[Senate Hearing 115-139]
[From the U.S. Government Publishing Office]
S. Hrg. 115-139
STAYING A STEP AHEAD: FIGHTING BACK AGAINST SCAMS USED TO DEFRAUD
AMERICANS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CONSUMER PROTECTION,
PRODUCT SAFETY, INSURANCE,
AND DATA SECURITY
of the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
MARCH 21, 2017
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
JOHN THUNE, South Dakota, Chairman
ROGER F. WICKER, Mississippi BILL NELSON, Florida, Ranking
ROY BLUNT, Missouri MARIA CANTWELL, Washington
TED CRUZ, Texas AMY KLOBUCHAR, Minnesota
DEB FISCHER, Nebraska RICHARD BLUMENTHAL, Connecticut
JERRY MORAN, Kansas BRIAN SCHATZ, Hawaii
DAN SULLIVAN, Alaska EDWARD MARKEY, Massachusetts
DEAN HELLER, Nevada CORY BOOKER, New Jersey
JAMES INHOFE, Oklahoma TOM UDALL, New Mexico
MIKE LEE, Utah GARY PETERS, Michigan
RON JOHNSON, Wisconsin TAMMY BALDWIN, Wisconsin
SHELLEY MOORE CAPITO, West Virginia TAMMY DUCKWORTH, Illinois
CORY GARDNER, Colorado MAGGIE HASSAN, New Hampshire
TODD YOUNG, Indiana CATHERINE CORTEZ MASTO, Nevada
Nick Rossi, Staff Director
Adrian Arnakis, Deputy Staff Director
Jason Van Beek, General Counsel
Kim Lipsky, Democratic Staff Director
Chris Day, Democratic Deputy Staff Director
Renae Black, Senior Counsel
------
SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT SAFETY, INSURANCE, AND
DATA SECURITY
JERRY MORAN, Kansas, Chairman RICHARD BLUMENTHAL, Connecticut,
ROY BLUNT, Missouri Ranking
TED CRUZ, Texas AMY KLOBUCHAR, Minnesota
DEB FISCHER, Nebraska EDWARD MARKEY, Massachusetts
DEAN HELLER, Nevada CORY BOOKER, New Jersey
JAMES INHOFE, Oklahoma TOM UDALL, New Mexico
MIKE LEE, Utah TAMMY DUCKWORTH, Illinois
SHELLEY MOORE CAPITO, West Virginia MAGGIE HASSAN, New Hampshire
TODD YOUNG, Indiana CATHERINE CORTEZ MASTO, Nevada
C O N T E N T S
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Page
Hearing held on March 21, 2017................................... 1
Statement of Senator Moran....................................... 1
Statement of Senator Blumenthal.................................. 2
Statement of Senator Thune....................................... 26
Statement of Senator Inhofe...................................... 28
Statement of Senator Udall....................................... 30
Statement of Senator Cortez Masto................................ 32
Statement of Senator Hassan...................................... 34
Statement of Senator Klobuchar................................... 36
Statement of Senator Markey...................................... 38
Witnesses
Hon. Maureen K. Ohlhausen, Acting Chairman, Federal Trade
Commission..................................................... 5
Prepared statement........................................... 6
Hon. Terrell McSweeny, Commissioner, Federal Trade Commission.... 7
Prepared statement........................................... 9
Hon. Mike DeWine, Ohio Attorney General.......................... 10
Prepared statement........................................... 12
Frank Abagnale, Author and Consultant, Abagnale & Associates..... 15
Prepared statement........................................... 17
Mike Schwanke, Reporter, KWCH-12 Eyewitness News................. 18
Prepared statement........................................... 20
Appendix
Letter dated March 17, 2017 to Hon. Deb Fischer from Scott
Merritt, Executive Director, Nebraska Hotel & Lodging
Association.................................................... 47
Response to written questions submitted to Hon. Maureen K.
Ohlhausen by:
Hon. John Thune.............................................. 51
Hon. Deb Fischer............................................. 56
Hon. Jerry Moran............................................. 57
Hon. Dean Heller............................................. 61
Hon. Todd Young.............................................. 62
Hon. Bill Nelson............................................. 63
Hon. Richard Blumenthal...................................... 64
Hon. Amy Klobuchar........................................... 66
Response to written questions submitted to Hon. Terrell McSweeny
by:
Hon. Jerry Moran............................................. 67
Hon. Dean Heller............................................. 69
Hon. Todd Young.............................................. 70
Hon. Bill Nelson............................................. 70
Hon. Richard Blumenthal...................................... 70
Response to written questions submitted to Hon. Mike DeWine by:
Hon. John Thune.............................................. 72
Hon. Jerry Moran............................................. 72
Hon. Todd Young.............................................. 72
Hon. Bill Nelson............................................. 73
Hon. Richard Blumenthal...................................... 73
Response to written questions submitted to Frank W. Abagnale, Jr.
by:
Hon. Bill Nelson............................................. 73
Hon. Richard Blumenthal...................................... 74
Response to written question submitted by Hon. Richard Blumenthal
to:
Mike Schwanke................................................ 75
STAYING A STEP AHEAD: FIGHTING BACK
AGAINST SCAMS USED TO DEFRAUD AMERICANS
----------
TUESDAY, MARCH 21, 2017
U.S. Senate,
Subcommittee on Consumer Protection, Product
Safety, Insurance, and Data Security,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:33 p.m. in
Room SR-253, Russell Senate Office Building, Hon. Jerry Moran,
Chairman of the Subcommittee, presiding.
Present: Senators Moran [presiding], Blumenthal, Inhofe,
Young, Klobuchar, Markey, Booker, Udall, Hassan, Cortez Masto,
and Thune.
OPENING STATEMENT OF HON. JERRY MORAN,
U.S. SENATOR FROM KANSAS
The Chairman. The committee will come to order. Good
afternoon, and welcome to our first hearing of this
Subcommittee on Consumer Protection, Product Safety, Insurance,
and Data Security, in this new Congress. I'm pleased that
Ranking Member Blumenthal is here today. He has an especially
busy schedule as a member of the Senate Judiciary Committee.
And I look forward to working with him not only on this
hearing, but throughout this Congress, as we try to address
issues that are facing consumers and overseeing the work of the
Federal consumer protection agencies that fall within this
subcommittee's jurisdiction.
I am convening this hearing to discuss scams affecting
American consumers. In the Commerce Committee, we often debate,
and sometimes differ on, the proper role of government, the
appropriate level of regulation, and the best way to protect
the public without imposing unnecessary burdens on the private
sector that would stifle their contribution to the economy.
Today, however, the issue before the Committee is one on
which there is broad consensus. Consumers need protection from
those who seek to defraud them through scams, and the Federal
Government must do everything it can to protect consumers from
truly bad actors. American citizens are scammed out of billions
upon billions of dollars every year with zero corresponding
benefit to our Nation's economy. With technology becoming more
sophisticated, so also has the complexity of scams continued to
make this circumstance even more difficult. From fake charity
donation solicitations calls, to phishing e-mail scams that
lead to identity theft, a wide variety of scams that unduly
harm Americans continue to bypass consumer protection
enforcement measures at the Federal, state, and local levels.
To that end, this committee oversees the Federal Trade
Commission, and I am pleased that we are joined today by Acting
Chairman Ohlhausen and Commissioner McSweeny, who together
constitute the current FTC in its entirety.
However, with all due respect to Chairman Ohlhausen and
Commissioner McSweeny, I believe it's important that the
President act swiftly to restore the Commission to its full
strength. The FTC's work in support of consumers and
competition is too important for an agency to continue
operating shorthanded in weeks and months ahead.
I would also like to extend a welcome to our former
colleague, Ohio Attorney General Mike DeWine, Frank Abagnale,
and Mr. Mike Schwanke. All three will provide unique
perspectives today reflecting ways government protects citizens
through fraud prevention, the perspectives of scam victims, and
the mentality and common tactics of the scammers themselves.
This is a wonderful witness panel for today's hearing,
which I hope will have a meaningful impact to raise awareness
about this important issue, educate consumers about particular
scams to watch for, and prevent future scams from continuing to
harm consumers acting as a significant drag on our economy and
all the personal challenges a scam creates.
Thank you all for being here. And I turn now to the Ranking
Member for his opening statement.
