Addressing consumer fraud around the world. The Baker Fraud Report focuses on mass marketing fraud – where victims never meet the fraudster in person but communicate over the phone, though the mail, or on the internet.
Federal Reserve launches instant payment system FedNow
Scammers will surely exploit it. Consumer fraud issues were posed by NCLC.
Video by rapper Punchmade Dev explains how to commit bank fraud by hacking; now removed from Youtube
Full report here
Top Stories
FTC announces major collective effort against telemarketing scams
Europol issues threat assessment finding that Cybercrime is big business; report itself here
Podcast by Int’l Ass’n of Financial Investigators on pet scams featuring Steve Baker
Does consumer consumer education about fraud work, and do we know if it is effective? By Anthony Pratkanis
Along with law enforcement and policy interventions, consumer education is one of the primary ways to prevent fraud crimes. Fraud fighters create a steady stream of warnings, fliers, handouts, videos, mailers, web pages, and seminars. If we are honest, we really don’t know if these interventions are working. More research in this area would be really helpful.
Considerable research finds that information campaigns are generally ineffective. As Elliot Aronson and I describe in Age of Propaganda, information campaigns fail because it is difficult to break through a message-dense environment and recipients often find information uninteresting and telling them something they may not want to hear. Education about fraud faces additional obstacles: the target may have an illusion of invulnerability, be in a rationalize trap, is experiencing warning fatigue, and may perceive the prevention measures as too difficult to implement. In addition, the con criminal is morphing and changing the scam, and, most importantly, con grifters’ mimicry is purposefully difficult to detect.
For the researcher, the challenge is developing research paradigms that provide efficient, timely evaluations of fraud prevention messages to accumulate knowledge of what works. This requires being able to “trap the dependent variable” of victimization, which can be difficult to measure in the wild especially using self-reports. I developed the sting methodology (discussed in response to Myth #8) to address this issue. Other potentially fruitful approaches include the development of proxy, intervening, and mediational measures.
Another valuable source for consumer education is the science of social influence (which I used to develop an investment seminar that reduced victimization by 50%) and fields such as social marketing, public health, drug and tobacco prevention, risk warnings, and public communication. The knowledge base of these fields can provide guidance on creating and testing effective social influence campaigns to prevent fraud.
Editors Note: My best judgment is that generalized advice such as “if it sounds too good to be true, it probably is” is worthless, and providing education with no context on how common a scam is little better. A piece that provides a few details on how a scam works, somewhat like the detail to explain a magic trick, is far more effective. But we could all benefit from more research on what works – and what does not.
FTC warns that scammers are in business claiming to help people with student loans
Australia forms new joint law enforcement effort to tackle online investment fraud
Full report here
New AARP study concludes that those over 60 lose $28.3 billion to fraud every year
FTC releases spotlight on the top ten text message scams
FBI IC3 gives updated report on Business Email Compromise (BEC) fraud
Listen to Steve on the OneRep podcast talking fraud
Diplomat charges that North Korea gets 50% of foreign currency from cyber attacks
Top Stories
Spain and Greece lead European effort against counterfeit clothes, shoes, and accessories
SEC sues Binance and its founder for selling unregistered securities, other violations; separately moves for injunction and to freeze company assets
FCC taking additional steps to require phone companies to identify and cut off illegal robocalls
Myth #8: Consumer education can do little to prevent fraud. By Anthony Pratkanis
At the beginning of this century, I devised a methodology for testing the effectiveness of fraud prevention interventions. In this “sting” approach, the potential target of a fraud is randomly assigned to either an intervention or a control and then, a few days later, receives a fraudulent pitch.
Doug Shadel and I used this sting methodology to test various interventions (the results published by AARP). We found the following: Reverse boiler room call centers (which warn victims) are an effective intervention tool. A forewarning message (your phone number is on a list used by fraudulent telemarketers plus information about how to respond to fraud) reduced investment fraud victimization by 50%. A forewarning message with the addition of questions to ask and think about, in this case asking for a charity’s registration number and how much goes to charity, reduced charity fraud victimization by over two-thirds. In contrast, a message that increased fear and defensiveness (imagine the con as a stranger with a ski mask coming to your door; would you let them in?) actually increased victimization.
