codes and Outcome Rates for Surveys, 7th Edition, AAPOR,

2011.)

See “2011 Consumer Fraud Survey Methodology Report,” prepared by Synovate and included as Appendix B for more details on the

procedures used in constructing the sample for this survey.

See Anderson (2004), supra n.1, pp. 41-48, for additional details about this analysis.

Consumer Fraud in the United States

2.2 Specific Frauds Included in the Survey

The 2011 FTC fraud survey asked questions designed to learn whether consumers had been the

victim of 17 types of fraud. In selecting the frauds to include in the survey, an attempt was made to

be as consistent as possible with the previous surveys – in order to obtain information about trends in

these areas – and to include those frauds that have generated the most fraud complaints in the FTC’s

Consumer Sentinel complaint system or been the subject of concerted FTC enforcement activity in

recent years.8

Most of the frauds covered by the survey were included in the 2005 FTC survey. Two new areas –

mortgage relief fraud and grant fraud – were added to the current survey.9 Fifteen of the frauds in

the survey are specific types of fraud, such as purchasing a weight-loss product that did not perform

as expected or a work-at-home program that did not generate the level of income promised by the

promoter. The other two types of fraud are a bit more general in nature –whether the consumer paid for a

product but never received it and whether the consumer had been billed for a product that he or she had

not agreed to purchase, other than those covered by the specific frauds.

Table 1 identifies each of the frauds included in the 2011 fraud survey, indicates whether it was included

in the 2005 survey, and if so, whether significant changes were made to the questions in the 2011 survey.

The questionnaire used in the 2011 survey is included as Appendix D of this report and Appendix Table

D-1 identifies the particular questions used to identify each fraud.

Fraudulent Weight-Loss Products

For purposes of this research, fraudulent weight-loss products are defined as products such as

nonprescription drugs, dietary supplements, skin patches, creams, wraps, or earrings that were promoted

as making it easy for consumers to lose a substantial amount of weight or allowing them to lose weight

without diet or exercise, but which did not deliver as promised.10 The Federal Trade Commission has

brought numerous cases against sellers of these products.11

In order to learn about consumer purchases of such weight-loss products, the survey asked consumers

whether they had paid anyone for such a product where the seller suggested or implied that using the

product would help the consumer lose a substantial amount of weight (Question 44a). Consumers who

indicated that they had made such a purchase were then asked whether the seller had suggested that

“this product would make it easy to lose weight” and whether the seller had suggested that “by using

this product you could lose weight without exercise and/or without reducing the amount you eat”

(Questions 44c and 44d). Consumers who indicated that they had purchased products for which either

The categories included in the first fraud survey commissioned by the Commission were based on a review of the categories in

Consumer Sentinel, the Commission’s consumer complaint database, that were receiving the most complaints. Some additional

categories have been added in each of the subsequent surveys to cover areas in which there was considerable Commission law

enforcement activity.

As discussed in Section 3.5 below, the questions covering three of the frauds included in both surveys were revised to, hopefully,

better measure the desired experiences. One fraud that was included in the 2005 survey – Unauthorized Billing for Information

Services – was deleted from the current survey.

Exercise equipment would not, therefore, be included in this definition of fraudulent weight-loss products, for instance.

See, e.g., FTC v. Leanspa, LLC, No. 11-01715 (D. Conn. filed Nov. 2011); FTC v. Central Coast Nutraceuticals, Inc., No. 10-4931

(N.D. Ill. filed Aug. 2010); FTC v. Romeo, No. 09-1262 (D.N.J. filed Mar. 2009); FTC v. Medlab, Inc., No. 08-0822 (N.D. Cal. filed

Feb. 2008).

Survey Description

Table 1. Types of Fraud Included in the 2011 FTC Fraud

Description

Was This

Fraud Included

in the

2005 Survey?a

Weight-Loss Products

Purchased a weight-loss product that was promoted as making it easy to lose

weight or to lose weight without diet or exercise. Only lost a little of the weight

anticipated or lost no weight.

Yes

Prize Promotions

Paid money, made a purchase, or attended a sales presentation to receive a

promised prize or lottery winnings. Did not receive the prize or winnings or the

prize was not as promised.

Yes – Questions

changed in 2011

Unauthorized Billing –

Buyers’ Clubs

Billed for a buyers’ club membership consumer had not agreed to purchase.

Yes

Unauthorized Billing –

Internet Services

Billed for Internet services consumer had not agreed to purchase.

Yes

Work-at-Home Programs

Purchased a work-at-home program. Did not earn at least one-half of the promised

level of earnings.

Yes

Credit Repair

Paid someone who promised to remove negative, but accurate, information from

credit report or promised to provide information on how to establish a new credit

record that would not contain negative information in current credit report.

Yes

Debt Relief

Paid someone who promised to arrange to pay off credit card debts for less than

the amount owed or to arrange a lower interest rate on current credit card debt

and then failed to provide the promised services or obtain the promised results.

Yes – Questions

changed in 2011

Credit Card Insurance

Purchased insurance against the misuse of a lost or stolen credit card.

Yes

Business Opportunities

Purchased a business opportunity. Did not earn at least half as much as promised

or did not receive promised assistance.

Yes

Mortgage Relief

Made an advance payment to someone other than the company that holds or

services the mortgage to obtain a mortgage modification. The modification was

either not received or the terms offered were significantly worse than what had

been promised.

Advance Fee Loans

Paid an advance fee to obtain a promised or guaranteed loan or credit card.

Promised credit was not received.

Yes

Pyramid Schemes

Purchased a membership in a pyramid scheme. Did not earn at least half of the

amount the promoter promised would be earned.

Yes

Government Job Offers

Made a payment to someone who falsely represented that the purchaser would

receive a government job.

Yes

Counterfeit Checks

Received a check and sent some of the money back to the sender or to someone

else. Later learned that the check was counterfeit.

Grants

Paid someone who promised to obtain a grant either from the government or from

someone else. No grant was received.

Fraud

Specific Surveyed Frauds

More General Surveyed Frauds

Paid for Something

Never Received

Paid for a product that was not received.

Yes

Unauthorized Billing –

Other Products

Billed for a product or service consumer had not agreed to purchase, products

other than those identified above.

Yes

Source: 2011 FTC Fraud Survey

Note.

a. In addition to the significant changes to the wording of the questions about prize promotions and debt relief services, the questions

seeking information about payments made were changed for all of the frauds included in the 2011 survey. In addition, minor

wording changes were made to clarify some questions.

Consumer Fraud in the United States

of these claims had been made were also asked how much weight they had lost while using the product

relative to the weight they had expected to lose (Question 44e). For purposes of this study, and in order

to provide a conservative estimate of the extent of this type of problem, only those who indicated either

that they lost only a little of the weight they expected to lose or that they did not lose any weight were

counted as victims of weight-loss fraud.12

Fraudulent Prize Promotions

In a fraudulent prize promotion, sellers tell consumers that they have won a prize – or that they have

won one of four or five possible prizes – but that they must buy a product or make some other payment

before they can receive their prize. Even when the seller does not directly tell consumers that they must

make a purchase, consumers may be misled into believing that they are more likely to win the prize if

they make a purchase. Alternatively, consumers may be told that they have to attend a sales presentation

to receive the promised prize. The survey sought to determine the extent to which promised prizes are

not delivered or are not as represented by the promoter.13

In seeking to learn about prize promotion frauds, the survey first asked survey participants whether they

had been told that they had “won a prize or a lottery or had been selected to receive an award such as

money, a free vacation, or other product or service” (Question 39). Those who answered this question in

the affirmative were then asked whether they had been told that they needed to make a purchase, make a

payment, or attend a sales presentation in order to receive the item and whether they had, in fact, made

the purchase or payment or attended the sales presentation (Questions 39a.1 and 39a.2). Those who

had done so were then asked whether they had received the prize, and if so, whether it was essentially

what had been described to them (Questions 39a.4 and 39a.5). Finally, those who had not received the

promised prize or who found the actual item not to be what they had been promised and who had made a

payment or purchase were asked how much money they had actually paid (Questions 39a.7 and 39a.11).

Consumers were only considered to be victims if they had not received the promised prize or the prize

was not what they had been promised, and if they had actually paid money or had attended a sales

presentation.

Unauthorized Billing for Membership in a Buyers’ Club

The survey also examined the practice of billing consumers without their consent for memberships in a

buyers’ club. A buyers’ club is designed to permit consumers to purchase products at a lower price than

is generally available.

Consumers who purchased a weight-loss product but did not use it were not considered to be victims of weight-loss fraud for purposes

of this survey. As with a number of the other frauds, calculations were also made using alternative definitions of what amounted to

a fraud. For example, alternative calculations of the number of victims of the sale of fraudulent weight-loss products were made

assuming that those who did not use the product were also victims. A second alternative involved only treating a product as potentially

fraudulent if the seller represented that weight could be lost without diet or exercise, but not if the product was represented as making

it easy to lose weight. The results of these alternative calculations are provided in footnotes to the tables of results.

Prize promotions are regulated by a variety state and federal laws. See e.g., Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(2)(iv)-(v).

A prize promotion could be unlawful even if the promised prize is awarded. For the purposes of this survey, however, instances where

a consumer received the prize that was promised are not counted as fraudulent. This is again an effort to ensure that the estimates are

conservative given the limitations of the survey data.

Cases the Commission has brought in this area include FTC v. National Awards Service Advisory, LLC, No. 10-5418 (N.D. Cal. filed

Nov. 2010); FTC v. VGC Corporation of America, No. 11-21757 (S.D. Fla. filed May 2011); FTC v. National Prize Information Group

Corp., No. 06-1305 (D. Nev. filed Oct. 2006).

Survey Description

The Commission has taken action against the deceptive marketing of buyers’ clubs.14 In recent years,

for example, sellers have offered a membership in a buyers’ club as an add-on or “upsale item” at the

end of a telemarketing sale. Having completed the sale that ostensibly was the reason for the call, the

telemarketer then offers the consumer a free trial membership in a buyers’ club as a “thank you.”

Sometimes the membership is offered as a negative option, whereby the credit card that the consumer

used to make the initial purchase is automatically charged for the price of the membership unless the

consumer cancels the membership by the end of the free trial period. If the seller does not make the

negative option clear, however, consumers may agree to accept the free trial offer believing that the

membership will not continue beyond the free trial period unless the consumer affirmatively takes steps

to continue the membership.15 Consequently, consumers are charged for the membership without their

authorization.16

Buyers’ clubs were just one of several problems involving unauthorized billing that were covered by

the survey.17 This section of the survey began with a general question about whether, in the last year,

participants had “been billed for a product or service which [they] did not agree to purchase or were

... billed for an amount that was substantially more than [they] expected to pay.”18 Participants who

answered in the affirmative were then asked a series of questions designed to learn more about the

products or services involved. In the case of buyers’ club memberships, the survey asked whether

participants had been billed for “a membership in a club that the seller told [them] would allow [them]

to purchase something for a lower price than is generally available” but that they had not agreed to

purchase (Question 21.1).

When dealing with unauthorized billing, sometimes consumers may be billed for a product they did not

order as a result of an honest mistake by a legitimate business. Such mistakes should not be counted

as frauds. The survey, therefore, asked participants who indicated that they had experienced a billingrelated problem whether they had sought a refund from the seller. When a refund had been sought, the

survey then asked whether the seller provided a refund or other adjustment that the purchaser found

See, e.g., FTC v. FTN Promotions, Inc., No. 07-1279 (M.D. Fla. filed July 2007); FTC v. Universal Premium Services, No. 06-849

(C.D. Cal. filed Feb. 14, 2006); FTC v. Wellquest Int’l, No. 03-5002 (C.D. Cal filed July 2003).

Indeed, consumers may only be informed about the negative option in introductory membership information that is mailed to them

after they have agreed to accept the free trial membership. This information is often sent by third-class bulk mail and many consumers

do not open the mail because it appears to be unsolicited promotional materials.

The Commission addressed this problem in the amendments to its Telemarketing Sales Rule (“TSR”) that became effective March

31, 2003. Under the revised TSR, sellers are prohibited from using a consumer’s credit card account that the seller had previously

obtained to charge for a membership that automatically converts from a free trial unless the consumer repeats at least part of the

account number to the seller and gives his or her express agreement to be billed for the membership. (See 16 CFR 310.4(a)(6)(i).)

The Commission has filed a number of cases concerning negative option fraud occurring in contexts other than buyers’ clubs. See,

e.g., FTC v. Johnson, No. 10-2203 (D. Nev. filed Dec. 2010) (concerning “free” trial memberships for government grant and moneymaking programs); FTC v. Wilms, No. 11-00828 (W.D. Wash. filed May 2011), (concerning “free” trial memberships in a variety of

health, cosmetic, and money-making programs).

Question 18.1. The question noted that this situation could arise where the consumer had agreed to accept a free trial of the product or

service and had been subsequently billed even though the consumer had not approved the continuation of the service beyond the free

trial period.