STATEMENT OF HON. RICHARD BLUMENTHAL,
U.S. SENATOR FROM CONNECTICUT
Senator Blumenthal. I join the Chairman in thanking you for
being here. It is a great panel. And I want to thank the
Chairman for holding this important hearing so that we and the
consumers of America can stay one step ahead of scams, which
have become so ubiquitous and threatening in our modern,
technologically-driven life.
Scams are a real hardship for individuals, but they're also
a scourge on our economy, unfairly victimizing consumers,
compromising our trust in the marketplace, and siphoning
millions of dollars from individuals and legitimate, honest
businesses--not just individual consumers, but also businesses
who suffer as a result of scams. In fact, the FTC has secured
$14 billion in consumer relief since Fiscal Year 2014 alone.
I am pleased that our former colleague, as Attorney
General, Mr. DeWine is here with us, and that I am joined by
two former Attorneys General on the panel today. And we know
how pervasive these frauds are, not just the classic wire fraud
schemes, but also the telephone technician scams targeting
small and medium-sized businesses.
The type of scheme is as endless as the human imagination
and often as frustrating as a Whack-A-Mole game; you shut one
scam down and dozens more arise. That's why informed consumers
are one of the most powerful tools we have, because the best
prevention is consumer education and care and self-protection.
But we also need swifter enforcement, and severe and
appropriate punishment, to effectively deter bad actors and to
ensure that any company complicit in a scam doesn't simply
write off a fine or a government lawsuit as the cost of doing
business. My hope is that we will talk about stronger
punishments against individuals so as to deter these scams and
close some of the gaping holes in our present law.
First, we ought to make sure that we're pursuing
enforcement actions against any and all aiders and abettors of
fraud. Search engines, social media sites, and online
generators ought to be on notice that they have a duty to
implement checks to make sure that they are not complicit in
connecting consumers to illegitimate businesses intent on
fleecing people's pocketbooks.
Second, the FTC is currently limited in its ability to
pursue cases against nonprofits. Considering that the nonprofit
sector is estimated to account for 5 percent of the Nation's
GDP and 10 percent of the private sector workforce, there is
also the vulnerability to fraud on the nonprofit side, and
we've seen it occur in this sector.
Third, in order to more effectively deter unlawful schemes,
we ought to strengthen the FTC's ability to seek civil
penalties on first violations of Section 5.
And fourth, the FTC shouldn't just go after bad guys once
they've already left a slew of victims in their wake; the FTC
also ought to have the ability to set rules in appropriate
circumstances that stop the bad behavior in the first place
before consumers are harmed.
Finally, there is no denying, no getting around the fact,
that the hiring freeze has had consequences for the FTC, in
effect inhibiting its ability to effectively crack down on
fraud and protect consumers. And the recent actions, including
the budget proposal that cuts government spending on
enforcement efforts, can only have further bad consequences.
I would also like to say a word about how Congress is on
the verge of using the Congressional Review Act to rescind the
Federal Communication Commission's broadband privacy rules.
Republican colleagues say they want to transfer privacy
oversight of broadband back to the FTC, but the FTC doesn't
have jurisdiction over security and privacy practice of
broadband, cable, and wireless carriers in their capacity as
common carriers.
And if the Ninth Circuit's recent decision on FTC v. AT&T
adopting a status-based instead of activity-based
interpretation of the FTC's common carrier exemption is upheld,
the FTC's jurisdiction and ability to improve privacy and
security obligations would be even further curtailed. The
elimination of the FCC's rules would result in a yawning chasm
where broadband and cable companies have no discernable
regulation. That outcome would be devastating for consumers.
My hope is that this committee, like the FTC, can continue
working on a bipartisan basis, and I look forward to passing
legislation like the Better Online Ticket Sales Act and the
Consumer Freedom Review Act, as we did in the 114th Congress,
that give the FTC additional authority to protect consumers.
Thank you all for being here today.
The Chairman. Senator, thank you very much. We welcome our
panel of witnesses and thank them for their testimony. Our
witnesses are the Honorable Maureen K. Ohlhausen, Acting
Chairman of the Federal Trade Commission; the Honorable Terrell
McSweeny, Commissioner of the Federal Trade Commission; the
Honorable Mike DeWine, Attorney General of the State of Ohio;
and I would turn to the gentleman from Oklahoma to introduce
someone he claims is an Oklahoman.
[Laughter.]
The Chairman. But do ask him where his children went; to
what university.
[Laughter.]
Senator Inhofe. Well, they couldn't help that they couldn't
get in.
[Laughter.]
Senator Inhofe. Well, I'm just delighted to have Frank
Abagnale here. And I'm very, very proud that he did raise a
family in Oklahoma, and I see him on the plane all the time
going back and forth. And I'm anxious to ask you the first
question, but I won't do that until it's my turn.
Mr. Abagnale, thank you for accepting the invitation to
testimony before the Committee on the subject of fighting back
against scams used to defraud Americans. Your perspective, as
your life history, is unique among the witnesses. After your
teenage years, you were made notorious by the movie ``Catch Me
If You Can,'' which I just saw, and I'm just really excited
about that. I know you in a different way than I have in the
past. But, anyway, we're looking forward to your unique
perspective that we'll enjoy very much.
For over 40 years, financial institutions, corporations,
and government agencies, including the Federal Bureau of
Investigation, have benefited from your expertise in fraud-
related crime. Because of you, countless Americans are better
protected from scams because of their education and heightened
awareness that you provide. The FBI has more than a generation
of agents taught to detect, track, and solve fraud-related
crimes against Americans. In recognition of fraud that is
happening more and more online, you became AARP's Fraud Watch
Network Ambassador to educate consumers about the way to
protect themselves from identity, and I think you had one just
the other day in Oklahoma, such a meeting.
So we look forward to your testimony this afternoon as we
explore the challenges to educating and protecting Americans
from fraud as well as the steps we can take to educate and
empower those fighting against it. Welcome to you.
Mr. Abagnale. Thank you, Senator.
The Chairman. I'm not as constrained as the Senator from
Oklahoma is. Your children went to what university?
Mr. Abagnale. I have two sons who graduated from KU.
The Chairman. Thank you. Our final witness on this panel is
Mr. Mike Schwanke, of KWCH, the CBS affiliate in Wichita,
Kansas, an investigative reporter.
Let us begin with the testimony of the Chairwoman, and
we'll work our way to my right, to her left.
Welcome.
STATEMENT OF HON. MAUREEN K. OHLHAUSEN,
ACTING CHAIRMAN, FEDERAL TRADE COMMISSION
Commissioner Ohlhausen. Thank you. Chairman Moran, Ranking
Member Blumenthal, and members of the Subcommittee, I am
pleased to appear before you today alongside my colleague,
Commissioner Terrell McSweeny, and the other panelists to
discuss the importance of combating consumer fraud.
Protecting American consumers involves several factors,
including market forces, private rights, and public law
enforcement. The first factor is a competitive marketplace in
which consumers have adequate information and a variety of
choices. In these circumstances, most companies will care about
their reputation and their ability to attract repeat customers.
Companies therefore have incentives to be honest and keep the
promises they make to consumers or else lose out to their
competitors.
The second factor is private legal rights as well as
effective mechanisms to enforce those rights. The ability of
consumers to bring legal action to enforce their rights in the
face of, for example, a breach of contract is an important
protection for consumers.
The third factor is public law enforcement by the FTC,
state attorneys general, and other entities. This is necessary
in instances when a competitive marketplace and private
litigation are not enough to protect consumers. A prime example
of this is the subject of today's hearing, consumer fraud. A
fraudster is often immune to market forces because it doesn't
care about its reputation or attracting repeat customers. In
addition, fraudsters will typically take steps to avoid
detection of their scams or to dissipate assets, making it
difficult for consumers to vindicate their rights in the court
system.
Many consumers are thus left without a viable recourse
against fraudulent practices. In these circumstances, the FTC,
as the Nation's primary consumer protection agency, must step
in. And as Acting Chairman, I've instructed Commission staff to
focus our law enforcement efforts on stopping fraudulent
practices, particularly those that are causing the largest
consumer harm. In doing so, we'll ensure that the Commission is
using its resources for the maximum benefit of consumers.
And I would like to touch briefly today on two populations
in particular, military consumers and small businesses.
Military consumers are an attractive target for fraudsters.
