Who is Victimized by Fraud? Evidence from Consumer Protection Cases

Abstract

This paper examines how fraud victimization varies across communities using data on victims from 23 consumer protection law enforcement actions. These cases span several different types of fraudulent activity, including payday loan, student debt relief, health care, and business opportunity scams, providing evidence on how demographics vary across types of fraud. For these cases, victim rates are higher in more heavily black, higher income, older, and more urban communities and are lower in more heavily Hispanic, higher household size, higher credit score, and more college-educated communities.

Appendices

Appendix

A Cases

Below, I provide details on the 23 cases used in the analysis, including the official case title, a short name used in the paper, as well as a short description of the case and links to further details.

A.1 Payday Loan Applications

The first case, FTC vs. Ideal Financial Solutions Inc., et al. (“Ideal”), involved a company that bought consumer payday loan applications and then used the bank account details in the applications to withdraw money from the consumers’ bank accounts without their consent. The FTC sued Ideal Financial and won summary judgment, with a $43 million judgment against the defendants (two additional defendants settled for a $25 million judgment).⁷

The second case, the FTC vs. Apogee One Enterprises LLC, et al. (“Platinum”), also involved payday loan applications as well as telemarketing. The company allegedly called online payday loan applicants and offered them credit cards with heavily deceptive terms; for example, the cards could only be used at the defendant’s online store, rather than at any store accepting Visa, Mastercard, or American Express as promised. The FTC sued Platinum Trust and eventually settled the charges, with a judgment of over $7.4 million that was returned to consumers via refunds.⁸

A.2 Student Debt Loan Relief

The third case, the FTC vs. Alliance Document Preparation, LLC, et al. (“EZDocs”), the FTC alleged that the defendants targeted alumni of for-profit colleges struggling to repay student loans with promises of student loan debt forgiveness in return for illegal upfront fees. The FTC eventually settled the charges, with over $19 million in monetary judgments (partially suspended to over $5 million).⁹

The fourth case, the FTC vs. Strategic Student Solutions, LLC, et al. (“SSS”), the FTC alleged that the defendants falsely promised consumers that they would reduce or eliminate their student debt and offered them non-existent credit repair services. The FTC eventually settled the charges, with a monetary judgment of over $17 million (partially suspended to over $4 million).¹⁰

A.3 Health Care

In the fifth case, FTC vs. 734956 Canada Inc. (“DoubleShot”), the FTC alleged that a Canadian company, doing business as the Freedom Center Against Obesity, made deceptive claims in direct mail advertising to US consumers for its Double Shot weight loss pills, including claims that the pills caused permanent weight loss and that users could eat as much as they wanted of any food, do no exercise, and still lose 15 to 20 pounds weekly. The FTC filed a federal district court complaint against the company and an individual involved, and the case was settled for a judgment of $500,000.¹¹

In the sixth case, FTC vs. Genesis Today, Inc., et al. (“Genesis Today”), the FTC alleged that Genesis Today made deceptive weight-loss claims in marketing its green coffee bean extract pills to US consumers through its representatives’ appearances on TV shows such as The Dr. Oz Show and The View. The FTC sued the companies and individual involved; the case was settled for consumer redress of $9 million.¹²

In the seventh case, FTC vs. NourishLife, LLC, et al. (“NourishLife”), the FTC alleged that NourishLife deceptively marketed dietary supplements for speech disorders, including autism-related speech disorders, to US consumers through several marketing channels including different types of online advertising. The FTC sued the companies and individuals involved, and the case was settled for a partially suspended judgment of $3.68 million.¹³

In the eighth case, FTC vs. Health Formulas, LLC (“SimplePure”), the FTC alleged in part that SimplePure, and its related companies and individuals, misrepresented the health benefits of two dietary supplements, and enrolled consumers in a negative option program involving several more products in which they were billed automatically without their consent. The FTC sued the companies and individuals involved, and the case was settled for a partially suspended judgment of $105 million.¹⁴