Consumer Fraud in the United States

acceptable.19 Survey participants who answered in the affirmative were not considered to be victims of a

fraud in most instances, because they did not suffer any monetary harm as a result of the billing error.20

Unauthorized Billing for Internet-Related Services

The survey also examined unauthorized billing involving the provision of Internet-related services by

entities with which the consumer had not previously done business. In particular, the survey inquired

about whether consumers had been billed for services such as Internet access or website hosting or

development (Questions 19.1 and 19a).

This problem is illustrated by a couple of cases brought by the Commission. In INC21.com, the

Commission alleged that defendants were offering services such as website design services, website

hosting, Internet directory listings, search-engine advertising, and Internet-based faxing. The

Commission alleged that in some cases, victims were told that they would receive a free trial period,

but were not told that they would be charged if they did not cancel the service during the free trial

period. In other cases, consumers were charged even after declining to accept defendants’ offer. In still

other instances, the Commission alleged that consumers were charged without ever being contacted by

defendants.21 Similar allegations were made in a case against Websource Media.22

Questions 26 and 27. These two questions were asked about any of the unauthorized billing problems.

Some consumers who obtained refunds may, in fact, have been defrauded. In some cases, for example, fraudulent operators may

provide refunds to consumers who complain – particularly if the consumer complains to a Better Business Bureau or a legal authority.

In this way, the fraudulent operator can appear responsive to consumer complaints and therefore avoid attracting the attention of

law enforcement, while continuing to profit from consumers who are less aggressive. Moreover, consumers who obtain refunds

nonetheless experience some injury because they must spend time and effort to obtain the refund or other adjustment. The estimates

provided here are, therefore, conservative.

Participants who did not ask for a refund are somewhat harder to categorize. Some who failed to seek a refund probably did fall victim

to fraud and would not have obtained a refund if they had asked for one. Others were likely dealing with legitimate firms and would

have received one – and thus should not be considered victims of fraud. To address this issue, it has been assumed that, had they

asked, the same fraction would have received a refund as is observed for those who did ask.

The decision to treat consumers who received refunds, and those who probably would have received a refund if they had asked, as

not having been defrauded results in a conservative estimate of the number of victims of fraud. It may also initially seem to be at odds

with some of the cases brought by the Commission. However, the analysis used in a study such as this cannot be applied to the FTC’s

fraud cases or vice versa. For example, the FTC has sued a number of companies that operate high-volume, low-dollar fraudulent

credit card billing schemes that charge consumers’ credit card accounts without their authorization. See, e.g., FTC v. J.K. Publications,

Inc., 99 F. Supp. 2d 1176, 1201 (C.D. Cal. 2000). In such cases, the FTC frequently argues that most or even all of the transactions

are fraudulent. After a trial, the court in J.K. Publications found that more than 90 percent of the transactions were demonstrably

fraudulent. Even so, only about 15 percent of the more than $40 million billed to consumers was credited or refunded to victims

before the FTC brought its case. Applying the standard used in this study to the facts in that case would have yielded a result whereby

consumers who received refunds – and even some who did not – would have been excluded from the pool of victims, when in reality

virtually all of the transactions associated with the defendants were fraudulent. Applying the analysis from such cases to this study,

however, would lead to an equally erroneous result. In the context of a randomized telephone study, we have very limited information

about the nature of the businesses with whom the consumers were interacting.

FTC v. INC21.com Corp., No. 10-0022 (N.D. Cal. filed Jan. 2010). See also, “FTC Halts Massive Cramming Operation that

Illegally Billed Thousands; Alleges Scam Took in $19 Million over Five Years,” FTC Press Release March 1, 2010, available at

http://www.ftc.gov/opa/2010/03/inc21.shtm. In some cases, defendants would contact consumers and offer a free 15 day trial period.

In other cases, they simply crammed charges on consumers’ telephone bills, either without any contact with the consumer or after a

call in which defendants’ telemarketers represented that they were only verifying an address.

FTC v. Websource Media, L.L.C., No. 06-1980 (S.D. Tex. filed June 2006).

Survey Description

Fraudulent Work-at-Home Programs

Consumers are often interested in work that they can perform at home. Unfortunately, offers of such

work often promise greater earnings than consumers can actually earn – such as promising large

payments to consumers who agree to stuff envelopes or construct craft items. Such fraudulent offers

often require consumers to make payments to obtain the materials needed to perform the task.23

In seeking to learn more about this type of fraud, survey participants were asked whether they had paid

anyone “who promised to provide you with work that you could do at home,” and if so, whether the

seller had led consumers to believe that they would earn a certain amount of money (Questions 31a.1

and 37a). Where sellers had made earnings representations, purchasers were asked how the money they

made from the work-at-home program compared to what they had been led to expect (Question 37b).

Again, in an attempt to develop conservative estimates of the extent of the problem, only consumers

who had purchased such programs and indicated that they had earned less than half of what they been

led to expect or had not earned any money were considered to be victims of work-at-home fraud.24

Debt Relief

As used in this survey, debt relief fraud can take two forms. Perpetrators may suggest that they can get a

consumer’s creditors to settle outstanding debts for a fraction of the amount owed and then fail to obtain

the promised results. Alternatively, there may be a promise of a reduced interest rate on an existing

credit card. Again, the promised rate reduction is not provided. The Commission has brought numerous

cases alleging these kinds of misrepresentations in recent years.25 In mid-2010, the Commission

amended its Telemarketing Sales Rule to address many of the abuses that were arising in this area.26

In order to learn whether consumers had experienced these types of problems, the survey first asked

whether participants had paid money to anyone who promised to reduce or eliminate their credit card

debts or to get the interest rate or monthly payments on their credit card debts reduced (Questions

16a.1.a, 16a.1.b, and 16a.3). Those who indicated that they had paid someone to get the interest rate on

their credit card reduced were then asked to compare the results obtained with what had been promised

FTC cases involving sellers of work-at-home programs include FTC v. Darling Angel Pin Creations, Inc., No. 10-335

(M.D. Fla. filed Feb. 2010); FTC v. Real Wealth Inc., No. 10-0060 (W.D. Mo. filed Jan. 2010); FTC v. Infusion Media,

Inc., No. 09-1112 (D. Nev. filed June 2009); FTC v. Grant Connect, LLC, No. 09-01349 (D. Nev. filed July 2009).

Consumers who purchased a work-at-home program where an earnings claim was made but did not work at the program were also

counted as victims. This differs from how consumers who purchased, but did not use, a weight loss product were counted (See note

12, supra). In the FTC’s enforcement experience, some victims of fraudulent work-at-home programs realize that the program will not

work as soon as they receive the program materials. As a result, they do not try to use the program. It seems less likely that consumers

who had purchased a weight-loss product, such as a pill or a dietary supplement, would learn something that would convince them

that the product would not work by visually examining the product. Therefore, those who failed to use a weight-loss product are not

counted as victims.

See, e.g., FTC v. Southeast Trust, LLC et al., No. 12-72441 (S.D. Fla. filed Dec. 2012); FTC v. Ryan Golembiewski, et al., No. 12-893

(S.D. Ohio filed Sept. 2012); FTC v. Mallett, No. 11-1664 (D.D.C. filed Sept. 2011); FTC v. Premier Nationwide Corp., No. 12-0009

(D. Ariz. filed Jan. 2012); FTC v. FDN Solutions, LLC, No. 12-820 (C.D. Cal. filed May 2012).

See, “FTC Issues Final Rule to Protect Consumers in Credit Card Debt: Amendments to Telemarketing Sales Rule Prohibiting Debt

Relief Companies From Collecting Advance Fees Will Take Effect in October 2010,” FTC Press Release, July 29, 2010, available at

http://www.ftc.gov/opa/2010/07/tsr.shtm (last visited October 19, 2012).

Consumer Fraud in the United States

(Question 16a.8). Anyone who said that the reduction was less than half of what had been promised was

treated as a victim.27

Those who said that they had purchased a debt-settlement service were then asked whether they were

still making payments under the plan (Question 16a.4). For purposes of this survey, those who were

still making payments were not considered to be victims.28 Participants who had dropped out of such

a program were then asked whether they had settled their debt on at least one credit card using the

seller’s services (Question 16a.5), and if so, how the amount they paid to settle the debt related to any

representations made by the seller (Questions 16a.6 and 16a.7). In those instances where no debts had

been settled, purchasers of such services were asked if the seller had refunded all monies the person had

paid into the program (Question 16a.5.1). Those who had either not received a refund or whose settled

debts were reduced by less than half of what they had been led to expect were considered to be victims.

Fraudulent Credit Card Insurance

Questions were included in the survey to learn about the extent of fraudulent offers of credit card

insurance promoted as protecting consumers against the misuse of their credit cards in the event the card

is lost or stolen. Federal law limits consumers’ liability for the misuse of their credit cards to $50.00,29

and credit card companies often do not require that consumers pay even this amount. Nevertheless,

some fraudulent operators attempt to defraud consumers by misrepresenting that card holders face

considerable financial risk if their credit cards are misused. These operators then offer to sell consumers

insurance to protect against this purported risk.

To examine this type of offer, participants were asked: “In the past YEAR, have you paid money to

anyone who promised to provide you with credit card insurance?” Those who answered yes were then

asked whether the insurance was to protect against unauthorized use if the card was lost or stolen or to

protect them from falling behind with payments because of a lost job or illness (Questions 15.1 and 15a).

For purposes of this study, participants were considered to be victims if they had purchased insurance

that protected them against unauthorized use.

Credit Repair

Consumers who have trouble obtaining credit because of negative information in their credit records

are sometimes targets of offers claiming that the seller, in exchange for a fee, will help the consumer

improve his or her credit record and thus enable the consumer to obtain credit. The survey asked specific

Of those who said that they had paid someone who promised to obtain a reduction in the interest rate on their credit card, 51 percent

said that the rate had been reduced by less than half of what had been promised and an additional 36 percent said that no reduction had

been obtained. Only 8 percent said that the interest rate had been reduced as much as they had expected. (The remaining 5 percent said

that they did not know how the reduction that was obtained compared to what had been promised.)

Of course, some consumers who were still making payments for a debt settlement service may have been victimized if the service

ultimately failed to deliver the promised services. There is, however, no way to know whether this was the case based on questions

that were asked before the consumer completed or dropped out of the program. For this reason, as in other cases, the estimates here

are conservative.

15 U.S.C. 1643. See also, Federal Trade Commission, “Consumer Information: Credit Card Loss Protection,” available at

http://www.consumer.ftc.gov/articles/0093-credit-card-loss-protection (visited March 26, 2013).

Survey Description

questions about two types of so-called “credit repair” schemes, both of which are illegal under the Credit

Repair Organizations Act.30

The first type of scheme involves a false claim that the seller can remove derogatory information

from a credit report – even though it is accurate and even though the credit reporting agency is legally

permitted to include the information in the credit report – and thereby improve the consumer’s ability to

obtain credit. Consumers are generally required to make an up-front payment to obtain these services.

Not surprisingly, little, if any, of the negative information is actually removed after consumers pay the

required fee. To assess the extent of this fraud, survey participants were asked: “In the past YEAR,

have you paid money to anyone who promised to remove negative, but true, information from your

credit record?” Those who answered in the affirmative were then asked whether the negative, but true,

information was removed from their credit report (Questions 13.1 and 13a).31

In the second type of scheme, the seller promises – in exchange for a payment – to tell consumers how

to create a new identity to use in applying for credit. Typically, the seller directs consumers to obtain a

new personal identification number, often an employer identification number (“EIN”), and then to use

this number in applying for credit, rather than ther Social Security numbers. The seller claims that by

using the new identity on credit applications, the consumer can hide derogatory credit report information

from potential lenders. The survey question related to this scheme was: “In the past YEAR, have you

paid money to anyone who promised to help you obtain credit by creating a new credit identity or new

credit record?” (Question 14.1).

Business Opportunity Offerings with False Earnings Claims or False Offers of

Assistance

Business opportunity offerings sometimes involve false promises that purchasers will make a large

amount of money. Similarly, sellers sometimes make false promises that they will provide purchasers

with assistance in finding customers or locations in which to place their equipment. For example, sellers

of fraudulent vending machine business opportunities may promise to provide high-volume locations

where purchasers can place their machines.32

Business opportunity offerings generally include some package of information, equipment, and services

that purportedly will enable the consumer to establish and operate a successful business. Such offerings

often appeal to consumers who have little or no business experience, because they supposedly provide

everything needed to own and operate the business. By promising that the business is certain to make

at least a specific income, a seller can lead potential purchasers to believe that there is little risk in

purchasing the business. Similarly, claims that the seller will provide consumers who purchase their

15 U.S.C. 1679. The Commission has brought numerous cases against those offering credit repair services. See, e.g., FTC v. Latrese

& Kevin Enterprises, Inc., No. 08-1001 (M.D. Fla. filed Oct. 2008, contempt proceedings filed June 2012); FTC v. Credit Restoration

Brokers, LLC, No. 10-0030 (M.D. Fla. filed Jan. 2010, contempt proceedings filed Apr. 2011).