They receive a regular paycheck, change addresses frequently,
and belong to a close-knit community. In Calendar Year 2016,
the FTC's Consumer Sentinel Network database received over
103,000 complaints from military and veteran consumers, the
vast majority of which were about imposter scams, identity
theft, and other frauds. Protecting those consumers who are
protecting our country is of paramount importance, but clearly
there is still work yet to do.
Small businesses are also attractive targets for fraud. The
Better Business Bureau reports that thousands of small
businesses are the targets of scams each year. Fraudsters often
take advantage of the fact that small businesses lack a
sophisticated recordkeeping system and thus are more
susceptible to fake invoices, phishing attacks, and marketing
scams. Frauds targeting small businesses, many of which are
scrambling just to make ends meet, can have a stifling effect
on innovation and competition in the marketplace.
The Commission also actively works to help consumers
recognize frauds before they fall victim. The Commission
produces websites, brochures, and other materials to educate
the public on common scams and how to avoid them. Often these
materials are geared toward frequently targeted groups, such as
seniors, Spanish speakers, and the two groups I mentioned,
military consumers and small businesses.
For example, we have a website, Military.Consumer.gov,
devoted to educating military consumers about fraud issues. And
I've also directed Commission staff to create a webpage for
small businesses on which we will provide a one-stop shop for
all of our guidance to small business on how to avoid scams.
And I invite the Subcommittee to consider linking to our
materials for the benefit of your constituents.
Now, I'm proud of the work the FTC has done to combat
fraud, but we can't become complacent or distracted from that
core mission. Fraudsters are always thinking up new scams, and
the Commission must be and will be at the forefront of
protecting American consumers.
So thank you for your time, and I look forward to the
discussion.
[The prepared statement of Ms. Ohlhausen follows:]
Prepared Statement of Hon. Maureen K. Ohlausen, Acting Chairman,
Federal Trade Commission
Chairman Moran, Ranking Member Blumenthal, and members of the
Subcommittee. I am pleased to appear before you today alongside my
colleague Commissioner Terrell McSweeny and the other panelists to
discuss the importance of combatting consumer fraud.
Protecting America's consumers involves several factors, including
market forces, private rights, and public law enforcement.\1\
---------------------------------------------------------------------------
\1\ See, e.g., Timothy J. Muris, Chairman, Fed. Trade Comm'n, The
Federal Trade Commission and the Future Development of the U.S.
Consumer Protection Policy (Aug. 19, 2003), https://www.ftc.gov/public-
statements/2003/08/federal-trade-commission-and-future-development-us-
consumer-protection.
---------------------------------------------------------------------------
The first factor is a competitive marketplace in which consumers
have adequate information and a variety of choices. In these
circumstances, most companies will care about their reputation and
their ability to attract repeat customers. Companies will therefore
have incentives to be honest and keep the promises they make to
consumers or else lose out to their competitors.
The second factor is private legal rights, as well as effective
mechanisms to enforce those rights. The ability of consumers to bring
legal action to enforce their rights in the face of, for example, a
breach of contract is an important protection for consumers.
The third factor is public law enforcement by the FTC, state
Attorneys General, and other entities. This is necessary in instances
when a competitive marketplace and private litigation are not enough to
protect consumers. A prime example of this is the subject of today's
hearing: consumer fraud. A fraudster is often immune to market forces
because it does not care about its reputation or attracting repeat
customers. In addition, fraudsters will typically take steps to avoid
detection of their scams or to dissipate assets making it difficult for
consumers to vindicate their rights in the court system.
Many consumers are thus left without a viable recourse against
fraudulent practices. In these circumstances, the FTC, as the Nation's
primary consumer protection agency, must step in. As Acting Chairman, I
have instructed Commission staff to focus our law enforcement efforts
on stopping fraudulent practices, particularly those that are causing
the largest consumer harm. Doing so will ensure that the Commission is
using its resources for the maximum benefit of consumers.
I would like to touch briefly today on two populations in
particular: military consumers and small businesses.
Military consumers are an attractive target for fraudsters. They
receive a regular paycheck, change addresses frequently, and belong to
a close-knit community.\2\ In calendar year 2016, the FTC's Consumer
Sentinel Network database received over 103,000 complaints from
military and veteran consumers, the vast majority of which were about
imposter scams, identity theft, and other frauds.\3\ Protecting those
consumers who are protecting our country is of paramount importance,
but clearly there is still work yet to do.
---------------------------------------------------------------------------
\2\ See Major Cindie Blair, Solutions for Victims of Identity
Theft: A Guide for Judge Advocates to Assist Servicemembers in
Deterring, Detecting, and Defending Against this Growing Epidemic,
2011-JUN Army Law. 24, 26-29 (2011).
\3\ Fed. Trade Comm'n, Consumer Sentinel Network Report (2016),
https://www.ftc.gov/enforcement/consumer-sentinel-network/reports.
---------------------------------------------------------------------------
Small businesses are also attractive targets for fraud. The Better
Business Bureau reports that thousands of small businesses are the
targets of scams each year.\4\ Fraudsters often take advantage of the
fact that many small businesses lack a sophisticated recordkeeping
system and are thus more susceptible to fake invoices, phishing
attacks, and marketing scams.\5\ Frauds targeting small businesses,
many of which are scrambling just to make ends meet, can have a
stifling effect on innovation and competition in the marketplace.
---------------------------------------------------------------------------
\4\ Better Business Bureau, Scams that Target Small Businesses
(2017), http://www.bbb.org/wisconsin/news-events/news-releases/2017/01/
scams-that-target-small-businesses.
\5\ See id.; see also Fed. Trade Comm'n, Small Business Scams,
https://www.ftc.gov/tips-advice/business-center/guidance/small-
business-scams.
---------------------------------------------------------------------------
The Commission also actively works to help consumers recognize
frauds before they fall victim. The Commission produces websites,
brochures, and other materials to educate the public on common scams
and how to avoid them. Often, these materials are geared towards
frequently targeted groups, such as seniors, Spanish-speakers, and the
two groups I mentioned: military consumers and small businesses. For
example, we have a website, military.consumer.gov, devoted to educating
military consumers about consumer fraud issues. I have also directed
Commission staff to create a webpage for small businesses on which we
will provide a one-stop shop for all of our guidance to small
businesses on how to avoid scams. I invite the Subcommittee to consider
linking to our materials for the benefit of your constituents.
I am proud of the work the FTC has done to combat fraud, but we
cannot become complacent or distracted from that core mission.
Fraudsters are always thinking up new scams, and the Commission must be
and will be at the forefront of protecting America's consumers. Thank
you and I look forward to your questions.
The Chairman. Commissioner.
STATEMENT OF HON. TERRELL McSWEENY, COMMISSIONER, FEDERAL TRADE
COMMISSION
Ms. McSweeny. Thank you very much. Thank you, Mr. Chairman
Moran, Ranking Member Blumenthal, and Senators, for holding
this important hearing and your attention to this important set
of issues. I'm Terrell McSweeny, and along with my colleague,
Acting Chairman Ohlhausen, we are the current members of the
U.S. Federal Trade Commission.
The work of protecting American consumers from frauds and
scams is bipartisan, and, in fact, I would go so far as to say
it is nonpartisan. I would like to commend Acting Chairman
Ohlhausen for her emphasis and commitment to this important
part of the FTC's mission. For more than 100 years, the FTC has
protected consumers from dishonest practices, although the
particular scams we see in the marketplace have changed over
time.
In 2016, we received more than 3 million consumer
complaints. The top three categories of complaints were debt
collection, imposter frauds, and identity theft. Since not all
victims file complaints, these statistics likely understate the
problem significantly. In fact, the FTC's most recent national
survey of fraud victimization estimated that 10.8 percent of
all Americans over the age of 18, or more than 25 million
people, had been the victim of a fraud.
The growth in imposter scam complaints is particularly
striking. They surpass the number of identity theft complaints
for the first time ever last year. In imposter scams, someone
poses as a friend, family member, romantic interest, legitimate
company, or even a government agency in order to obtain money
or personal information from the victim. Government imposter
scams, the most common type of imposter scam reported last
year, run the gamut from callers claiming to be from the IRS
and demanding payment of back taxes to debt collectors claiming
to be from a law enforcement agency.
Other imposters purport to be calling on behalf of a
company, such as Microsoft or Apple. They convince consumers
that their computers are infected with malware. In reality, no
such virus exists, but consumers pay for costly technical
support services with very little, if any, value at all.