In the ninth case, FTC vs. Solace International, Inc., et al. (“Solace”), the FTC alleged tthat Solace and a related company deceptively marketed dietary supplements for weight loss (“Lipidryl”) to US consumers through advertisements online and on SkyMall. The FTC sued the companies and individuals involved, and the case was settled for a settlement amount of $400,000 and the proceeds of four houses. The total redress amount for Lipidryl purchasers was about $250,000.¹⁵

In the 10th case, FTC vs. Tommie Copper, Inc., et al. (“Tommie Copper”), the FTC alleged that Tommie Copper deceptively marketed copper-infused compression clothing to US consumers in order to provide relief from chronic and severe pain and inflammation due to arthritis and other diseases. The product was advertised through several marketing channels including infomercials hosted on the Montel Williams show, as well as print media and social media. The FTC sued the company as well as individuals involved, and the case was settled for a partially suspended judgment of $86.8 million.¹⁶

A.4 Business Opportunity

In the 11th case, the FTC vs. Advertising Strategies LLC, et al. (“AdvStrategy”), the FTC alleged that a company used telemarketing to sell consumers fake business or investment opportunities, using various different purported online investment businesses. The FTC settled the case for a monetary judgment of $25 million.¹⁷

In the 12th case, the FTC vs. Digital Altitude LLC, et al. (“DigitalAltitude”), the FTC alleged that defendants misrepresented that they would teach consumers how to make substantial sums of money from an online business. The FTC obtained settlements with 7 defendants, with fully or partially suspended judgments in all of them. The FTC also obtained a default judgement against the remaining defendants, with a $54 million unsuspended judgment.¹⁸

In the 13th case, the FTC vs. Lift International LLC, et al., and the FTC vs. Thrive Learning LLC (“Guidance”), the FTC alleged that a set of companies used deceptive telemarketing to sell consumers business coaching services. The FTC settled these cases for between $10 million and $30 million for each set of companies involved.¹⁹

In the 14th case, the FTC vs. Independent Marketing Exchange, Inc., et al. (“IME”), the FTC alleged that the companies made false earnings claims while selling several types of work at home schemes. The FTC settled this case for a partially suspended judgment of $919,000 for each of the companies and the individual involved.²⁰

In the 15th case, the FTC vs. Ronnie Montano, et al. (“MoneyCode”), the FTC alleged that the company contacted consumers through spam emails, and falsely promised that consumers could earn hundreds to thousands of dollars per day using the company’s Mobile Money products. The FTC settled this case for a partially suspended judgment of $7 million.²¹

In the 16th case, the FTC vs. Money Now Funding LLC (“MoneyNow”), the FTC alleged that a company falsely promised consumers a business opportunity in which they could run a business from their home referring local businesses to the defendants’ money lending service. The FTC either won judgments or settled with defendants for monetary judgments of varying amounts up to almost $7.4 million.²²

In the 17th case, the FTC vs. Top Shelf Marketing Corp., et al. (“TopShelf”), the FTC alleged that the company falsely promised that the business development services they sold would assist consumers in starting a home-based Internet business. The FTC settled this case for a partially suspended judgment of $5.125 million.²³

A.5 Other Fraud

The 18th case, FTC vs. CD Capital Investments, LLC, et al. (“CD Capital”), involved a company that the FTC alleged falsely claimed they could lower consumers’ mortgage payments and interest rates or prevent foreclosure, pretended to be affiliated with a government agency or consumers’ lenders or servicers, and illegally charged advance fees for these services. The FTC sued CD Capital and won summary judgment, default judgment, or settled (depending upon the defendants) with a judgment of $1.7 million, the amount of money consumers lost.²⁴

The 19th case, FTC vs. Dolce Group Worldwide, The, LLC, et al. (“Dolce”), involved a company that allegedly marketed extended auto warranties through telemarketing with false claims that the consumers’ warranty was about to expire, that they were calling on behalf of the car dealer or manufacturer, that they were offering extensions of consumers’ original auto warranties, and that the products sold provided complete and/or specified coverage for automobile repair. The FTC sued Dolce and settled with the defendants with a judgment of $4.2 million, the amount of money consumers lost.²⁵