Although the survey questions only asked about instances where the participant paid money for credit repair services that were not,

in fact, provided, the Credit Repair Organizations Act (“CROA”) makes it illegal for a credit repair organization to charge or pay for

any credit repair services in advance of providing those services in full. (15 U.S.C. 1679c(b)). Accordingly, the survey results are

conservative and may not indicate the full extent of CROA violations.

Commission cases against promoters of fraudulent business opportunities have included FTC v. The Online Entrepreneur, Inc., No.

12-2500 (M.D. Fla. filed Nov. 2012); FTC v. Shopper Systems, LLC, et al., No. 12-23919 (S.D. Fla. filed Oct. 2012); FTC v. North

America Marketing & Associates., LLC, No. 12-0914 (D. Ariz. filed May 2012); FTC v. Ivy Capital, Inc., No. 11-00283 (D. Nev. filed

Feb. 2011).

Consumer Fraud in the United States

business opportunity offerings with customers or selling locations can convince potential purchasers that

they do not need to do much work to operate this business and that they are highly likely to succeed.

To measure the extent of problems with false earnings claims, survey participants who indicated that

they had purchased a business opportunity were asked whether they had been “led to believe that [they]

would earn a certain amount of income or profit from this business” (Questions 31.1 and 35.1). Those

who answered in the affirmative were then asked how much they made compared to what they had been

led to expect (Questions 35.2). Similarly, participants were asked whether they had been promised “help

in locating customers who would use [their] services or allow [them] to sell [their] products from their

premises,” and if so, whether they had obtained the promised assistance (Questions 36.1 and 36.2).

Victims of this type of fraud are limited to those who said that they had less than half as much as they

had been led to believe they would make, or that they had not received the assistance that had been

promised.33

Mortgage Relief

With the onset of the housing crisis in 2008 and the downturn in the economy, many homeowners found

themselves having trouble paying their mortgages. This provided expanded opportunities for fraudulent

sellers who promised to obtain modifications on consumers’ mortgages or obtain other relief so that

the consumers could avoid foreclosure or lower their monthly payments. The Commission has brought

dozens of law enforcement actions in this area and has also enacted new trade regulation rules governing

sellers who offer mortgage assistance services.34

To learn about consumers’ experiences with this type of problem, the survey first asked participants

whether they had paid someone who promised to obtain a modification of their mortgage so that they

could avoid foreclosure and keep their homes, whether these payments were made to someone other

than their mortgage lender or the company that serviced the loan, and whether payments were required

before the modifications were obtained (Questions 11.1, 11.3, and 11.4). Those who had made payments

to someone other than their lender or the company that serviced the loan and had done so before the

modification was arranged, were asked whether a mortgage modification had actually been arranged

by the person to whom they made these payments (Question 11.5). Where payments were made to a

third party, payments were required before the mortgage modification was obtained, and the promised

mortgage modification was not obtained, the consumer was considered to be a victim of mortgage relief

fraud.35

As with Work-at-Home offerings, consumers who purchased a business opportunity offering where an earnings claim was made or

assistance was promised and then failed to operate it are counted as victims.

Cases include FTC v. Prime Legal Plans, LLC, et al., No. 12-61872 (S.D. Fla. filed Sept. 2012); FTC v. American Mortgage

Consulting Group, LLC, et al., No. 12-01561 (C.D. Cal. filed Sept. 2012); FTC v. U.S. Mortgage Funding, Inc., No. 11-80155 (S.D.

Fla. filed Feb. 2011); FTC v. Lakhany, No. 12-00337 (C.D. Cal. filed Mar. 2012); FTC v. Residential Relief Foundation, Inc., No.

10-3214 (D. Md. filed Nov. 2010). For information on the Commission’s Mortgage Assistance Relief Services (“MARS”) Rule, see

“FTC’s Mortgage Assistance Relief Services Advance Fee Ban Takes Effect,” FTC Press Release, February 10, 2011, available at

http://www.ftc.gov/opa/2011/02/mars.shtm (last visited October 19, 2012).

The questionnaire also asked anyone who said that the person to whom they had made the payments had, in fact,

arranged a modification, how the terms compared to what the consumer had been led to expect. If the terms of the

modified loan were significantly worse than what was expected, the person would also have been counted as a victim.

However, no survey participants gave this pattern of responses.

Survey Description

Advance Fee Loans and Credit Cards

The FTC frequently receives complaints about offers for a loan or credit card in return for the payment

of a fee. These offers, which are often directed to consumers with tarnished credit records, require that

the consumer pay the fee before the promised loan or credit card is received. In most instances, however,

consumers who pay the required fee do not receive the promised loan or credit card. 36 Indeed, it is a

violation of the Telemarketing Sales Rule to ask for a payment before delivering a promised credit card

or loan, if the offer is made by telephone.37

To assess the frequency of this problem, the survey asked “In the past YEAR, have you paid money

to anyone who promised or guaranteed to provide you with a credit card or loan, but required you to

pay a fee before receiving the credit card or loan?” (Question 16.1). Participants who answered in the

affirmative were then asked whether they were promised a credit card, a mortgage loan, or some other

kind of loan, and whether they had actually received the promised loan or credit card (Questions 17a and

17). Only those who had been promised something other than a mortgage loan, who said that they were

required to make the payment before the card was received, and who had not received it were considered

to be victims of an advance fee loan fraud.38

Pyramid Schemes

Pyramid scheme promoters often claim that purchasers will operate their own businesses selling a

particular product or service and that they will make money both from their own sales and from the sales

of those they recruit to join the program. Although such a business may look like a legitimate multi-level

marketing program, they differ because the income earned by participants in a pyramid scheme comes

ultimately from recruiting, rather than the sale of products or services to consumers. Most participants

in pyramid schemes lose money, because the program really just transfers money from those who have

joined most recently to those who have been involved for a longer period of time. At any point in time,

the vast majority of those who have joined the program – often 90 percent or more – will not have

recouped the money they paid to join.39

In order to differentiate those who had purchased a pyramid scheme from those who had simply

purchased a business opportunity, the survey asked those who said that they had paid someone for an

opportunity to operate their own business, whether they had been led to believe that most of the money

they would earn would come from recruiting others to join the business, rather than from the sale of

products (Questions 31.1 and 33). Those who indicated that the income was to come from recruitment

The FTC has brought numerous law enforcement actions addressing this problem. See, e.g., FTC v. Apogee One Enterprises, LLC,

et al., No. 12-588 (N.D. Ill. filed Jan. 2012); FTC v. Group One Networks, Inc., No. 09-00352 (M.D. Fla. filed Feb. 2009); FTC v.

Integrity Financial Enterprises, LLC, No. 08-914 (M.D. Fla. filed May 2008); FTC v. Financial Advisors & Assocs. Inc., No. 0800907 (M.D. Fla. filed May 2008); FTC v. Assail, Inc., No. W03CA007 (W.D. Tex. filed Jan. 2003).

See Telemarketing Sales Rule, 16 C.F.R. § 310.4(a)(4).

Mortgage loans were excluded because it is common business practice for those applying for a mortgage to pay for items such as

credit reports and property appraisals before the loan is provided.

Almost half of those who said that they had paid money to obtain a promised credit card or loan said that they had actually received

the credit card or loan.

See, e.g., Peter J. Vander Nat and William W. Keep, “Marketing Fraud: An Approach for Differentiating Multilevel Marketing from

Pyramid Schemes,” Journal of Public Policy & Marketing, 21 (Spring 2002), pp. 139-151. In one of many such cases, the FTC sued a

promoter of a pyramid scheme in FTC v. BurnLounge, Inc., No. 07-03654 (C.D. Cal. filed June 2007).

Consumer Fraud in the United States

were then asked whether they had been led to believe that they would earn a certain amount of money

from the business, and if so, how much they had actually earned, relative to what had been promised

(Questions 35.1 and 35.2). As with business opportunities and work-at-home programs, those who had

been led to believe that they would earn a certain amount of money and had, in fact, earned less than

half of that amount are considered to be victims for purposes of this survey.40

Fraudulent Promises of Government Jobs

The survey also asked about a type of employment fraud in which the seller guarantees or represents

that it is highly likely that consumers will obtain a government job. Often, these offers promise jobs with

the U.S. Postal Service. The ads often look like “Help Wanted” ads, but in fact, they are not placed by

the government or anyone who can provide the promised jobs. Rather, they typically are offers to sell

a course or study guide that supposedly will improve the consumer’s score on a test that is allegedly

required to obtain the promised job. It is not clear that the materials offered can actually improve

consumers’ scores, and in any event the ads frequently are run in areas where the test will not even be

offered, because there are no job vacancies to be filled.41

To identify consumers who had been victims of this type of misrepresentation, survey participants were

asked “In the past year, have you paid anyone who promised that you would obtain a job at the U.S.

Postal Service or another branch of state or federal government?” Those who answered in the affirmative

were then asked “Did you get the job that was promised?” (Questions 32.1 and 38). Anyone who had not

received the promised job was considered a victim of this type of fraud.

Counterfeit Checks

As the name suggests, a counterfeit check scam involves the victim being sent a check that turns out

to be bogus. In the context of a prize promotion or a grant promotion, the perpetrator of the underlying

prize or grant fraud may send a check purportedly to cover the cost of a fee or payment that the victim is

told must be paid before receiving the required grant or fee.

In other contexts, the victim may be selling a product in which the perpetrator pretends to be interested,

and the counterfeit check is provided purportedly to cover the cost of the item being purchased. Instead

of just covering the fee or payment for the item being sold, the check that is sent is written for an

amount greater than the amount that was needed. This is frequently explained as being a mistake made

by an assistant who misunderstood the amount for which the check was supposed to be written. The

perpetrator then asks the consumer to cash the check and return the excess amount or send the excess to

a supposed third party, often using money transfers. The perpetrator’s hope is that the victim will wire

the excess money before he or she discovers that the check is bogus, and as a result, the victim will be

out the amount of money that was wired.

The survey sought to learn whether this kind of bogus check fraud was perpetrated in three separate

settings – in connection with a prize promotion, in connection with a grant, or in some other context. In

each case, those who had made a payment were asked whether they had received a check to cover a fee

Also consistent with the treatment of business opportunities and work-at-home programs, those who purchased a pyramid scheme but

did not work at it are counted as victims.

The FTC has filed complaints against a several promoters of such schemes. See, e.g., FTC v. Government Careers Inc., No. 09-721 (D.

Ariz. filed Dec. 2008); FTC v. Frontier Publishing, Inc., No. 11-01537 (C.D. Cal. filed Oct. 2011); FTC v. U.S. Work Alliance, Inc.,

No. 08-2053 (N.D. Ga. filed June 2009).

Survey Description

or the cost of an item and been asked to send some of the money back to the sender or to a third party,

and if so, whether they had actually sent the money as requested (Questions 39a.9, 41a.8, 42, and 42a).

Those who indicated that they had received a check and had made a payment were then asked whether

the check turned out to be valid so that they were able to obtain the promised money, whether it was

counterfeit, or whether they had never attempted to cash the check (Questions 39a.10, 41a.9, and 42e).

Those who found that the check was counterfeit or who did not attempt to cash the check are treated as

being victims of a counterfeit check fraud.

Grants

Another fraudulent offering that has appeared in recent years is the promise of free grants for which

prospective victims are told that they are qualified. Often the claim is that the government is making

these grants available and that the money can be used for most any purpose, for example, paying off

existing debt or remodeling a home. Sometimes the party making the offer states that consumers who

pay a required fee are guaranteed to receive a grant. In other cases, the claim is that the seller offers

services that will help consumers apply for the grant – which they are then certain to obtain. The

Commission has brought numerous cases alleging situations along these lines.42

To investigate the extent of this problem, the survey asked participants whether they had been told

that they “were eligible to receive a grant either from the government or from someone else or that

someone would help [them] prepare a proposal for a grant that was certain to be approved” (Question

41). Those who said that they had been told that they were certain to receive such a grant were asked

whether they had been told that they had to pay a fee to receive the grant or to have the grant proposal

prepared, and if so, if they had made such a payment (Questions 41a.1 and 41a.2). Finally, those who

had made payments were asked whether they had actually received the grant, and if so, whether it had

been essentially what had been described by the seller (Questions 41a.4 and 41a.5). Those who made a

payment and either did not receive the promised grant or who received a grant that was not essentially

what had been described were considered to be victims of this fraud.

2.3 More General Types of Fraud Included in the Survey

In addition to the 15 specific types of frauds described above, the survey also asked consumers whether

they had experienced two more general problems that may indicate fraud.

Billing Problems, Other Products

In addition to asking participants if they had been billed without their consent for the particular products

or services described above, the survey also asked more generally whether the participant had been

billed for “some other product or service” that they had not agreed to purchase (Question 22.1).

Paid But Not Received

The survey also sought information about consumers who paid for a product or service but never

received it. The Federal Trade Commission often receives complaints from consumers who report

that they purchased an item and paid for it, but the seller never provided it. To gauge the extent of this

See, e.g., FTC v. Real Wealth, Inc., et al., No. 10-60 (W.D. Mo. filed Jan. 2010); FTC v. Affiliate Strategies, Inc., No. 09-04104 (D.