We are taking action to stop these scams at the FTC. Last
year, we brought multiple cases against tech support scams as
well as action against an entity that was impersonating the
Department of Transportation. Stopping fraud, as Acting
Chairman Ohlhausen has said, is a core FTC priority. This
includes not just pursuing bad actors, who directly perpetuate
the frauds, but also others who facilitate those scams.
One example is our recent case against Western Union, which
paid $586 million to settle charges that it failed to stop
scammers from using its money transfer system to collect
payments for numerous types of fraud, including many of the
types of scams that we are talking about today.
Protecting consumers is just too big a job for the FTC to
do alone, and that's why we partner with other government
agencies, states, state attorney generals, and civic
organizations in our anti-fraud work. And that is also why we
invest heavily in consumer and business education.
Educating American consumers is one of the best ways we can
combat fraud. We produce materials in multiple languages for
almost every demographic and make them available across all
platforms to reach the broadest possible audience. We hold
Ethnic Media Roundtables around the country to help diverse
communities highlight frauds that are specifically affecting
them.
We also have a campaign to help older people learn about
common scams and pass that information on to their peers. And
we work closely with the Department of Defense and others to
help the military community avoid frauds.
It is vital that we continue this important outreach and
ensure that we have sufficient resources to meet the demands
for our materials. This is particularly true--and I am biased
in this regard as a parent--for our educational materials for
parents and children, which help parents keep their kids safe
online. These materials need to be updated to remain relevant,
including optimizing them for mobile platforms.
The FTC must continue to stay abreast of emerging consumer
protection issues. In our always-on, always-connected digital
world, which is so full of marvelous innovations, we also have
new opportunities for fraudsters and bad actors. Imposter scams
are just one example of that trend.
I am particularly concerned, for example, about the growth
in ransomware attacks. Ransomware attacks on computers, both
for individuals and businesses, are unfortunately already well
known. But I worry that attacks on connected consumer devices
will soon become more common, especially given wide-ranging
industry data security practices. In the not-too-distant
future, a consumer might turn on her smart TV only to see a
message asking for $50 in Bitcoin if she wants to watch
television again.
In the world of cyber threats, the FTC must keep pace with
changing technology, and we've been doing that by engaging with
stakeholders and, most importantly, bringing technologists into
our work. The FTC's Office of Technology Research and
Investigation, or OTech, is in its second year, and I am
pleased that our talented interdisciplinary team of lawyers and
computer scientists is continuing to provide important in-house
capabilities supporting our mission.
As our complaint data indicates, scammers are finding
creative new ways to target consumers, so it is vital that the
FTC continue to have proper resources to keep pace with them.
As we'll discuss today, our consumer protection mission has a
big impact on people's lives. Last year alone, we obtained
orders that will return more than $11 billion directly to
consumers in the form of redress. That's more than 35 times our
annual operating budget. Our enforcement actions not only
provide American consumers with justice, they help strengthen
consumer trust in the marketplace, strengthening the dynamism
of the American economy itself.
So thank you again for your attention and for holding this
hearing.
[The prepared statement of Commissioner McSweeny follows:]
Prepared Statement of Hon. Terrell McSweeny, Commissioner,
Federal Trade Commission
Chairman Moran, Ranking Member Blumenthal: thank you for holding
this important hearing. I am Terrell McSweeny, and along with Acting
Chairman Ohlhausen, we are the current members of the Federal Trade
Commission.
The work of protecting American consumers from frauds and scams is
bipartisan--in fact, I would call it non-partisan. For more than 100
years, the FTC has protected consumers from dishonest practices,
although the particular scams we see in the marketplace change over
time.
In 2016, we received more than three million consumer complaints
and the top three categories were debt collection, impostor frauds, and
identity theft. Since not all victims file complaints, these statistics
understate the problem. The FTC's most recent national survey of fraud
victimization estimated that 10.8 percent of all Americans over age
18--or 25.6 million people--had been a victim of fraud in 2011.
The growth in impostor scam complaints is striking; they surpassed
the number of identity theft complaints for the first time ever last
year. In imposter scams someone poses as a friend, family member,
romantic interest, legitimate company, or government agency, in order
to obtain money or personal information.
Government impostor scams--the most common type of imposter scam
reported last year--run the gamut from callers claiming to be from the
IRS and demanding payment for back taxes to debt collectors claiming to
be from a law enforcement agency.
Other impostors purport to be calling on behalf of a company such
as Microsoft or Apple. They convince consumers that their computers are
infected with malware. In reality no virus exists, but consumers pay
for costly ``technical support'' services with little, if any, value.
We are taking action to stop these scams. Last year we brought
multiple cases against tech support scams, as well as an action against
an entity that was impersonating the Department of Transportation.
Stopping fraud is a core FTC priority. This includes not just
pursuing bad actors who are directly perpetrating the frauds, but also
others whose facilitate scams. One example is our recent case against
Western Union, which paid $586 million to settle charges that it failed
to stop scammers from using its money transfer system to collect
payments for numerous types of fraud.
Protecting consumers is too big a job for the FTC to do alone.
That's why we partner with other government agencies, states, and civic
organizations in our anti-fraud work--and why we invest in consumer and
business education.
Educating American consumers is one of the best ways we can combat
fraud. We produce materials in multiple languages for almost every
demographic and make them available across platforms to reach the
broadest possible audience. We hold Ethnic Media Roundtables around the
country to help diverse communities highlight frauds affecting them.
We also have a campaign to help older people learn about common
scams and pass that information on to their peers. And we work closely
with the Department of Defense and others to help the military
community avoid fraud.
It is vital that we continue this important outreach--and ensure
that we have the resources to meet the demand for our materials. This
is especially true for our educational materials for parents and
children, which help parents keep their kids safe online. It's critical
that we keep these materials relevant and up to date, including
optimizing them for mobile platforms.
The FTC must continue to stay abreast of emerging consumer
protection issues. Our always-on, always-connected digital world is
full of marvelous innovations--but it also creates some new
opportunities for bad actors.
I'm particularly concerned about the growth in ransomware attacks.
Ransomware attacks on computers--both for individuals and businesses--
are unfortunately already well known. But I worry that attacks on
connected consumer devices will soon become more common--especially
given wide-ranging industry data security practices. In the not-too-
distant future a consumer might turn on her smart TV only to see a
message that asks for $50 in Bitcoin if she wants to watch television
again.
In a world of new cyber threats, the FTC must keep pace with
changing technology. We have been doing that by engaging with
stakeholders--and, most importantly, bringing technologists on board.
The FTC's Office of Technology Research and Investigation, or OTech, is
in its second year.
OTech is a talented inter-disciplinary team of lawyers and computer
scientists who provide us with in-house research capabilities and the
expertise to understand cutting-edge technology--like cross-device
tracking, or how algorithms impact consumer choice. As more of these
technologies come into the marketplace, it is vital that the FTC
continue to expand these capabilities.
Unlike many other enforcement agencies, the Federal Trade
Commission sends refund checks to individual consumers who are harmed
by unfair and deceptive business practices. Last year, we obtained
orders that will return more than $11 billion in redress to consumers.
Our enforcement actions not only provide American consumers with
justice, they help to strengthen consumer trust in the marketplace,
strengthening the dynamism of the American economy itself.
Thank you again for holding this hearing. I look forward to
answering your questions.
The Chairman. Mr. Attorney General.
STATEMENT OF HON. MIKE DeWINE,
OHIO ATTORNEY GENERAL
Mr. DeWine. Mr. Chairman, Chairman Moran, thank you very
much for inviting us to be here today, and Ranking Member
Blumenthal, and all the members of the Committee.
You know, we've always had--I suppose time immemorial we've
had con artists and crooks, swindlers, but what is really
different today is they now have a very long arm, and, of
course, that long arm is the Internet and long-distance
telephone. The Internet and social media have really
transformed the world we live in, and in some cases, for very,
very good ways, FaceTime with one of your grandchildren,
something that my wife, Fran, and I enjoy. But, unfortunately,
scammers also use these modern conveniences to commit fraud and
to satisfy their greed.
Now, grandparent scams are one of the most frequently
reported and the most, I think, gut-wrenching scams that my
office receives. Fran and I have 8 children and 22
grandchildren, and like all grandparents, there is nothing,
nothing, we would not do for our grandkids, and that is exactly
the mentality that the scammers prey upon. There is a reason
they call grandparents and they don't call parents.