The 20th case, FTC vs. Green Millionaire, LLC, et al. (“Green Millionaire”), involved a company that marketed a “Green Millionaire Book” with ads that the FTC alleged falsely claimed the book would give consumers free gas and electricity. The company also did not disclose that consumers would be enrolled in a subscription program, the cost of that program, and that consumers would have to cancel the program in order to avoid charges. The FTC sued Green Millionaire and settled with the defendants with a (partially) suspended judgment of $5.7 million.²⁶

The 21st case, the FTC vs. Innovative Marketing Inc., et al. (“WinFixer”), involved a company that the FTC alleged falsely claimed that security scans had discovered malware on consumers’ computers. The company then sold computer security software that would “fix” the problems identified. The FTC sued the companies and individuals involved in the scam; most settled with multi-million dollar judgments, while the defendant that went to trial was found liable for more than $163 million.²⁷

In the 22nd case, the FTC vs. PHLG Enterprises LLC (“PHLG”), the FTC alleged that a company served as a middleman to transfer money from consumers to Indian call centers using Western Union or MoneyGram cash transfers. The Indian call centers were conducting various different scams, such as imposter scams impersonating the IRS or government grant authorities. The FTC settled with defendants in this case for a suspended judgment of $1.5 million.²⁸

In the 23rd case, the FTC, et al. vs. VGC Corporation of America, et al. (“VGC”), the FTC alleged a company targeted Hispanic consumers by using Spanish language radio and TV ads and offered a vacation prize if consumers paid a fee; consumers never received the vacation package.²⁹ The FTC and Florida Attorney General’s office settled with defendants in this case for a partially suspended judgment (given ability to pay) of more than $14 million, as well as injunctive provisions that prevented the defendants from marketing or selling vacation packages (among other provisions).

B Demographics

Table 5 contains the 1st, 5th, 10th, 25th, 50th, 75th, 90th, 95th, and 99th percentile quantiles of each variable across zip codes. The quantiles are estimated after weighting each zip code by its population. All of the ethnic demographics are heavily skewed—half of the American population lives in zip codes whose population is less than 5% black, less than 9% Hispanic, and less than 2% Asian. On the other hand, majority-black and majority-Hispanic zip codes each comprise more than 5% of population weighted zip codes. The measure of urbanization is similarly skewed; the median zip code is 98% urban, but more than 5% of zip codes are 0% urban. Because PO Box zip codes are excluded, I likely miss some of the population living in rural areas, who are more likely to use PO Boxes.

Table 5 Quantiles of demographic variables

The other variables are somewhat less skewed. The median age for the median zip code is 38.2, with the bottom 5% of zip codes with a median age below 29 and the top 5% of zip codes with a median age above 49. The median household size is 2.6 for the median zip code, compared with below 2.1 for the bottom 5% of zip codes and above 3.5 for the top 5% of zip codes. The average credit score is 701.5 for the median zip code, but 5% of zip codes have an average credit score below 640 and 5% have an average credit score above 750. For the median zip code, the median household income is 59 thousand (2018) dollars; the bottom 5% have a median income below 34 thousand dollars and the top 5% have a median income above 117 thousand dollars. Lastly, in the median zip code, about 27% of the 25 year old and above population have completed college, compared with less than 10% for the bottom 5% of zip codes and above 66% for the top 5% of zip codes.

C Case-Specific Results

Table 6 Percent change in per capita victim rate by demographic factors: health care cases

Table 7 Percent change in per capita victim rate by demographic factors: business opportunity (low dollar) cases

Table 8 Percent change in per capita victim rate by demographic factors: business opportunity (high dollar) cases

Table 9 Percent change in per capita victim rate by demographic factors: payday loan cases

Table 10 Percent change in per capita victim rate by demographic factors: student debt relief cases

Table 11 Percent change in per capita victim rate by demographic factors: other fraud cases