Kan. filed July 2009); FTC v. In Deep Services, Inc., No. 09-01193 (C.D. Cal. filed June 2009); FTC v. Grant Connect, LLC, No. 0901349 (D. Nev. filed July 2009).

Consumer Fraud in the United States

problem, the survey asked participants: “Other than the things we have already discussed, in the past

year have you purchased something which you paid for but NEVER received?” (Question 45).43

As with problems of unauthorized billing, if consumers fail to receive a product for which they paid, this may indicate that the seller

was engaged in fraud. Alternatively, it may simply indicate a mistake made by an honest seller. As with the questions about billing,

an attempt was made to differentiate between the legitimate and illegitimate by asking about the seller’s willingness to provide a

refund or to make some other adjustment that was satisfactory to the purchaser (Questions 47 and 48). A willingness to make such an

adjustment may indicate that the seller is more likely to be legitimate and just made a mistake, whereas a seller who refuses to make

an adjustment or who makes it overly difficult for the consumer to obtain one is more likely to have fraudulent intentions.

Prevalence of Surveyed Categories of Fraud

3. Prevalence of Surveyed Categories of Fraud

Chapter 3 reports the basic results of the 2011 FTC Fraud Survey. What share of consumers were victims

of the frauds examined in the survey during 2011? How many incidents of these frauds occurred? Which

types of fraud were the most prevalent?

3.1 Overall Rates of Victimization and Number of Incidents

•• An estimated 10.8 percent of U.S. adults – those at least 18 years of age – were victims of one or

more of the frauds covered by this survey (“Any Surveyed Fraud”) during 2011.44 This implies

that 25.6 million U.S. adults were victims during 2011 (Table 2).45

•• Some victims experienced more than one incident of fraud during 2011, either because they were

victims of more than one type of fraud or because they were victims of the same type of fraud

multiple times. During 2011, there were an estimated 37.8 million incidents of

Any Surveyed Fraud (Table 3).

•• Of the estimated 25.6 million victims, 18.8 million were victims of one or more of the specific

frauds covered by the survey (“Any Specific Surveyed Fraud”), while 7.9 million experienced

one or both of the two more general frauds (“Any Surveyed More General Frauds”).46 Of the 37.8

million incidents, 28.8 million involved one of the specific frauds and 9.0 million involved the

more general frauds.

3.2 Specific Surveyed Frauds

Fraudulent Weight-Loss Products – The Most Victims of Any Surveyed Fraud

•• During 2011, more consumers were victims of fraudulent weight-loss products than of any of the

other specific frauds covered by the survey. An estimated 2.1 percent of consumers – a total of 5.1

million U.S. adults – purchased and used fraudulent weight-loss products (Table 2 and Figure 1).

Survey participants were asked about experiences they had had during the year before they were interviewed. Responses to these

questions will be characterized as involving events that occurred during 2011 even though there may be a few events that actually

occurred in late 2010 or in early 2012 since interviews were conducted between November 28, 2011, and February 5, 2012.

Throughout the report, the estimated number of victims of the various frauds and the number of incidents are projections from the

responses of those interviewed as part of the survey. The projections are based on the estimated U.S. population of 237.66 million

adults – 18 and older – as of July 1, 2011. (U.S. Census Bureau, Population Division, Annual Estimates of the Resident Population for

Selected Age Groups by Sex for the United States: April 1, 2010 to July 1, 2011 (NC-EST2011-02), released May 2012, available at

http://www.census.gov/popest/data/national/asrh/2011/index.html.)

If survey participants either over- or under-reported whether they had experienced any of the included frauds, the reported figures will

differ from the actual extent of the various frauds. In addition, if the experiences of those who agreed to participate in the survey differ

from that of those who declined to participate, the results reported here will differ from the actual extent of the various frauds. (See

Appendix C for an analysis of whether the experience of those who refused to participate in the survey differs from that of those who

did participate.)

The approach used in analyzing the number of victims and the number of incidents in this report is the same as was used in the

analysis of the previous surveys. For a description of this methodology see the “Methodological Appendix to Chapter 3” in the report

on the 2003 survey. (Anderson (2004), supra n.1, pp. 45-48.)

Because the same individual could have experienced both specific and general frauds, the sum of those experiencing specific frauds

and those experiencing general frauds exceeds the total number of victims. Similarly, the sum of the number of victims experiencing

each of the 17 types of fraud exceeds the total number of victims because some individuals experienced more than one type.

Consumer Fraud in the United States

Table 2. Estimated Number of Adults Who Were Victims of Fraud, 2011

Type of Fraud

Number of Victims

(millions)

Victims as Percent

of Adult Americans

Any Surveyed Fraud

25.6

(22.4 – 28.7)

10.8%

(9.4% - 12.1%)

Any Specific Surveyed Fraud

18.8

(16.0 – 21.5)

7.9%

(6.7% - 9.1%)

Weight-Loss Productsa

5.1

(3.6 – 6.6)

2.1%

(1.5% - 2.8%)

Prize Promotionsb

2.4

(1.5 – 3.3)

1.0%

(0.6% - 1.4%)

Unauthorized Billing – Buyers’ Clubs

1.9

(1.3 – 2.6)

0.8%

(0.5% - 1.1%)

Unauthorized Billing – Internet Services

1.9

(1.1 – 2.7)

0.8%

(0.5% - 1.1%)

Work-at-Home Programsc

1.8

(0.8 – 2.8)

0.7%

(0.3% - 1.2%)

Credit Repair

1.7

(0.8 – 2.7)

0.7%

(0.3% - 1.1%)

Debt Reliefd

1.5

(0.6 – 2.3)

0.6%

(0.3% - 1.0%)

Credit Card Insurance

1.3

(0.6 – 2.1)

0.6%

(0.3% - 0.9%)

Business Opportunitiese

1.1

(0.4 – 1.8)

0.5%

(0.2% - 0.8%)

Mortgage Relief

0.8

(0.2 – 1.4)

0.3%

(0.1% - 0.6%)

Advance Fee Loansf

0.7

(0.1 – 1.3)

0.3%

(0.0% - 0.6%)

Pyramid Schemesg

0.7

(0.2 -1.1)

0.3%

(0.1% - 0.5%)

Government Job Offers

0.5

(0.0 – 1.1)

0.2%

(0.0% - 0.5%)

Counterfeit Check Scams

0.4

(0.1 – 0.8)

0.2%

(0.0% - 0.3%)

Grant Scams

0.2

(0.0 – 0.5)

0.1%

(0.0% - 0.2%)

7.9

(6.1 – 9.6)

3.3%

(2.6% - 4.0%)

Paid for Something Never Received

4.5

(3.1 – 6.0)

1.9%

(1.3% - 2.5%)

Unauthorized Billing – Other Products

3.6

(2.6 – 4.6)

1.5%

(1.1% - 1.9%)

Any More General Surveyed Fraud

(Table 2 continues on next page)

Prevalence of Surveyed Categories of Fraud

Table 2 (continued)

Source: 2011 FTC Fraud Survey

Notes.

Numbers are rounded to the nearest 0.1 million and percentages to the nearest 0.1 percent. 0.0 denotes a value of less than 0.05

million. 0.0% denotes a value of less than 0.05 percent.

Amounts in individual categories will not sum to totals because some individuals are victims of more than one of the listed frauds.

Figures in parentheses are 95 percent confidence intervals.

Projections are based on estimated U.S. population of 237.66 million adults – 18 and older – as of July 1, 2011. (See U.S. Census Bureau,

Population Division, Annual Estimates of the Resident Population for Selected Age Groups by Sex for the United States: April 1, 2010 to

July 1, 2011 (NC-EST2011-02), released May 2012, available at http://www.census.gov/popest/data/national/asrh/2011/index.html.)

a. These figures do not include those who purchased a weight-loss product and then did not use it. If these people are included as

victims, there were an estimated 6.0 million victims – 2.5 percent of the adult population. If the definition of a victim is limited

to those who purchased and used a product that was promoted as allowing one to lose weight without diet and/or exercise – but

not products that only claimed that weight loss would be easy – there were only 4.0 million victims – 1.7 percent of the adult

population. (All of the estimates only include those who lost less than half of the weight anticipated.)

b. If those who did not receive a promised prize after attending a sales presentation are not included as victims, the estimated number

of victims would be 1.2 million – 0.5 percent of the adult population.

c. These figures include those who purchased a work-at-home program but then did not work at it. If these people are not counted as

victims, the estimated number of victims is 1.2 million – 0.5 percent of the adult population.

d. These figures do not include as victims anyone who was promised a reduction in the amount they owed and who received half or

more of the reduction they expected on the debt or debts that were settled. If such people are counted as victims, the estimated

number of victims remains at 1.5 million. Only one survey participant reported having had at least one debt settled and having

received at least half of the amount that had been promised.

e. These figures include those who purchased a business opportunity but then did not work at the offering. If these people are not

considered to be victims, there were 1.0 million victims – 0.4 percent of the adult population.

These estimates assume that those who were required to pay an advance fee were not victims if they, in fact, received the promised

credit card or loan. If everyone who paid a fee is considered to be a victim, whether or not the credit card or loan was received, the

estimated number of victims would be 1.7 million – 0.7 percent of the adult population.

g. These figures include only those who purchased a membership in a pyramid scheme, were told that they would realize a promised

level of earnings, and then earned less than half of that promised amount. Consumers who purchased a membership in a pyramid

scheme but then did not work at the offering are considered to be victims. However, changing these assumptions either to count

everyone who purchased a pyramid scheme as a victim or counting only those who actually worked at the scheme and earned less

than half of the promised amount has only a negligible effect on the estimated number of victims.

Consumer Fraud in the United States

Table 3. Estimated Number of Incidents of Fraud, 2011

Type of Fraud

Number of

Incidents

(millions)

Incidents per

Hundred Adult

Americans

Incidents

per Victim

Any Surveyed Fraud

37.8

(32.1 – 43.5)

15.9

(13.5 – 18.3)

1.5

Any Specific Surveyed Fraud

28.8

(23.5 – 34.1)

12.1

(9.9 – 14.3)

1.5

Weight-Loss Productsa

7.6

(4.9 – 10.4)

3.2

(2.0 – 4.4)

1.5

Prize Promotionsb

2.9

(1.8 – 4.1)

1.2

(0.7 – 1.7)

1.2

Work-at-Home Programsc

2.8

(0.4 – 5.1)

1.2

(0.2 – 2.1)

1.6

Unauthorized Billing – Buyers’ Clubs

2.3

(1.4 – 3.2)

1.0

(0.6 – 1.3)

1.2

Unauthorized Billing – Internet Services

2.2

(1.3 – 3.2)

0.9

(0.5 – 1.4)

1.2

Credit Card Insurance

2.2

(0.5 – 3.9)

0.9

(0.2 – 1.7)

1.7

Credit Repair

2.0

(0.9 – 3.1)

0.8

(0.4 – 1.3)

1.2

Debt Reliefd

1.7

(0.7 – 2.7)

0.7

(0.3 – 1.1)

1.1

Business Opportunitiese

1.2

(0.5 – 2.0)

0.5

(0.2 – 0.8)

1.1

Advance Fee Loansf

0.9

(0.1 – 1.6)

0.4

(0.0 – 0.7)

1.2

Mortgage Relief

0.8

(0.2 – 1.4)

0.3

(0.1 – 0.6)

1.0

Pyramid Schemesg

0.7

(0.3 – 1.2)

0.3

(0.1 – 0.5)

1.1

Counterfeit Check Scams

0.6

(0.1 – 1.1)

0.2

(0.0 – 0.5)

1.3

Government Job Offers

0.6

(0.0 – 1.3)

0.2

(0.0 – 0.5)

1.2

Grant Scams

0.2

(0.0 – 0.5)

0.1

(0.0 – 0.2)

1.0

9.0

(7.0 – 11.0)

3.8

(3.0 – 4.6)

1.1

Paid for Something Never Received

4.8

(3.3 – 6.4)

2.0

(1.4 – 2.7)

1.1

Unauthorized Billing – Other Products

4.2

(2.9 – 5.4)

1.8

(1.2 – 2.3)

1.2

Any More General Surveyed Fraud

(Table 3 continues on next page)

Prevalence of Surveyed Categories of Fraud

Table 3 (continued)

Source: 2011 FTC Fraud Survey

Notes.

Values are rounded to the nearest 0.1 million. 0.0 denotes a value of less than 0.05 million.

Figures in parentheses are 95 percent confidence intervals.

Projections are based on estimated U.S. population of 237.66 million adults – 18 and older – as of July 1, 2011. (See U.S. Census Bureau,

Population Division, Annual Estimates of the Resident Population for Selected Age Groups by Sex for the United States: April 1, 2010 to

July 1, 2011 (NC-EST2011-02), released May 2012, available at http://www.census.gov/popest/data/national/asrh/2011/index.html.)

a. These figures do not include instances in which a consumer purchased a weight-loss product and then did not use it. If these

incidents are included, there were an estimated 9.8 million incidents of weight-loss fraud – 4.1 per hundred adult Americans. If only

those cases where a product was promoted as allowing one to lose weight without diet and/or exercise – but not products that only

claimed that weight loss would be easy – are included, there were only 5.6 million estimated incidents – 2.4 per hundred adults.