The scam often begins with a phone call telling
grandparents that one of their grandchildren has been in a car
accident, caught with drugs, or put in jail. The caller
pretends either to be the grandchild or an attorney or a law
enforcement officer, and tells the grandparent to send money
immediately to have the charges dismissed, to cover court
costs, or to allow the grandchild to return home.
As part of the scheme, grandparents often are instructed
not to talk to other people. In fact, that's normally what the
call is all about. They say, ``Grandpa, this is Sara.'' ``Where
are you, Sara? I thought you were at Miami University.'' ``No,
Grandpa, I'm so-and-so.'' And then, ``Do your parents know
that?'' ``Don't tell my parents.'' And that's always what they
say. Many times the grandparents not only pay once, but they
pay several different times, sometimes for attorneys' fees or
other unexpected costs. Eventually the grandparents discover
that their grandchild was not truly in trouble, but by then, of
course, it is much too late. The average loss to an individual
Ohioan that's been reported to us for this specific scam is
over $5,000.
Another popular scam is the romance scam. In a typical
romance scam, the con artist meets the victim online through a
dating or social networking site. The scammer often claims to
live in the United States, but says he or she is temporarily
located overseas due to a military assignment, business trip,
or other reason. Eventually, he or she asks the victim to send
money to help cover some type of cost, such as airfare to visit
the victim, medical expenses, or fees associated with military
leave. Not surprisingly, once the money is sent, it's nearly
impossible for anyone to recover. The average loss from this
particular scam in the state of Ohio is over $26,000.
As Attorney General, I've been committed to treating these
scams as what they are, and that is crimes. Shortly after
becoming Attorney General, I established an Economic Crimes
Unit in my Consumer Protection Section. The unit includes
seasoned prosecutors and investigators who are tasked with
holding these fraudsters accountable and assisting local law
enforcement and prosecutors in identifying, investigating, and
prosecuting consumer fraud of a criminal nature.
One of the reasons our Economic Crime Unit has been
successful is that we're able to see patterns of conduct
occurring across multiple jurisdiction lines, across multiple
counties. We can then make connections with law enforcement and
victims and show the true scope of the criminal enterprise.
I think, Mr. Chairman and members of the Committee, that we
need to apply that same logic to scams and economic crimes
nationwide on the Federal level. To be successful, we need to
break down barriers to communication. We need to have more
sharing of information and resources, and we need to work
together to combat crime on the national and the international
level.
We've all heard about the lottery scam, ``You've won the
lottery.'' We've seen that model, though, of catching these
people work in what's called Project JOLT, where the U.S.
Department of Homeland Security has partnered with a Jamaican
police force, industry, and other law enforcement agencies to
take down Jamaican lottery scammers, a number of whom have
recently been extradited to the United States to face Federal
charges.
Mr. Chairman and members of the Committee, now is the time
to apply those lessons to other scams and crimes because,
simply put, there is strength in numbers. When multiple
agencies put their resources, their intelligence, their
ingenuity together, great things do in fact happen. I'm proud
of the work my office has undertaken to go after the scammers
that prey on Ohio families. My office will continue to provide
support for local law enforcement in an ongoing effort to hold
scammers accountable. We're also committed to providing Ohioans
with the information and education they need to avoid being
victims in the first place.
By doing these things, we are making progress. Thank you,
Mr. Chairman and members of the Committee. And I look forward
to questions.
[The prepared statement of Mr. DeWine follows:]
Prepared Statement of Mike DeWine, Ohio Attorney General
Thank you Chairman Thune, Subcommittee Chairman Moran, and Ranking
Member Blumenthal for holding this important hearing today to discuss
how scams are affecting families in my home state of Ohio and families
all across our country.
I have served now as Ohio Attorney General for just over six years.
One of the things I am continually amazed by is both the number of
scams that constituents report to my office and the increasing
creativity of the scammers! As you all know, there have always been
scam artists and cons. But, what is different today is that they now
have the long arm of both the Internet and phones!
The Internet and social media have transformed the world we live in
and the way we communicate. For example, grandparents who live miles
apart from their grandkids, can now see them with the touch of a button
on their mobile devices. Unfortunately, scammers also use these modern
conveniences to commit fraud and satisfy their greed.
``Grandparent scams'' are one of the most frequently reported--and
most gut-wrenching--scams my office receives. My wife Fran and I are
the parents of eight children--and now grandparents of 22
grandchildren. Like any grandparent, there is nothing we wouldn't do
for our grandkids. And that is exactly the mentality that the scammers
prey upon.
The scam often begins with a phone call telling grandparents that
one of their grandchildren has been in a car accident, caught with
drugs, or put in jail. The caller pretends either to be the grandchild,
an attorney, or a law enforcement officer and tells the grandparent to
send money to have the charges dismissed, to cover court costs, or to
allow the grandchild to return home.
There is always a sense of urgency with these scams. The
grandparent is told to go to the store right away, to buy several gift
cards, and to read the card numbers over the phone. Using this
information, the scammer then drains the funds on the cards almost
instantly.
As part of the scheme, grandparents often are instructed not to
talk to other people (such as the grandchild's parents) about the
problem. Callers may even threaten to shoot or harm the grandchild if
the grandparent refuses to pay.
And, if grandparents pay once, they likely will receive additional
calls seeking more money, supposedly for attorney's fees or other
unexpected costs. Eventually, grandparents discover that their
grandchild was not truly in trouble. But by then, it is too late. The
average loss to an individual Ohioan because of this scam is $5,309.
And that's just based on the cases reported to my office. Because so
many go unreported, that figure is likely much higher.
Another popular scam is the ``romance scam!'' In a typical romance
scam, the con artist ``meets'' the victim online through a dating or
social networking site. The scammer often claims to live in the United
States, but says he or she is temporarily located overseas due to a
military assignment, business trip, or personal vacation.
One common theme of this scam is that the victim never actually
meets the scammer face-to-face. Instead, the scammer may spend months
developing a relationship with the victim online. Eventually, he or she
asks the victim to send money to help cover some type of cost, such as
airfare to visit the victim, medical expenses, or fees associated with
military leave. The scammer often asks the victim to send the money via
wire transfer or prepaid money card. Not surprisingly, once the money
is sent, it is nearly impossible to recover. The average loss to an
individual Ohioan for this scam is $26,518! And again, that number is
just based on cases reported to my office. It, too, is likely much
higher.
As Attorney General, I have been committed to treating these scams
as what they are--crimes. In 2011, I established an Economic Crimes
Unit in my Consumer Protection Section. The unit includes seasoned
prosecutors and investigators tasked with holding these fraudsters
accountable and assisting local law enforcement and prosecutors in
identifying, investigating, and prosecuting consumer fraud of a
criminal nature. The unit consists of three attorneys and four
investigators who are dedicated solely to criminal investigations.
To assist even more in the fight against scams, my office sought
additional investigative power from the Ohio General Assembly in 2012.
The result was new telecommunications fraud subpoena authority that our
investigators and lawyers use every day to obtain financial and
electronic evidence that furthers investigations and leads to arrests
and prosecutions. This subpoena power is crucial in investigating scams
that are exclusively Internet or phone-based.
Telephone and electronic communication are the major tools that
scammers use to initiate contact with consumers. Unlike in the past,
phone numbers are no longer a reliable indicator of where a call is
coming from or who is making it. Voice over Internet Protocol (VoIP)
phones allow callers to use area codes and phone numbers linked to a
particular city or state, even though the person making the call is
nowhere near there.
These services use a computer or smartphone to make calls through
the Internet. Calls can be made using WiFi hot spots commonly found in
airports, restaurants, coffee shops, and libraries. Criminals use the
perceived legitimacy these phone numbers provide to help persuade
unsuspecting victims into sending them money. We commonly see this
tactic being used in IRS scams where the call appears to be originating
from Washington, D.C. or Northern Virginia, but is instead coming from
overseas.
Changes in how money is transferred have created additional
challenges. Money transfer services, such as Western Union and
Moneygram, were the traditional methods scammers used to get money.
While those methods are still in use, we've learned that scammers now
rarely receive the money directly. They tend to use ``Money Mules,''
who are people who've often been duped into thinking they're ``Secret
Shoppers'' or getting an advance for a babysitting job or think they
have a job processing payroll to receive the money and send it on--
often to someone overseas. These multiple steps are used to frustrate
law enforcement and throw them off the trail. Also, people picking
money up are required to provide very little, if any, formal
identification, which further impedes our efforts to identify them.