In addition, Shadel and I developed an investment seminar which taught about the nature of investment fraud, at-risk behaviors, how con criminals persuade, and best practices for preventing victimization. This was also shown to reduce victimization by 50%.
This research provides a guide to developing effective interventions: (a) do not raise fear and defensiveness, (b) warn about the crime, (c) provide information about fraud schemes and tools to respond to fraud, and (d) encourage a critical and questioning approach to potential fraud pitches. Please let the Fraud Report know if you are aware of any additional research on the value of consumer education.
Top Stories
BBB updates study on employment/job scams; complaints increased 250% over last year
49 State AG’s sue Avid Telecom, allege it is responsible for billions of illegal robocalls
Consumer Federation of America list of top ten fraud in 2022; complaints to State and local consumer agencies; auto repair tops the list
Myth #7: One of the best ways to prevent fraud crimes is to teach financial literacy. By Anthony Pratkanis
Financial literacy refers to fundamental concepts of finance and is typically measured with quizzes about compound interest, asset diversification, bond pricing, etc. An oft-heard claim is that financial literacy is a protective factor in fraud victimization and thus an important intervention tactic. There is no scientifically-valid evidence for this claim.
Knowing that bond prices fall as interest rates go up is of little relevance in recognizing and responding to romance fraud, lottery scams, government impostors, grandparent schemes, and the like.
However, what about investment fraud? In a 2006 study, my colleagues and I found that verified investment fraud victims had significantly higher financial literacy than non-victim investors. This finding was replicated in 2014 by Graham of UK’s FCA and again in 2017 by Kieffer and Mottola of FINRA. Some of the most sophisticated investors have been fraud victims: Jay Gould, CalPERS, JPMorgan Chase, Sequoia Capital, Rupert Murdoch, Blackrock, Y Combinator, Andreessen Horowitz, and Wells Fargo former CEO Richard Kovacevich, to name a few.
Why this finding? Knowing the value of a diversified portfolio is of little use in recognizing pump and dumps, Ponzi schemes, and entrepreneurial fraud. It is like knowing the rank of poker hands without knowledge of coolers, seconds, mucks, and other forms of cheating. Active investors will gain financial literacy through their activities and will also be more likely to encounter con grifters who infiltrate the financial system. And, as always, a con criminal will use the target’s knowledge (and lack of knowledge) to tailor the pitch for best effect.
The good news: While financial literacy is of little value in fraud prevention, teaching about fraud schemes, as my colleagues and I first showed, effectively reduces victimization.
Australia reports that the majority of fraud complaints involve money mules
UK: Scotland Yard takes down iSpoof, company that faked caller ID’s to help scammers pretending to be banks; owner gets more than 13 years prison BBC story here
Myth #6: Last year Americans only lost $8.8 billion in fraud crimes, by Anthony Pratkanis
According to the FTC, “consumers reported losing nearly $8.8 billion to fraud in 2022.” The key word is “reported,” as the amount of stolen money comes from reports to the FTC’s Consumer Sentinel Network. However, given that it is based on self-reports, it vastly underestimates the damages.
In research I conducted with my colleagues, we asked known fraud victims if they had been the victim of a scam. Less than half (43%) reported the fraud – a typical result as Deevy and colleagues found in their review. This makes sense as victims may not yet recognize that they have been defrauded, have forgotten the incident, or the victim is reluctant to discuss it.
The use of complaints further contributes to underestimating harm from fraud. Research finds that relatively few consumers file complaints with the government, and, when they do, they tend to complain about the product and not about deceptive practices.
The FTC figure is based on financial losses to the victim and overlooks several important but real secondary effects, including (but not limited to): psychological harm to victims and their family and friends, hours wasted using 2FA, repairing credit and identity, or trying to determine if something is a scam, unfunded needs of charities, taxpayer dollars spent on fraud prevention and damage mitigation, opportunity costs to entrepreneurs as funding goes to fraudulent entities, lost economic growth as resources are wasted, threats to national security as fraud crimes fund adversaries, cost to businesses for training and prevention, and the deterioration of trust needed, not only for commerce, but for everyday social life.
The FTC Sentinel provides important information, just so we realize that the $8.8 billion is the tip of the iceberg of harms and damages caused by fraud criminals. The reality is that the iceberg is huge.