(All of the estimates only include those who lost less than half of the weight anticipated.)

b. If instances in which a person did not receive a promised prize after attending a sales presentation are not included, there were an

estimated 1.4 million incidents of prize promotion fraud – 0.6 per hundred adults.

c. These figures include instances in which consumers purchased a work-at-home program but then did not work at it. If these

incidents are not included, the estimated number of incidents is 1.8 million – 0.8 per hundred adults.

d. These figures do not include instances in which consumers were promised a reduction in the amount they owed and received

half or more of the reduction they expected on the debt or debts that were settled. If such incidents are included, the estimated

number of incidents of debt relief fraud remains at 1.7 million incidents. Only one survey participant reported having had at least

one debt settled and having received at least half of the amount that had been promised.

e. These figures include incidents in which consumers purchased a business opportunity but then did not work at it. Excluding those

who did not work at the business opportunity has only a negligible effect on the estimated number of incidents.

These estimates do not include instances in which consumers were required to pay an advance fee, but received the promised

credit card or loan. If all incidents in which a fee was required prior to receipt of a credit card or loan are included, the estimated

number of incidents would be 2.6 million – 1.1 per hundred adults.

g. These figures include only those who purchased a membership in a pyramid scheme, were told that they would realize a promised

level of earnings, and then earned less than half of that promised amount. Consumers who purchased a membership in a pyramid

scheme but then did not work at the offering are considered to be victims. However, changing these assumptions either to count all

instances in which a pyramid was purchased or counting only those incidents where the consumer actually worked at the scheme

and earned less than half of the promised amount has only a negligible effect on the estimated number of incidents.

Consumer Fraud in the United States

Figure 1. Specific Surveyed Frauds, by Number of Victims

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Prevalence of Surveyed Categories of Fraud

These consumers purchased and used weight-loss products that they were told would enable them

to lose weight easily or to lose weight without diet or exercise. However, when they used the

product, they lost less than half of the weight they had expected to lose. There were a total of 7.6

million incidents of weight-loss fraud during 2011. On average, consumers who were victims of

weight-loss fraud purchased and used 1.5 such fraudulent weight-loss products during the year

(Table 3 and Figure 2).47

• Of those who purchased a weight-loss product that was supposed to make it easy to lose

weight or allow them to lose weight without diet or exercise, 13 percent reported that they

lost at least as much weight as they had expected to lose, while 8 percent reported losing

about half of the weight they expected to lose. Another 18 percent said that they lost only

a little of the weight they expected to lose, while 45 percent said that they had not lost any

weight, or had gained weight, while using the product. Fifteen percent said that they had not

used the product they had purchased.48

Fraudulent Prize Promotions

•• Fraudulent prize promotions were the second-most prevalent of the specific frauds covered by

the survey. These are situations in which a consumer paid something, purchased a product, or

attended a sales presentation in order to obtain a promised prize or award such as money or a

free vacation. However, after making the payment or purchase, or attending the required sales

presentation, the consumer either did not receive the prize or award, or it was not what had been

described. This type of fraud was experienced by 1.0 percent of survey participants during 2011,

representing 2.4 million U.S. adults (Table 2 and Figure 1). There were 2.9 million incidents of

this type of fraud during 2011, 1.2 incidents per 100 U.S. adults (Table 3 and Figure 2).

• Approximately 53 percent of those who reported being a victim of a fraudulent prize

promotion said that they had attended a sales presentation in order to obtain their prize. An

additional 33 percent said that they had made a payment, while 14 percent said that they had

been required to make a purchase.49

• If only those who made a payment or purchase in order to receive a promised prize – and

not those who attended a sales promotion – are counted as victims of fraudulent prize

People who purchased one or more of these weight-loss products but then indicated that they had not actually used the product are not

counted as victims in the figures reported above and in Tables 2 and 3. If such people are counted as victims, the estimated number of

victims of this type of fraud would be 6.0 million and the estimated number of incidents would be 9.8 million. Products that sellers

promoted as making it easy to lose weight, but where the seller did not claim that using the product would make it possible to lose

weight without diet or exercise, are considered to be frauds in the figures in the text and tables. If one only includes products that were

promoted as resulting in weight loss without diet or exercise, there were only 4.0 million victims and only 5.6 million incidents.

The distribution of responses here is not significantly different from the responses in the 2005 survey. (In order to perform the

statistical test here and in other cases where the analysis is of a subset of those who participated in the survey, it was sometimes

necessary to omit a few observations from the test. As described in the methodology report in Appendix B, 20 strata were used in

selecting telephone numbers to call as part of the survey. In examining responses to questions that were only asked of a subset of

survey participants, in some cases it turns out that there is only a single person in a particular stratum for which the question being

analyzed was relevant. Where this happens, it is not possible to calculate a standard error if those observations are included. It is

therefore necessary to delete such observations when performing the analysis. For example, in this case, it was necessary to delete 7

observations – 4 from the 2011 survey and 3 from the 2005 survey – because there was only one person in particular strata who had

purchased a weight loss product that was promoted as making it easy to lose weight or allowing one to lose weight without diet or

exercise, and who was, therefore, asked how much weight they lost using the product.)

The distribution of what victims of fraudulent prize promotions did to obtain the promised prize – attend a sales presentation, buy a

product, or make a payment – is essentially unchanged from what was found in the 2005 survey.

Consumer Fraud in the United States

Figure 2. Specific Surveyed Frauds, by Number of Incidents

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Source: Table 3.

Prevalence of Surveyed Categories of Fraud

promotions, there were an estimated 1.2 million victims of fraudulent prize promotions (0.5

percent of the U.S. adult population).

Unauthorized Billing for Buyers’ Club Memberships

•• Being billed for a membership in a buyers’ club that the consumer had not agreed to join was one

of two problems that tied as the third-most prevalent of the specific frauds reported by survey

participants. This problem was reported by 0.8 percent of survey participants, representing 1.9

million U.S. adults. There were an estimated 2.3 million incidents of this type of fraud, 1.0

incidents per hundred U.S. adults.50

Unauthorized Billing for Internet Services

•• Like receiving an unauthorized bill for a buyers’ club membership, 0.8 percent of survey

participants – representing an estimated 1.9 million adults – reported that, during 2011, they had

received an unauthorized bill for Internet services such as Internet access or website hosting or

development from a company with which the consumer had not previously done business. There

were an estimated 2.2 million incidents of this type of fraud.

Fraudulent Work-at-Home Programs

•• The purchase of a work-at-home program where the consumer failed to earn at least half of the

amount that they had been told they would earn was the fifth-most prevalent of the specific frauds

in the survey. During 2011, this fraud was experienced by 0.7 percent of survey participants,

representing an estimated 1.8 million U.S. adults.51

• Victims of work-at-home frauds were more likely to report having experienced multiple

incidents of this fraud than was the case for the more-prevalent frauds. On average, victims

of work-at-home fraud purchased 1.6 different fraudulent work-at-home programs during

Unauthorized billing for a membership in a buyers’ club is one of three frauds included in the survey that involved being billed for

a product or service that the consumer had not agreed to purchase or being billed for an amount that was substantially more than the

consumer had agreed to pay. The other two areas covered unauthorized billing for Internet services and unauthorized billing for a

product other than a buyers’ club or Internet services.

Because the estimates of the prevalence of unauthorized billing are based on the responses of consumers who were interviewed as

part of the survey, these estimates likely understate the extent of the problem of unauthorized billing. (The same problem exists with

the estimates derived from the earlier surveys.) Consumers can only tell an interviewer that they have received an unauthorized bill if

they noticed it. Consumers would not know that they had been victims of this type of fraud if unauthorized charges were placed, for

example, on their credit card or telephone bills but were not noticed and just paid.

Unauthorized billing frauds were also included in the earlier surveys and, as in the earlier surveys, when participants indicated that

they had experienced an unauthorized billing, they were asked whether they had sought a refund and whether the seller had been

willing to provide one. In order to avoid counting an incident where an honest mistake is made by a legitimate business as a fraud,

those who indicated that they had obtained a refund are not considered to be victims of fraud. (For a discussion of how those who had

not sought a refund are treated, see Anderson (2004), supra n.1, p. 12.)

Also consistent with the previous surveys, in order to be considered victims of an unauthorized billing fraud, consumers also had to

indicate that they had actually made a payment. Consumers who received an unauthorized bill but did not make a payment in response

to the bill were not considered to be victims.

Those who purchased a work-at-home program and then did not work at the program are included among the fraud victims in

estimating the number of victims of this type of fraud. In the FTC’s enforcement experience, some victims of fraudulent work-athome programs realize that the program will not work as soon as they receive the program materials. As a result, they do not try to use

the program. If people who did not work at the program they had purchased are not counted as victims, there were 1.2 million victims

of this type of fraud – 0.5 percent of the U.S. adult population – and 1.8 million incidents.

Consumer Fraud in the United States

2011.52 As a result, work-at-home fraud ranks third in terms of the number of incidents of

fraud during the year, with an estimated 2.8 million incidents.

• Of survey participants who bought work-at-home programs during 2011, 21 percent said that

they made no money, and may have lost money. An additional 17 percent said that they made

less than half of the money they had been told that they would make from the program, while

27 percent said that they had not worked at the program after buying it. These people are

considered to have been victims of fraudulent work-at-home programs.

• The remaining 35 percent of work-at-home program purchasers were not considered to be

victims of fraud. About six percent of purchasers indicated that they had made as much or

more than they had expected to make, while another five percent indicated that they had

made at least half as much as they had expected. In approximately 25 percent of cases,

purchasers indicated that the seller of the program had not represented that they would earn a

particular level of income.53

3.3 More General Surveyed Frauds

•• One of the general frauds covered by the survey – paying for a product but never receiving it –

was reported by more survey participants than any other fraud in the survey with the exception

of the purchase of fraudulent weight-loss products. During 2011, this fraud was experienced by

1.9 percent of survey participants. This represents an estimated total of 4.5 million adults (Table

2). There were an estimated 4.8 million incidents of this type of problem during the year, 2.0

incidents per 100 adult Americans (Table 3).

• More than half of those who were victims of this type of fraud – 57 percent – ordered the

product or service that they did not receive from an Internet website, while 23 percent said

that they used the telephone to order the product or service. Only 4 percent of victims of this

type of fraud purchased the product by mailing in an order.54

• Just over 50 percent of those who were victims of this type of fraud reported that they first

learned about the product or service on the Internet, with 10 percent reporting that they had

learned about the product or service from an Internet auction site and 29 percent reporting

that it was a standard Internet website. None of the victims of this type of fraud reported that

they had first learned about the product from an online classified ad site. (The remaining 11

percent reported that they had learned about the product from an Internet site, but did not

answer a follow-up question that asked whether that was an Internet auction site, an online

classified ad site, or another Internet website.)55

• Survey participants reported this type of problem involving a wide range of products

including telephone services or equipment, particularly cell phone services and equipment,

books and magazines, and health care products and services.

This compares to 1.5 incidents per victim for fraudulent weight-loss products and 1.2 for prize promotions and the two unauthorized

billing frauds.

The distribution of responses concerning whether an earnings representation was made, and if so, how much the purchaser earned

relative to what they had been told to expect is not significantly different from that in the 2005 survey.

In 2005, 20 percent of the orders for products that were never received were mail orders.

The percentage of victims of this type of fraud who first learned of the product or service from Internet auction websites or from

general Internet sites is not significantly different from the results of the 2005 survey.

Prevalence of Surveyed Categories of Fraud

•• An estimated 1.5 percent of those surveyed – representing 3.6 million people – reported that they

had been billed without authorization for a product or service, other than Internet service or a

buyers’ club membership, during 2011 (Table 2). There were an estimated 4.2 million incidents of

this type of fraud (Table 3).

• Unauthorized billing was reported involving a range of products and services including

health care products and services, books and magazines, and CDs, video tapes, and DVDs.

3.4 Incidents of Fraud by Product

•• While Table 3 provides estimates of the number of incidents for each of the types of fraud covered

by the survey, both specific and general, Table 4 provides an alternative view of the areas in which

consumers were victimized. Survey participants who reported that they had experienced the more

general types of fraud were asked to identify the product that had been involved the last time they

had experienced this problem (Questions 23 and 49). In constructing Table 4, these data were used

along with the data on the specific frauds to estimate the incidence of fraud by product, rather than

by the type of fraud.

•• As in Table 3, Table 4 shows that weight-loss products that did not perform as represented were

the most often involved in fraudulent offerings. There were an estimated 7.9 million incidents of

fraud involving weight-loss products during 2011.

•• Similarly, the figures for the products that are listed as number 2 through 9 in Table 4 – Prize

Promotions, Work-at-Home Programs, Internet Services, Buyers’ Clubs, Credit Card Insurance,

Credit Repair Services Debt Relief, and Business Opportunities – occupy essentially the same

place as on Table 3.