Criminals have discovered another tool for moving money--prepaid
gift cards and reloadable debit cards. Scam victims are instructed to
purchase prepaid or reloadable cards, most recently iTunes cards. They
then provide the unique identifying number from the back of the card to
the scammer, and the money is transferred from the prepaid card or
reload card to the scammer's account almost immediately, leaving the
victim holding nothing but a useless piece of plastic.
My office recently spoke with a victim who received a call telling
her that her grandson had been in a car accident and that the judge
would drop the charges if she paid $4,500 to an insurance company to
cover the damage to a rented vehicle. The victim purchased prepaid
cards, provided the card numbers to the scammer over the phone, and
then was told to mail the cards themselves to an ``insurance office''
in Columbus, Ohio. My investigators found the address. As you would
suspect, there was no insurance company.
Separate, but related, it's probably no surprise to you that many
scam victims are targeted solely because of their age. To address this
issue, my office created the Elder Justice Initiative and assigned
staff to work with law enforcement, prosecutors, Adult Protective
Services, and communities to identify, investigate, and prosecute elder
abuse cases. We also host forums in local communities to educate
seniors about how to protect themselves from cons.
As much as we try to educate consumers about potential scams, these
cons are good at what they do and continue to rip off the vulnerable.
Though many times, our investigations lead to dead ends, sometimes our
work pays off in getting these bad guys. In 2013, for example, my
office indicted and convicted 18 defendants for a national
telemarketing ring that stole more than $2 million from thousands of
victims in 41 states over a five-year period. That group used dozens of
VoIP phone numbers, seasoned telemarketers, false websites, elaborate
lies, and multiple businesses in Ohio and Florida to prey on owners of
vacant, nearly worthless land throughout the desert southwest.
Also in 2013, attorneys from our Special Prosecutions Section
convicted John Donald Cody of running a charity scam that stole
millions of dollars intended for Navy veterans. Cody, who had assumed
the identity of a man named Bobby Thompson, was sentenced in an Ohio
courtroom to 28 years in prison and ordered to pay more than $6.3
million in fines.
Just last month, my office partnered with local law enforcement and
indicted a 66 year-old-woman for her role in an alleged romance scam.
According to investigators, the suspect lied to people about needing
money for various reasons, such as claiming she had a serious illness
or that she was at risk of losing her home. The victims, who included
the suspect's family and friends, believed her. Although the suspect
generally promised to pay people back promptly, investigators
determined that she sent the funds overseas to a man she had been
communicating with online. This person's lies and deception cost her
friends and family over $730,000!
This case comes on the heels of a 2014 investigation that my office
initiated that led to a federally-convicted drug dealer pleading guilty
to a running a romance scam that robbed over $1.1 million from
unsuspecting victims across the country. The case began when my office
received a complaint from an Ohio resident who had lost over $800,000
to a man she met online. My investigators tracked our victim's money to
accounts in Maryland. We then reached out to local law enforcement,
shared what we had learned, and provided evidence linking a convicted
drug dealer to the scheme.
The drug dealer was the ringleader to a group of scammers who used
a number of false stories and promises to convince the victims to give
money, including stories about investing in fake gold that required
payments for shipping and storage, fictitious sick family members who
needed money, fake hospital bills, and fake plane trips to visit the
victims. To help conceal the scheme and by using false documents, the
conspirators were able to convince the victims to mail checks to a
corporation that one of the cons had created and controlled or to wire
money into bank accounts held in the name of that corporation.
Because of that single lead, we were able to develop that case into
a Federal investigation. It is that kind of state and Federal
cooperation that has brought justice not only to our Ohio victim, but
also to victims throughout the United States.
As we approach April, IRS scams become more prevalent. The IRS
scams and tax preparer frauds pose special challenges for law
enforcement. Because of Federal law, the Internal Revenue Service
cannot and will not share tax or taxpayer information with our state
criminal investigators. Let me tell you why that's important.
Our investigators will receive a complaint about someone who is
doing taxes and is alleged to be stealing part of the taxpayer's refund
by personally diverting the money. This single taxpayer can get his or
her own records and provide them to us, but our investigators have no
way of knowing how much larger the crime may be or how many more people
may be being victimized because the IRS can't tell us anything at all.
State subpoenas won't work, so our investigation ends up at a dead end.
The individual loss for this type of scam is generally less than
$2,500.00. But, because we can't get access to information about other
potential victims, that's where the case stops.
Whenever we receive an allegation of tax preparer fraud, IRS scam
calls, or refund theft, we tell the consumer to contact the Treasury
Inspector General for Tax Administration (TIGTA). Very few of these
cases are ever likely to meet the dollar threshold required to get the
attention of an IRS inspector, let alone a U.S. Attorney. Giving state
and local law enforcement the ability to obtain the information needed
to effectively investigate and prosecute tax preparer fraud, IRS scams,
and refund theft wouldn't just protect taxpayers, it would conserve
valuable Federal resources and help ensure the integrity of our tax
collection program.
There is strength in numbers. When multiple agencies put their
resources, intelligence, and ingenuity together, great things can
happen.
Ohio is a home rule state, with 88 counties and 88 county sheriffs
and prosecutors acting independently from the other 87. That local
control ensures that those elected officials are accountable to the
people in their communities. It also ensures that these sheriffs and
prosecutors know what's happening in their counties.
But, there are also challenges. A law enforcement officer in
Jackson County, for example, may know about the three people who were
ripped off in that county, but may not know about the three people who
were victimized in Greene County, or the two people who were victimized
in Clark County, or the person who was conned out of her life savings
in Ashtabula County. Imagine how much bigger that problem gets when you
start talking about victims in multiple states and victims who are
hundreds or even thousands of miles away.
One of the reasons our Economic Crimes Unit has been successful is
that we're able to see patterns of conduct occurring across multiple
counties, make connections with law enforcement and victims, and show
the true scope of a criminal enterprise. We need to apply that same
logic to scams and economic crime nationwide. To be successful, we need
to break down barriers to communication, sharing information, and
resources and work together to combat crime on the national and
international level.
We've seen that model work in Project JOLT, where the U.S.
Department of Homeland Security has partnered with the Jamaican
Constabulary Force, industry, and other law enforcement agencies to
take down Jamaican lottery scammers--a number of whom have recently
been extradited to the United States to face Federal charges. Now is
the time to apply those lessons to others scams and crimes.
I am very proud of the work my office has undertaken to go after
the scammers that prey on Ohio families. My office will continue to
provide support for local law enforcement in an ongoing effort to hold
scammers accountable. We're also committed to providing Ohioans with
the information and education they need to avoid being victims in the
first place. By doing these things, we are making a difference.
Thank you, again, for the opportunity to testify here today. I'm
happy to answer any questions.
The Chairman. Thank you, Attorney General.
Mr. Abagnale.
STATEMENT OF FRANK ABAGNALE, AUTHOR AND CONSULTANT, ABAGNALE &
ASSOCIATES
Mr. Abagnale. Thank you, Chairman Moran and Ranking Member
Blumenthal and members of the Committee. I am honored to be
invited to testify before you today on the seriousness of
identity theft and financial fraud against the elderly and all
American citizens and the need for education to prevent
individuals from falling victim to these multiple scams.
I'm Frank Abagnale, subject of the book and movie ``Catch
Me If You Can.'' I have a unique perspective, having committed
fraud as a teenager some 50 years ago, and having spent the
last 41 years of my life teaching at the FBI Academy and the
field offices of the Federal Bureau of Investigation.
Over the past 4 decades, I've conducted over 3,000 lectures
and written four books on these subjects. During this time,
I've worked to try to prevent fraud, forgery, cyber crimes,
embezzlement, identity theft, and other scams perpetrated
against consumers and small businesses.
Serious issues we face are fraud and scams which are
perpetrated against American citizens of all ages. They can be
perpetrated by family members, financial advisers, home health
care providers, friends, scam artists, and others.
Let me share with you some statistics that speak volumes as
to why we need initiatives to help prevent these frauds against
consumers.
A new survey by Javlin Strategy & Research shows a 16
percent growth in fraud incidences in 2016. Fraud affected over
6 percent of U.S. consumers, the highest on record. The
Consumer Sentinel Network, which collects consumer complaints
from the Federal Trade Commission, state law enforcement
agencies, and other Federal agencies received over 3 million
complaints in 2016. Almost 1.3 million of those complaints were
fraud-related. Consumers reported paying over $744 million in
those fraud complaints.