•• The next three products on Table 4 – Health Care Products and Services, Other than Weight Loss

(1.0 million incidents in 2011), Books, Magazines, and Newspapers (also 1.0 million incidents),

and Telephone Service and Equipment (0.9 million incidents) – do not appear in the earlier table.

3.5 Changes in the Prevalence of Certain Surveyed Categories of Fraud

since 2005

•• Table 5 and Figures 3 and 4 provide a comparison of the estimated prevalence of fraud in 2011

with that found in the 2005 survey, looking at the 10 specific and 2 more-general surveyed frauds

where no significant changes were made to the questions asked between the two surveys.

•• Areas where changes were made to the survey questions included:

• Prize Promotion Fraud – The survey questions about prize promotions were changed to,

hopefully, provide a better estimate of this type of fraud. In addition, the 2011 figures were

designed to include fraudulent representations of foreign lottery winnings, something that

was treated separately in the 2005 survey.

• Debt Relief – The 2005 survey included questions that were characterized as asking about

debt consolidation. Since the 2005 survey was completed, the Commission has spent

considerable time and effort studying the debt relief industry, and the questions included in

the 2011 survey were modified to reflect the Commission’s improved understanding of the

different types of services debt relief firms offer and the promises they make.

Consumer Fraud in the United States

Table 4. Estimated Number of Incidents of Fraud by Product or Service Involved, 2011

Product or Service

Number of Incidents

(millions)

Weight-Loss Products

7.9

Prize Promotions

2.9

Work-at-Home Programs

2.8

Internet Services

2.3

Buyers’ Clubs

2.3

Credit Card Insurance

2.2

Credit Repair Services

2.0

Debt Relief

1.7

Business Opportunities

1.2

Health Care Products and Services, Other Than Weight Loss

1.0

Books, Magazines, and Newspapers

1.0

Magazines

0.5

Books

0.2

Not Specified

0.2

Telephone Service or Equipment

0.9

Cellular telephone service or equipment

0.5

Telephone service or equipment, except cellular

0.5

Advance Fee Loans

0.9

Mortgage Relief

0.8

Pyramid Schemes

0.7

Counterfeit Check Scams

0.6

Government Job Offers

0.6

CDs, DVDs, etc.

0.5

Games or Other Programs Delivered to a Cell Phone or Other Mobile Device

0.4

Travel services and vacations

0.3

Grant Scams

0.2

Cable or Satellite TV or Satellite Radio

0.1

Real estate (including timeshares)

0.1

Cameras

0.1

Credit Monitoring Services, ID Theft Services, Copies of Credit Reports

0.1

Other

3.5

Don’t Know / Refused

0.7

Source: 2011 FTC Fraud Survey

Notes.

In this table, incidents of the two more general frauds have been allocated to specific products or services. Values are rounded to the

nearest 0.1 million.

Projections are based on estimated U.S. population of 237.66 million adults – 18 and older – as of July 1, 2011. (See U.S. Census Bureau,

Population Division, Annual Estimates of the Resident Population for Selected Age Groups by Sex for the United States: April 1, 2010 to

July 1, 2011 (NC-EST2011-02), released May 2012, available at http://www.census.gov/popest/data/national/asrh/2011/index.html.)

Prevalence of Surveyed Categories of Fraud

Figure 3. Fraud Prevalence, Unchanged Frauds, Aggregate Figures, 2005 and 2011

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Consumer Fraud in the United States

Figure 4. Prevalence of Specific Unchanged Frauds, 2005 and 2011

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Source: Table 5.

Prevalence of Surveyed Categories of Fraud

Table 5. Prevalence of Fraud Victimization in 2011 and 2005 Surveys,

Frauds Included in Both Surveysa

Victims as Percent of

Adult Population

Type of Fraud

Sig.b

2005 Survey

2011 Survey

Victims of Any Fraud Included in Both Surveys

10.7%

(9.5% - 11.9%)

9.2%

(8.0% - 10.4%)

Victims of Any Specific Fraud Included in Both Surveys

6.9%

(5.9% - 7.9%)

6.2%

(5.2% - 7.3%)

Weight-Loss Products

2.1%

(1.5% - 2.7%)

2.1%

(1.5% - 2.8%)

Unauthorized Billing – Buyers’ Clubs

1.2%c

(0.8% - 1.5%)

0.8%

(0.5% - 1.1%)

Unauthorized Billing – Internet Services

0.7%c

(0.4% - 1.0%)

0.8%

(0.5% - 1.1 %)

Work-at-Home Programs

1.1%

(0.7% - 1.5%)

0.7%

(0.3% - 1.2%)

Credit Repair

0.5%

(0.2% - 0.8%)

0.7%

(0.3% - 1.1%)

Credit Card Insurance

0.9%

(0.6% - 1.3%)

0.6%

(0.3% - 0.9%)

Business Opportunities

0.4%

(0.2% - 0.6%)

0.5%

(0.2% - 0.8%)

Advance Fee Loans

0.8%

(0.4% - 1.1%)

0.3%

(0.0% - 0.6%)

Pyramid Schemes

0.4%

(0.1% - 0.6%)

0.3%

(0.1% - 0.5%)

Government Job Offers

0.2%

(0.0% - 0.3%)

0.2%

(0.0% - 0.5%)

4.4%

(3.6% - 5.1%)

3.3%

(2.6% - 4.0%)

Paid for Something Never Received

2.9%c

(2.3% - 3.6%)

1.9%

(1.3% - 2.5%)

Unauthorized Billing – Other Products

1.5%c

(1.1% - 1.9%)

1.5%

(1.1% - 1.9%)

Victims of the More General Frauds Included in the Both Surveys

Source: 2005 and 2011 FTC Fraud Surveys

Notes.

Figures in parentheses are 95 percent confidence intervals. 0.0% denotes a value of less than 0.05 percent.

a. In addition to the frauds included in this table, prize promotion and debt relief frauds were included in both the 2005 and 2011

surveys. However, the questions used in the two surveys differed enough that it is difficult to compare the results from the two

surveys.

b. Indicates significance of the differences across the two surveys.

***

denotes statistical significance at the 10 percent level

denotes statistical significance at the 5 percent level

denotes statistical significance at the 1 percent level

c. This figure differs from what was reported in “Consumer Fraud in the United States: The Second FTC Survey.” A mistake was made

in the analysis that generated the figures published in the previous report.

Consumer Fraud in the United States

• Counterfeit Checks – The 2005 survey only asked about the problem of a perpetrator of

a fraud sending a consumer a counterfeit check and asking him or her to return part of

the money in the context of foreign lottery frauds. In the 2011 survey, consideration of

the problem of fraudulent checks was expanded to cover other areas, including all prize

promotions and grant promotions.

•• Questions about two additional frauds – mortgage relief fraud and grant fraud – that were not

included in 2005 were added to the 2011 survey.

•• As shown in Table 5, 9.2 percent of participants in the 2011 survey indicated that they had

experienced at least one of the frauds that were included in both the 2011 and 2005 surveys in

essentially the same form. Looking at this set of frauds, 10.7 percent of participants in the 2005

survey indicated that they had experienced at least one of the frauds during the preceding year.

The decline in the prevalence of this set of frauds is statistically significant (p<0.10).56

•• The percentage of those who experienced one of the ten specific frauds that are unchanged

between the 2005 and 2011 surveys declined from 6.9 percent in 2005 to 6.2 percent in 2011.

However, this difference is not statistically significant.

•• The percentage of survey participants who experienced the individual specific frauds fell for five

of the ten specific frauds where comparison is possible. However, only one of these differences –

Advance Fee Loans – was statistically significant (p<0.05).

• For three of the frauds – unauthorized billing for Internet services, credit repair, and

fraudulent business opportunities – the percentage of survey participants experiencing that

fraud rose between 2005 and 2011, though in two of the three cases the increase was only 0.1

percentage points. None of the increases was statistically significant.

• For the two remaining specific frauds where comparison across the two years is possible –

weight-loss products (the most frequently experienced fraud) and government job offers (the

least frequently experienced) – there was no change in the prevalence of the frauds between

the two years.

•• The share of survey participants who reported experiencing one or both of the two more general

frauds declined from 4.4 percent in 2005 to 3.3 percent in 2011. This difference was statistically

significant (p<0.10).

• This decline is the result of a decline in the percentage of survey participants who reported

having paid for something but never having received it. This problem was reported by 2.9

percent of survey participants in 2005. In 2011, only 1.9 percent of participants reported

having this experience. The difference was statistically significant (p<0.05).

Where statistically significant differences are reported, the level of significance is denoted by p<0.10, which indicates that the

difference is significant at the 10 percent level, p<0.05, difference is significant at the 5 percent level, or p<0.01, the difference is

significant at the 1 percent level.

Where a result is not statistically significant, this means that the likelihood that the observed difference could have occurred just by

chance even if there really was no difference in the underlying parameters is greater than 10 percent. If an estimated difference is not

statistically significant, this means that one cannot have a high degree of confidence that the actual differences are not zero. However,

even if the estimated difference fails to meet the standard for statistical significance, the estimate is still the best estimate of the

difference.

Characteristics of Transactions Involving Surveyed Frauds

4. Characteristics of Transactions Involving

Surveyed Frauds

The nature of the transactions that involved the frauds covered by the 2011 fraud survey is explored in

this chapter.57 How did victims order the fraudulent products or services? How were these products or

services promoted to victims? How much did they pay, and how did victims make these payments?

4.1 How Were Fraudulent Goods and Services Purchased?

•• As shown in Table 6 and Figure 5, in almost 40 percent of cases, victims of the frauds covered by

the survey used the Internet to purchase the fraudulent goods or services.

•• The telephone was the medium used to place orders in another 30 percent of incidents.

•• In just over 10 percent of incidents orders were placed by mail,

•• Just over 10 percent of purchases were also made by visiting a brick-and-mortar store.

•• Comparing these results to the 2005 survey shows that the proportion of cases in which the

Internet was used to place orders for items that turned out to be fraudulent increased by 20

percentage points – from roughly 20 percent to 40 percent – between 2005 and 2011 (Figure 6).58

•• The percentage of incidents in which the purchase was made by telephone was largely unchanged

from 2005.

•• During this period of time, the proportion of orders that were made by mail decreased from just

over 20 percent to 12 percent, while the proportion of purchases made at a store fell from around

16 percent to 12 percent.

4.2 How Were Fraudulent Goods and Services Promoted to Victims?

•• The Internet was the most common way victims first learned of offers that turned out to be

fraudulent. The Internet was the source of information in almost one-third of incidents (Table 7

and Figure 7).

• In almost 20 percent of incidents where victims first learned about a fraudulent offer via

the Internet – 6.3 percent of all incidents – the information came from an email or a text

message.

• In just over 10 percent of cases involving the Internet – 3.8 percent of all incidents – the

information came from social media sites.

• Internet auction sites and online classified advertising sites were each the source of

information in approximately 2 percent of all incidents.

Because of the way the estimates are constructed, it is not feasible to test whether or not the differences between 2005 and 2011

reported in this chapter are statistically significant.

The data on how purchases were made in 2005 are found in Table 10 on page 46 of Anderson (2007), supra n.1.

Consumer Fraud in the United States

Figure 5. How Fraudulent Goods and Services Were Purchased

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DĂŝů͕ϭϮ͘Ϭй

/ŶƚĞƌŶĞƚ͕ϯϵ͘ϴй

dĞůĞƉŚŽŶĞ͕ϯϬ͘Ϯй

WĞƌƐŽŶƚŽWĞƌƐŽŶ͕Ϭ͘ϵй

ŽŶΖƚ<ŶŽǁͬZĞĨƵƐĞĚ͕Ϭ͘ϱй

Source: Table 6.

KƚŚĞƌ͕ϯ͘Ϯй

ŶƐǁĞƌĞĚ^ƵƌǀĞǇ

/ŶĐŽƌƌĞĐƚůǇ͕ϭ͘ϵй

Characteristics of Transactions Involving Surveyed Frauds

Table 6. How Fraudulent Goods and Services Were Purchased

Number of Incidents

(millions)

Percent

Total Incidents of Surveyed Frauds That Involved Purchases

(Specific and More General)a

25.1

100.0%

Internet

10.0

39.8%

Telephone

7.6

30.2%

Mail

3.0

12.0%

Store

2.9

11.5%

Person to Person

0.2

0.9%

Answered the Wrong Questionb

0.5

1.9%

Other

0.8

3.2%

Don’t Know / Refused

0.1

0.5%

Purchased by

Source: 2011 FTC Fraud Survey

Notes.

Numbers are rounded to the nearest 0.1 million and percentages to the nearest 0.1 percent. Estimates for individual categories may

not add to totals due to rounding.