The FBI's Internet Crime Complaint Center issues an annual
report based on reported complaints of Internet crime. The 2015
report--and that's the latest available--shows that the center
received nearly 270,000 online crime complaints in 2014, with a
loss of about $800 million. State-by-state complaint data shows
the largest losses are from individuals age 50 plus.
These are probably low estimates because many times
consumers are too embarrassed to admit that they have been
defrauded, and, therefore, it goes unreported. Their families
might not even be told. Identity theft, investment fraud, and
scams rob millions of Americans of their hard-earned money
every year.
To help combat this threat, for the last 3 years, I've
joined forces with AARP's Fraud Watch Network as their
Ambassador. The goal of the Fraud Watch Network is to arm
Americans with tools they need to spot and avoid fraud and
scams so they can protect themselves and their families. Last
year, through my relationship with the Fraud Watch Network, we
reached more than 43 million people through state office
sponsored events, social media, e-mail alerts, and online
advertising. We held more than 1,200 events on the topic of
fraud in 2016 alone. In 2017, I will be appearing in more than
one dozen cities across America to help educate people about
current scams, their risk, and most important of all, how to
protect themselves and their families from being victimized.
What is truly amazing to someone like me is that what I did
50 years ago as a teenager is 4,000 times easier to do today
due to technology. Unfortunately, technology breeds crime; it
always has and always will. At the same time, there is no
technology, nor will there ever be any technology, that can
prevent social engineering. Socially-engineered crimes can only
be prevented through education. There will always be
individuals who will use technology in a negative, self-serving
way.
Throughout my career, I have always believed that education
is the best prevention. If you educate and explain to people
their risks, in most cases, they are smart enough to take that
information and reduce their risk. I believe education is the
only approach to help eliminate consumer fraud. Education is
not only important for our seniors, but it also helps bring
awareness to all citizens so they can recognize the signs of
fraud and how to protect themselves.
I have always believed that the government should take the
lead in education to combat these horrendous crimes. Consumers
are hungry for information but do not know about legitimate
resources where they can turn for help. Over the last 2 years,
I have given my time to film public service announcements for
both U.S. Department of Justice and numerous state attorney
generals to help the public awareness.
As the Committee is aware, there is very little prosecution
for these crimes and almost no restitution. Once you lose your
money, your chance of getting it back is extremely slim.
Unfortunately, many of these criminals are operating from other
countries, where we do not have legal authority to make an
arrest and follow through with prosecution. I believe that law
enforcement and the Federal Trade Commission need to take these
crimes against consumers more seriously and push for arrest and
convictions of criminals making victims of innocent people when
there is enforcement power to do so.
Thank you for the opportunity.
[The prepared statement of Mr. Abagnale follows:]
Prepared Statement of Frank Abagnale, Author and Consultant,
Abagnale & Associates
Chairman Thune and members of the Committee, I am honored to be
invited to testify before you today on the seriousness of identity
theft and financial fraud against the elderly and all American citizens
and the need for education to prevent individuals from falling victim
to these multiple scams.
I am Frank Abagnale, subject of the book and movie ``Catch Me If
You Can.'' I have a unique perspective, having committed fraud as a
teenager some 50 years ago, and having spent the last 41 years of my
life teaching at the FBI Academy and field offices of the FBI. Over the
past four decades, I have conducted over 3,000 lectures and written
four books on these subjects. During this time, I have worked to try to
prevent fraud, forgery, cybercrimes, embezzlement, identity theft and
other scams perpetrated against consumers and small businesses.
Serious issues we face are fraud and scams which are perpetrated
against American citizens of all ages. These can be perpetrated by
family members, financial advisers, home healthcare providers, friends,
scam artists, and others. Let me share with you some statistics that
speak volumes as to why we need initiatives to help prevent these
frauds against consumers.
A new survey by Javlin Strategy & Research shows a 16 percent
growth in fraud incidence in 2016. Fraud effected over 6 percent of
U.S. consumers--the highest on record.
The Consumer Sentinel Network, which collects consumer complaints
from the Federal Trade Commission, state law enforcement agencies and
other Federal agencies, received over 3 million complaints in 2016.
Almost 1.3 million of those complaints were fraud-related.
Consumers reported paying over $744 million in those fraud
complaints.
The FBI's Internet Crime Complaint Center (IC3) issues an
annual report based on reported complaints of Internet crime.
The 2015 report (the latest available) shows that--
The center received nearly 270,000 online crime complaints
in 2014 with a loss of about $800 million.
State-by-state complaint data shows the largest losses are
from individuals age 50+.
These are probably low estimates because many times consumers are
too embarrassed to admit that they have been defrauded, and therefore
it goes unreported. Their families may not even be told. Identity
theft, investment fraud and scams rob millions of Americans of their
hard-earned money every year. To help combat this threat, for the last
three years I have joined forces with AARP's Fraud Watch Network as
their ambassador. The goal of the Fraud Watch Network is to arm
Americans with the tools they need to spot and avoid fraud and scams so
they can protect themselves and their families. Last year through my
relationship with the Fraud Watch Network we reached more than 43
million people through state office sponsored events, social media, e-
mail alerts and online advertising. We held more than 1,200 events on
the topic of fraud in 2016 alone. In 2017, I will be appearing in more
than one dozen cities across America to help educate people about
current scams, their risks and most important of all, how to protect
themselves and their families from being victimized.
What is truly amazing to someone like me is that what I did 50
years ago, as a teenager is 4,000 times easier to do today due to
technology. Unfortunately, technology breeds crime, always has and
always will. At the same time, there is no technology, nor will there
ever be any technology that can prevent social engineering. Socially
engineered crimes can only be prevented through education. There will
always be individuals who will use technology in a negative, self-
serving way.
Throughout my career, I have always believed that education is the
best prevention. If you educate and explain to people their risks, in
most cases they are smart enough to take that information and reduce
their risks. I believe education is the only approach to help eliminate
consumer fraud. Education is not only important for our seniors, but it
also helps bring awareness to all citizens so they can recognize the
signs of fraud and know how to protect themselves.
I have always believed that the government should take the lead in
education to combat these horrendous crimes. Consumers are hungry for
information but do not know about legitimate resources where they can
turn for help. Over the last two years, I've given my time to film
public service announcements for both the U.S. Department of Justice
and numerous state attorneys general to help with public awareness.
As the Committee is aware, there is very little prosecution for
these crimes and almost no restitution. Once you lose your money, your
chance of getting it back is extremely slim. Unfortunately, many of
these criminals are operating from other countries where we do not have
legal authority to make an arrest and follow through with prosecution.
I believe that law enforcement and the Federal Trade Commission need to
take these crimes against consumers more seriously and push for arrests
and convictions of criminals making victims of innocent people when
there is enforcement power to do so.
Thank you.
The Chairman. Mr. Schwanke.
STATEMENT OF MIKE SCHWANKE, REPORTER,
KWCH-12 EYEWITNESS NEWS
Mr. Schwanke. Chairman Moran, Ranking Member Blumenthal,
committee members, thank you for this incredible opportunity to
talk about an issue that affects all Americans. In my 17 years
as a journalist and investigative reporter, I have focused much
of my time helping victims of scams, but also educating the
public so they don't fall victim.
I am honored to be invited here today by Senator Moran. The
Senator and I go back almost 2 decades now to my days as a
bureau reporter in Dodge City. Then Congressman Moran would
often stop by my office and talk about the issues affecting
Kansans. But the issue we address today does not stop at a
state line. Scams and those who perpetrate them stop at
nothing. No person is immune, not even in our darkest times,
because scammers wait to take advantage.
This month, Kansas experienced our largest wildfire event
in the state's history. Homes and livestock were lost. And
while Kansans and surrounding Midwest states all came together
to help each other, shockingly, there were those who only saw
an opportunity to steal. Instead of solely focusing on
protecting lives and property, Reno County Sheriff Randy
Henderson instead had to spend time warning his residents about
a scam. During a time of disaster, victims of the fire were
receiving calls from someone offering free Federal grants. All
they had to do was send in an application fee. That scam was
underway before most victims were even allowed back into their
homes to survey the damage.