The percentage of transactions purchased in each way was estimated for each type of fraud. These percentages were then multiplied

by the estimated number of incidents for that type of fraud and summed across fraud types. The resulting totals are then expressed as

percentages of the totals.

a. Does not include frauds involving unauthorized billing or prize promotion frauds since, in many cases, the victim of these frauds

does not knowingly purchase anything.

b. When asked how they purchased the fraudulent product or service, some survey participants’ answers indicated how payment was

made, not how the purchase was made

Consumer Fraud in the United States

Figure 6. How Fraudulent Items Were Purchased, 2005 and 2011

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ϭϱ͘Ϭй

ϭϬ͘Ϭй

ϱ͘Ϭй

Ϭ͘Ϭй

dĞůĞƉŚŽŶĞ

/ŶƚĞƌŶĞƚ

DĂŝů

^ƚŽƌĞ

Source: 2011 data from Table 6, 2005 data from Anderson (2007), supra n.1, Table 10.

WĞƌƐŽŶƚŽWĞƌƐŽŶ

KƚŚĞƌ͕ŽŶΖƚ<ŶŽǁ͕

ĂŶĚZĞĨƵƐĞĚ

Characteristics of Transactions Involving Surveyed Frauds

Figure 7. How Fraudulent Offers Were Promoted to Victims

ŽŶΖƚ<ŶŽǁͬZĞĨƵƐĞĚ͕ϭ͘ϴй

KƚŚĞƌƐ͕ϭϮ͘Ϯй

/ŶƚĞƌŶĞƚ͕ϯϮ͘ϴй

KŶůǇƌĞĂůŝǌĞĚďĞŝŶŐ

ĐŚĂƌŐĞĚǁŚĞŶƌĞĐĞŝǀĞĚĂ

ďŝůůŽƌĂƉƌŽĚƵĐƚ͕ϳ͘ϲй

dĞůĞŵĂƌŬĞƚŝŶŐ͕ϵ͘ϯй

dĞůĞǀŝƐŝŽŶĂŶĚZĂĚŝŽ

ĚǀĞƌƚŝƐŝŶŐ͕ϭϲ͘ϵй

WƌŝŶƚĚǀĞƌƚŝƐŝŶŐ͕ϭϵ͘ϰй

Source: Table 7.

Consumer Fraud in the United States

Table 7. How Victims First Learned About Fraudulent Offers

Number of

Incidents

(millions)

Percent

Total Incidents of Surveyed Fraud (Specific and More General)

37.2

100.0%

Internet and Email

12.2

32.8%

General web pages

6.3

16.9%

2.3

6.3%

Social media

1.4

3.8%

Internet auction sites

0.8

2.2%

Internet classified ad site

0.7

1.9%

Internet, unspecified

0.6

1.6%

7.2

19.4%

Direct mail, including catalogs

3.6

9.8%

Newspaper and magazine advertising

3.0

8.0%

Posters and flyers

0.6

1.6%

6.3

16.9%

Television advertising, including infomercials

5.5

14.9%

Radio advertising

0.8

2.0%

Telemarketing

3.5

9.3%

Only Realized Being Charged When Received a Bill or a Product

2.8

7.6%

Others

4.5

12.2%

Word-of-mouth

2.8

7.6%

Visiting a store

0.7

1.9%

Someone visiting the consumer’s home

0.4

1.1%

Attending a seminar or presentation

0.4

1.0%

Other

0.2

0.6%

0.7

1.8%

Media

Print Advertising

Television and Radio Advertising

Don’t Know / Refused

Source: 2011 FTC Fraud Survey

Notes.

Numbers are rounded to the nearest 0.1 million and percentages to the nearest 0.1 percent. Estimates for individual categories may

not add to totals due to rounding.

The percentage of transactions promoted by each medium was estimated for each type of fraud. These percentages were then

multiplied by the estimated number of incidents for that type of fraud and summed across fraud types. The resulting totals are then

expressed as percentages of the totals.

Characteristics of Transactions Involving Surveyed Frauds

•• Print media – direct mail solicitations, newspaper or magazine advertisements, and posters or

flyers – were the second-most frequent source of information about offers that turned out to be

fraudulent, accounting for almost 20 percent of incidents.

•• Television and radio advertising was the source of information in 17 percent of incidents.

•• Telemarketing was the source of information in just under 10 percent of incidents.

•• Comparing these results to those from the 2005 survey shows that the Internet has increased

from being the source of information in just over 20 percent to just under 33 percent of incidents

(Figure 8).59

•• The share of incidents in which information was obtained by telemarketing was unchanged at just

under 10 percent between 2005 and 2011.

•• The importance of print advertising as a source of fraudulent offers declined from 27 percent to

slightly below 20 percent. Most of this decline was in direct mail solicitations, including catalogs,

which declined from 16 percent of all incidents in 2005 to 10 percent in 2011.

4.3 How Much Did Consumers Pay for Fraudulent Offerings?

•• The median amount victims reported paying in connection with an incident of fraud was $100

(Table 8). (The median value – the value of the 50th percentile – is the value where 50 percent

of incidents involved payments of more than this amount and 50 percent involved smaller

payments.)

•• In 25 percent of cases – the 75th percentile – survey participants reported that they paid $300 or

more in connection with an incident of fraud.

•• While the data on the amount paid by type of fraud is limited, 50 percent of victims who provided

information on how much they paid for fraudulent business opportunities, credit repair, and

pyramid schemes said that they had paid at least $200. For the same three frauds, 25 percent of

victims said that they paid at least $500.

Data on the source of information about fraudulent offers from the 2005 survey is found in Table 9 on page 44 of Anderson (2007),

supra n.1.

Consumer Fraud in the United States

Figure 8. How Fraudulent Offers Were Promoted, 2005 and 2011

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ϭϬ͘Ϭй

ϱ͘Ϭй

Ϭ͘Ϭй

WƌŝŶƚĚǀĞƌƚŝƐŝŶŐ

/ŶƚĞƌŶĞƚĂŶĚŵĂŝů

dĞůĞǀŝƐŝŽŶĂŶĚZĂĚŝŽ

ĚǀĞƌƚŝƐŝŶŐ

dĞůĞŵĂƌŬĞƚŝŶŐ

Source: 2011 data from Table 7, 2005 data from Anderson (2007), supra n.1, Table 9.

KŶůǇZĞĂůŝǌĞĚĞŝŶŐ

ŚĂƌŐĞĚtŚĞŶŝůů

ZĞĐĞŝǀĞĚ

KƚŚĞƌ͕ŽŶΖƚ<ŶŽǁ͕

ĂŶĚZĞĨƵƐĞĚ

Characteristics of Transactions Involving Surveyed Frauds

Table 8. Amount Paid per Incident of Fraud

Percentile

Type of Fraud

Numbera

Any Surveyed Fraud

$45

$100

$300

267

Any Specific Surveyed Fraud

$45

$100

$350

188

Business Opportunities

$200

$300

$600

Credit Repair

$100

$250

$500

Pyramid Schemes

$100

$200

$500

Unauthorized Billing – Internet Services

$20

$100

$170

Weight-Loss Products

$50

$80

$150

Unauthorized Billing – Buyers’ Clubs

$35

$70

$150

Work-at-Home

$30

$45

$150

$40

$85

$150

Paid, Never Received

$45

$85

$150

Unauthorized Billing – Other Products

$30

$50

$200

Any More General Surveyed Fraud

Source: 2011 FTC Fraud Survey

Notes.

Dollar figures rounded to nearest $5.

Data are not provided for frauds where the amount paid was available for less than 10 observations. In addition, data are not reported

for Prize Promotions, because victims of this fraud often do not incur monetary payments. Rather, the injury is often the value of the

time spent attending a sales presentation.

a. Number of cases in which a victim reported the amount paid.

Consumer Fraud in the United States

4.4 Method of Payment for Fraudulent Offerings

•• Credit cards were used as the method of payment in over half – 56 percent – of all fraudulent

transactions consumers reported encountering during 2011 (Table 9 and Figure 9).

•• In another 15 percent of incidents, consumers paid for a fraudulent product or service directly

from their checking account.

• In one-quarter of cases where payment was made from a consumer’s checking account –

3.9 percent of all incidents – the seller took the money directly from the victim’s checking

account. In most cases, this probably occurred after consumers disclosed their account

numbers to sellers as part of the fraudulent transaction.

• In 22 percent of cases involving payment from a checking account – 3.4 percent of all

incidents – payment was made using the consumer’s debit card or debit card number.

• Compared to 2005, credit cards were used more often to pay for fraudulent transactions and

checking accounts and cash were used less often (Figure 10).60

Data on the method of payment for fraudulent offers from the 2005 survey is found in Table 12 on page 49 of Anderson (2007), supra

n.1. The percentage of fraudulent transactions in which payment came from a checking account in 2005 in Figure 10 is the sum of the

figures for “Check,” “Debit Card,” and “Seller Took Money Directly from the Victim’s Checking Account” in the 2007 report, since

debit cards and directly taking money from a checking account are alternative mechanisms for paying from a checking account.

There is some ambiguity as to what is included in the “Money Order” category in Table 9 and in Figure 10. In the 2011 survey, listed

responses to question 65 – “How did you pay for this transaction?” – included “Postal money order” and “Non-postal money order,

like Western Union or MoneyGram.” What is unclear is whether consumers who gave the second of these responses were indicating

that they received a paper payment order that could then be presented to a seller as one would do with a paper personal check or

whether they were referring to money being transferred electronically for pick-up at a different location. The reported data should

therefore probably be considered to approximate the combination of paper-based payments and electronic transfers. It is not possible

to go further and disentangle these two mechanisms.

In the 2005 survey, money orders were not one of the listed payment categories. Rather, those who used a money order, whether

paper or electronic, should have been indicated as giving an “Other” response and their specific response been entered (See question

65 in the 2005 questionnaire, which is included as Appendix B of Anderson (2007) , supra n.1). While the 2005 survey results show

a number of people answering “money order” in response to what the other payment mechanism they used was, a few are shown

as responding “Wire Transfer.” As a result, the 2005 data show a small percentage of fraud victims – 0.6 percent – using a payment

mechanism identified as “Wire or Bank Transfer.” To get as close to a reasonable comparison as is possible, these victims have been

included in the Money Order category in Figure 10. However, it is again unclear exactly what was meant by those who indicated

that they had paid by money order. (It is also possible that some of the transactions in the Wire and Bank Transfer category might

better be assigned to the Checking Account or Other categories. The share of victims in this category is sufficiently small, however,

that it would not alter the basic results reflected in Figure 10 if they had instead been assigned to the Checking Accounts or Other

categories.)

Also, as noted in footnote 57 above, it is important to note that it is not feasible to test whether or not the differences between 2005

and 2011 reported in Figure 10 are statistically significant.

Characteristics of Transactions Involving Surveyed Frauds

Figure 9. How Victims Made Payment in Fraudulent Transactions

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ĞůůŽƌ>ĂŶĚůŝŶĞ͕Ϯ͘ϵй

KŶůŝŶĞWĂǇŵĞŶƚ

DĞĐŚĂŶŝƐŵ͕>ŝŬĞWĂǇƉĂů͕

Ϯ͘ϭй

KƚŚĞƌ͕Ϭ͘ϳй

ŽŶΖƚ<ŶŽǁ͕ϭ͘Ϭй

ĂƐŚ͕ϭϬ͘Ϭй

DŽŶĞǇKƌĚĞƌ͕WŽƐƚĂůŽƌ

EŽŶͲƉŽƐƚĂů͕ϭϮ͘ϵй

ƌĞĚŝƚĂƌĚ͕ϱϱ͘ϲй

ŚĞĐŬŝŶŐĐĐŽƵŶƚ͕ϭϰ͘ϵй

Source: Table 9.

Consumer Fraud in the United States

Table 9. How Victims Made Payment in Fraudulent Transactions

Number of

Incidents

(millions)

Percent

Total, All Surveyed Fraud Incidents Except Prize Promotions Requiring Attendance at a Sales

Presentation

36.2

100.0%

Credit Card

20.2

55.6%

Checking Account

5.4

14.9%

Seller Took Money Directly from the Victim’s Checking Account

1.4

3.9%

Debit Card Used

1.2

3.4%

Money Order, Postal or Non-Postal

4.7

12.9%

Cash

3.6

10.0%

Telephone Account, Cell or Landline

1.0

2.9%

Online Payment Mechanism, Like PayPal

0.8

2.1%

Other

0.2

0.7%

Don’t Know

0.4

1.0%

Payment Mechanism

Source: 2011 FTC Fraud Survey

Notes.

Based on all frauds except prize promotions where victims were required to attend a sales presentation rather than make a payment or

purchase.

The percentage of transactions in which each payment mechanism was used was estimated for each type of fraud. These percentages

were then multiplied by the estimated number of incidents of each type of fraud and summed across fraud types. The resulting totals

are then expressed as percentages of the totals.

Characteristics of Transactions Involving Surveyed Frauds

Figure 10. How Victims Made Payment in Fraudulent Transactions, 2005 and 2011

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ĂƐŚ

DŽŶĞǇKƌĚĞƌ

KŶůŝŶĞWĂǇŵĞŶƚ

DĞĐŚĂŶŝƐŵ

Source: 2011 data from Table 9, 2005 data from Anderson (2007), supra n.1, Table 12.

dĞůĞƉŚŽŶĞ

ĐĐŽƵŶƚ

KƚŚĞƌ͕/ŶĐ͘ŽŶΖƚ

<ŶŽǁĂŶĚZĞĨƵƐĞĚ

Consumer Fraud in the United States

Basic Demographic Characteristics of Victims of Surveyed Frauds

5. Basic Demographic Characteristics of Victims of

Surveyed Frauds

•• This chapter explores the demographic characteristics of victims of the frauds covered by the

survey and how they differ from the demographics of non-victims.61 Were older consumers more

likely to have been victims than those who were younger? Were members of some racial and

ethnic groups more likely to have been victims? How does income relate to the likelihood of

being victimized; how about education?

5.1 Race and Ethnicity

•• Table 10a and Figure11 provide data on the percentage of those in different racial and ethnic

groups who experienced one or more of the frauds included in the survey (“Any Surveyed Fraud”)

during 2011.62

•• Table 11 and Figure 12 provide additional detail on the experiences of African Americans,

Hispanics, and non-Hispanic whites. The first two rows of the table provide figures for those who

were victims of Any Surveyed Fraud and those who were victims of any of the specific frauds

included in the survey (“Any Specific Surveyed Fraud”).63 The remainder of the table provides

data on the two most often reported specific frauds –weight-loss products and prize promotions

– and data for several groups of the frauds included in the survey – Unauthorized Billing-Related

Fraud, Debt-Related Fraud, Income-Related Fraud, and Other Fraud. The individual frauds

included in each of these are set forth in Table 12.

African Americans

•• African Americans were almost twice as likely to have experienced Any Surveyed Fraud as were

non-Hispanic whites (Table 10a and Figure 11). During 2011, 17.3 percent of African Americans

were victims of Any Surveyed Fraud. As shown in the second column of data in Table 10, the

prevalence of fraud victimization among African Americans was 192 percent of the 9.0 percent

figure for non-Hispanic whites, the comparison group when looking at race and ethnicity. The

The results reported in this chapter are based on simple cross-tabulations. That is, they look only at the relationship between the two

variables being discussed and do not control for the effects of other variables.

The comparisons in the text examine the experiences with the frauds included in the current survey during 2011 and look for

differences across those with different demographic characteristics. They explore questions such as whether older consumers were

more or less likely than younger consumers to have experienced any of the frauds included in the current survey during 2011. Similar

comparisons were included in the report on the earlier survey (Anderson (2007), supra n.1, pp. 26-43).

The figures in this table include victims of both the specific frauds and the more general frauds included in the survey.

Survey participants were asked two separate questions about race and ethnicity. First, they were asked whether they were of Hispanic

or Latino origin and then were asked to identify the racial category or categories that best indicated their race. Those who indicated

that they were of Hispanic or Latino origin are included in the Hispanic category, regardless of their responses on the question about

race. Those who indicated that they belonged to more than one racial category were included in the “Others” group.

The “Any Surveyed Fraud” row of Table 11 presents the same data as in Table 10. The same is true for Tables 13 and 14.

Consumer Fraud in the United States

Figure 11. Aggregate Likelihood of Being a Victim of Fraud, by Race and Ethnicity

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,ŝƐƉĂŶŝĐƐ

EŽŶͲ,ŝƐƉĂŶŝĐtŚŝƚĞƐ

Source: Table 10a.

ƐŝĂŶ

KƚŚĞƌƐ

Basic Demographic Characteristics of Victims of Surveyed Frauds

Table 10. Fraud Victimization Rates, 2011, Demographic Characteristics

Percent

Victimsa

Relative

Riskb

Significance of

Differencec

African Americans

17.3%

192.2%

***

Hispanics

13.4%

148.9%

Non-Hispanic Whites [comparison group]

9.0%

—

Asian

6.2%

68.9%

Othersd

16.4%

182.2%

Number of Observations / Overall Significance

3,532

a. Race and Ethnicity

***

b. Age

Percent

Victimsa

Relative

Riskb

18 – 24

11.7%

96.7%

25 – 34

11.1%

91.7%

35 – 44 [comparison group]

12.1%

—

45 – 54

14.3%

118.2%

55 – 64

9.1%

75.2%

65 – 74

7.3%

60.3%

75 and older

6.5%

53.7%

***

Number of Observations / Overall Significance

3,524

Significance of

Differencec

—

***

Percent

Victimsa

Relative

Riskb

Significance of

Differencec

Single [comparison group]

11.4%

—

Married

10.2%

89.5%

Number of Observations / Overall Significance

3,598

c. Marital Status

Percent

Victimsa

Relative

Riskb

Significance

of Differencec

Male [comparison group]

9.8%

—

Female

11.7%

119.4%

Number of Observations / Overall Significance

3,638

d. Gender

(Table 10 continues on next page)

Table 10 (continued)

Percent

Victimsa

Relative

Riskb

Less than $20,000

12.5%

140.4%

$20,000 to $40,000

12.3%

138.2%

$40,000 to $60,000 [comparison group]

8.9%

—

$60,000 to $80,000

10.6%

119.1%

$80,000 to $100,000

13.4%

150.6%

Over $100,000

10.1%

113.5%

Number of Observations / Overall Significance

3,091

e. Current Income

Significance of

Differencec

—

Percent

Victimsa

Relative

Riskb

Significance of

Differencec

Did not complete high school

13.3%

164.2%

Graduated from high school [comparison group]

8.1%

—

Attended some college or post-secondary technical or vocational school

11.8%

145.7%

Graduated from college or more

10.9%

134.6%

Number of Observations / Overall Significance

3,600

f. Education

Source: 2011 FTC Fraud Survey

Notes.

a. Percent victim figures are based on simple cross-tabulations, not taking into account other characteristics.

b. Relative risk is the ratio of the percentage of those who are victims for a particular group and the percentage of victims in the

comparison group. That is 100 * Pi / Pc where Pi is the percentage of those in group i who were victims and Pc is the percentage of

those in the comparison group who were victims.

c. Statistical significance for individual values is the significance of the difference between the percentage of those who are victims for

the particular group and the percentage of those in the comparison group who are victims. Overall significance is the significance of

the test that variables are jointly equal to zero.

***

denotes statistical significance at the 10 percent level

denotes statistical significance at the 5 percent level

denotes statistical significance at the 1 percent level

d. Those included in the “other” racial and ethnic group include those who described themselves as “Native Hawaiian or Other Pacific

Islander,” those who described themselves as “American Indians, including Alaskan Natives,” those belonging to a racial group other

than the five specific categories included in Question 85 of the survey, and those who indicated that they belonged to more than

one racial and ethnic group. Of the 297 survey participants included in this group, just under 40 percent described themselves as

being “American Indian, including Alaska Natives,” approximately 30 percent described themselves as belonging to more than one

racial group, while just under 10 percent described themselves as “Native Hawaiian or Other Pacific Islander.”

Basic Demographic Characteristics of Victims of Surveyed Frauds

Figure 12. Victimization Rates, by Race and Ethnicity

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Consumer Fraud in the United States

Table 11. Fraud Victimization Rates, 2011, Selected Racial and Ethnic Groupsa

Racial and Ethnic Group

Type of Fraud

Overallb

Any Surveyed Fraud

Sig.c

African

American

Hispanic

Non-Hispanic

White

10.8%

(9.4% - 12.1%)

17.3%

(12.1% - 22.5%)

13.4%

(8.8% - 17.9%)

9.0%

(7.6% - 10.4%)

***

Any Specific Surveyed Fraud

7.9%

(6.7% - 9.1%)

14.7%

(9.7% - 19.7%)

10.3%

(6.4% - 14.2%)

6.4%

(5.2% - 7.6%)

***

Weight-Loss Products

2.1%

(1.5% - 2.8%)

3.5%

(0.8% - 6.2%)

3.0%

(0.6% - 5.5%)

1.9%

(1.3% - 2.6%)

Prize Promotions

1.0%

(0.6% - 1.4%)

1.6%

(0.0% - 3.4%)

1.1%

(0.1% - 2.2%)

0.9%

(0.5% - 1.4%)

Unauthorized Billing-Related

Fraudd

2.9%

(2.4% - 3.5%)

2.9%

(1.5% - 4.4%)

3.6%

(1.5% - 5.7%)

2.5%

(1.8% - 3.1%)

Debt-Related Fraude

1.9%

(1.2% - 2.5%)

4.4%

(1.4% - 7.4%)

3.4%

(1.0% - 5.8%)

1.3%

(0.6% - 1.9%)

Income-Related Fraudf

1.7%

(1.1% - 2.3%)

3.3%

(0.6% - 5.9%)

1.6%

(0.2% - 3.0%)

1.2%

(0.5% - 1.8%)

Other Frauds Included in

Surveyg

2.6%

(2.0% - 3.3%)

4.3%

(1.7% - 6.8%)

2.5%

(0.0% - 5.0%)

2.4%

(1.6% - 3.1%)

Number of Observations

3,638

443

444

2,271

Source: 2011 FTC Fraud Survey

Notes.

Figures in parentheses are 95 percent confidence intervals. 0.0% denotes a value of less than 0.05 percent.

a. Figures are based on simple cross-tabulations, not taking into account other characteristics.

b. Overall figures include survey participants who indicated that they belonged to racial and ethnic groups others than the three

broken out in this table.

c. Indicates the joint significance of the differences across the racial and ethnic groups included in the table.

***

denotes statistical significance at the 10 percent level

denotes statistical significance at the 5 percent level

denotes statistical significance at the 1 percent level

Including, in addition to the three groups included in this table, Asian and Other, differences were significant at the 1 percent level

for Any Surveyed Fraud, Any Specific Surveyed Fraud, Weight-Loss Products, Debt-Related Fraud, and Income-Related Fraud.

d. Unauthorized Billing-Related Fraud includes Unauthorized Billing – Buyers’ Guides, Unauthorized Billing – Internet Services, and

Unauthorized Billing – Other Products (one of the more general types of fraud included in the survey).

e. Debt-Related Fraud includes Credit Repair, Debt Relief, Mortgage Relief, and Advance Fee Loans.

Income-Related Fraud includes Work-at-Home Programs, Business Opportunities, Pyramid Schemes, and Government Job Offers.

g. Other Frauds Included in Survey include Credit Card Insurance, Counterfeit Checks, and Paid for Something Never Received.

Basic Demographic Characteristics of Victims of Surveyed Frauds

Table 12. Groupings of Frauds Used in Analyzing Characteristics of Victims

Victims as Percent of

Adults Americans

Type of Fraud

Weight-Loss Products

2.1%

Prize Promotions

1.0%

Unauthorized Billing-Related Fraud

2.9%

Unauthorized Billing – Buyers’ Clubs

0.8%

Unauthorized Billing – Internet Services

0.8%

Unauthorized Billing – Other Products

1.5%

Debt-Related Fraud

1.9%

Credit Repair

0.7%

Debt Relief

0.6%

Mortgage Relief

0.3%

Advance Fee Loans

0.3%

Income-Related Fraud

1.7%

Work-at-Home Programs

0.7%

Business Opportunities

0.5%

Pyramid Schemes

0.3%

Government Job Offers

0.2%

Grant Scams

0.1%

Other Fraud

2.6%

Credit Card Insurance

0.6%

Counterfeit Check Scams

0.2%

Paid for Something Never Received

1.9%

Source: 2011 FTC Fraud Survey

Notes.

Percentages rounded to nearest 0.1 percent. Figures for individual categories will not sum to totals because some individuals were

victims of more than one of the categories in the group.

Consumer Fraud in the United States

difference between the prevalence for African Americans and that for non-Hispanic whites is

statistically significant (p<0.01).64

•• As with Any Surveyed Fraud, African Americans were 8.3 percentage points more likely to have

been a victim of Any Specific Surveyed Fraud than were non-Hispanic whites (14.7 percent

of African Americans were victims of Any Specific Surveyed Fraud compared to 6.4 percent

for non-Hispanic whites, Table 11 and Figure 12). This difference was statistically significant

(p<0.01).

•• African Americans were more likely than non-Hispanic whites to have experienced each of the

groupings of frauds for which data are provided in Table 11 and Figure 12.

• African Americans were more than three times as likely to have been a victim of DebtRelated Fraud (4.4 percent of African Americans were victims of Debt-Related Fraud,

compared to 1.3 percent for non-Hispanic whites, p<0.05).

• African Americans were also 2.75 times as likely to have been a victim of Income-Related

Fraud (3.3 percent of African Americans were victims of Income-Related Fraud, compared to

1.2 percent of non-Hispanic whites).65

Where significant differences are reported, the level of significance is denoted by p<0.10, which indicates that the difference is

significant at the 10 percent level, p<0.05, difference is significant at the 5 percent level, or p<0.01, the difference is significant at the

1 percent level.

While comparisons are sometimes stated as ratios in the text – e.g., “African Americans were almost twice as likely to have been

victims of Any Surveyed Fraud than

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