Scammers don't see tragedy, they see opportunity, like when
Wichita Police Officer Brian Arteburn was critically injured
last month. He was run over by a fleeing suspect, but within
days, we had to warn our viewers of a telephone scam collecting
money in his name.
Our seniors are most at risk because they often have the
most to lose. They feel there is no one out there to protect
them. Much of my time is spent in churches and senior
organizations trying to educate.
Those in our most trusting generation rarely go a single
day without someone trying to trick them, scam them, and
ultimately steal the money they have worked their lifetime to
earn. I know because we talk to them. My producer now receives
about a dozen calls from victims every week. Last week, that
number grew to 20. I personally have told the stories who have
wired away their entire life savings, and that money usually
goes overseas, never to be seen again. That scammer starts
again usually with another unsuspecting American.
I could be here for hours sharing stories of victims, like
the Wichita woman in her seventies we interviewed who was
taking care of her elderly mother. She was targeted by a
scammer looking to take advantage of her willingness to help
others. She had about $25,000 left to care for her mother, and
lost every cent.
There was another couple who fell for what is commonly
referred to as the grandparents scam, which you've heard about
today. Thinking he was helping his granddaughter in distress,
the 88-year-old walked into two Wichita grocery stores and
purchased $13,000 in iTune cards. The money was gone. The man's
wife told me she had just seen us do a story on that very scam,
but the scammers were so convincing and she was so scared, she
fell for it anyway. That same scam has also been used on our
military families in Kansas.
What's more concerning are those we don't know about, those
who are too embarrassed or afraid they'll lose their financial
freedom if they share their stories. I often get calls from
victims who want to share their story to protect others, but
ask that I shield their identity.
We often hear about seniors falling victim, but one of our
investigative stories found that Millennials may be even more
likely to fall for scams. The Better Business Bureau now backs
that up, releasing a study this month that found consumers 18
to 24 years old are most likely to lose money in a scam.
Alex Cook is one of them. The 19-year-old called me after
she fell victim to a scam on Care.com. The teen, who was
working three jobs at the time to pay the bills, lost $2,600,
and it set her back 6 months.
Even our county government and businesses have lost
hundreds of thousands of dollars to scams. The estimated loss
to the American economy is in the billions, and some estimates
show as many as 1 in 10 Americans will lose money to a phone
scam every year.
Top scams reported by the BBB last year include the tax
collection, debt collection, lottery, and online purchase
scams. Our District Attorney's Consumer Protection Division
fields now about 2,000 calls a year, so many the office had to
develop a new system to handle the calls because they were
overwhelmed.
The Wichita Police Department has four detectives in its
Financial Crimes Division, each one now has 60 active cases at
any given time. In 2015, there were 3,800 cases; last year,
7,000. Rarely can local law enforcement or prosecutors do
anything about the cases because they often take them out of
their jurisdiction.
In closing, what we have found in our reporting is many
times scammers use fear and intimidation to steal from victims.
Law enforcement and prosecutors can do little to stop it. The
best weapon we have right now is education, but it has to be
consistent because tomorrow there will be a new scam, new
tactics, and Americans will lose more money.
Again, I thank you for the invitation to be here today and
look forward to any questions you may have.
[The prepared statement of Mr. Schwanke follows:]
Prepared Statement of Michael Schwanke, Reporter,
KWCH-12 Eyewitness News
Chairman Moran, Ranking Member Blumenthal, and Committee members--I
thank you for this incredible opportunity to talk about an issue that
affects all Americans.
My name is Michael Schwanke with KWCH TV in Wichita, Kansas. In my
17 years as a journalist and investigative reporter I have focused much
of time on helping victims of scams and educating the public so they
don't fall victim.
I'm honored to be invited here today by Senator Moran. The Senator
and I go back almost two decades to my days as a bureau reporter in
Dodge City. Then Congressman Moran would routinely stop by my office
and talk about the issues affecting Kansans.
But, the issue we are addressing today doesn't stop at a state
line. Scams and those who perpetrate them, stop at nothing. No person
is immune, and even in our darkest times scammers wait to take
advantage.
This month Kansas experienced the largest wildfire event in the
state's history. Homes and livestock were lost. While Kansans and
surrounding Midwest states came together to help each other, shockingly
there were those who saw an opportunity to steal. Instead of solely
focusing on protecting lives and property, Reno County Sheriff Randy
Henderson had to warn his residents about a scam. During a time of
disaster, victims of the fire were receiving calls from someone
offering free Federal grants. All they had to do was send in an
application fee. The scam was underway before some victims of the fire
were even allowed back in to survey what they'd lost.
Scammers don't see tragedy, they see opportunity like when Wichita
Police officer Brian Arteburn was critically injured last month. He was
run over by a fleeing suspect. Within days we had to warn viewers of
telephone scam collecting money in his name.
Our seniors are most at risk, because they often have the most to
lose. They feel there is no one to protect them. Much of my time is
spent in churches or senior organizations trying to educate.
Those in our most trusting generation rarely go a single day
without someone trying to trick them, scam them and ultimately steal
the money they've worked a lifetime to earn. I know, because we talk
them. My producer now receives up to a dozen calls from victims every
week. Last week that number grew to more than 20.
I personally have told the stories of those who have wired away
their entire life savings. The money usually goes overseas never to be
seen again. The scammer then starts again, with another unsuspecting
American.
I could be here for hours sharing stories of victims--like the
Wichita woman in her 70s we interviewed who was taking care of her
elderly mother. She was targeted by a scammer who took advantage of her
willingness to help others. She had about $25,000 left to care for her
mother and lost it all.
There was another couple who fell for what's commonly referred to
as the grandparent scam. Thinking he was helping his granddaughter in
distress, the 88-year-old walked into two Wichita grocery stores and
purchased $13,000 in I-Tune cards. The money was gone. The man's wife
told me she had just seen me do a story on this very scam. The scammers
were so convincing and she was so scared, she fell for it anyway. The
same scam has been used on military families in Kansas.
What's more concerning are those we don't know about--those who are
embarrassed and afraid they will lose their financial freedom if they
share their stories. I often get calls from victims who want to share
their story to protect others, but ask that I shield their identity. We
often hear about seniors falling victim, but even one of our
investigative stories found that millennials may be even more likely to
fall for scams. The Better Business Bureau backs that up, releasing a
study this month that found consumers 18-24 years old are most likely
to lose money in a scam.
Alex Cook is one of them. The 19-year-old called me after she fell
victim to a scam on Care.com. The teen, who was working three jobs at
the time, lost $2,600. It set her back six months.
Even our county government and area businesses have lost hundreds
of thousands to scams.
The estimated loss to the American economy is in the billions. Some
estimates show as many as one in 10 Americans will lose money to a
phone scam every year.
Just last year the Better Business Bureau worked with more than
5,000 victims who lost more than $42 million.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The top scams reported to the BBB last year include tax collection,
debt collection, lottery and online purchase scams.
And what happens when they report it? Usually nothing.
Our District Attorney's Consumer Protection Division fields about
2,000 calls a year. So many the office had to develop a new system to
handle the calls because they were overwhelmed. There is one attorney
in the consumer protection division.
The Wichita Police Department has four detectives in its financial
crimes division. Each one has up to 60 active cases at any given time.
In 2015 they were 3,800 cases. Last year 7,000. Rarely can local law
enforcement or prosecutors do anything because the cases take them out
of their jurisdiction or they simply don't have the resources. By the
time police are able to obtain proper warrants or subpoenas, the
scammers have moved on.
In closing, what we have found in our reporting is many times
scammers use fear and intimidation to steal from victims. Law
enforcement and prosecutors can do little to stop it. The best weapon
we have at this point is education, but it has to be consistent.
Tomorrow there will be a new scam, new tactics and Americans will lose
money. Again, I thank you for the invitation to be here today and look
forward to any questions you may have.
The Chairman. Thank you very much. Let me start with
Chairwoman Ohlhausen. Is there a reliable financial macro cost
to scams in the United States? Do we know from the side of the
personal aspects of this, what does it cost the economy?
Commissioner Ohlhausen. Well, based on the redress that the
FTC has been able to get for consumers, even just last year, it
cost billions and billions of dollars. So we get redress for
consumers, and last year we were able to get more than a
billion dollars, well, several billion dollars, a lot of that
was driven by the VW settlement, which was about $10 billion or
$11 billion. So it is billions and billions of dollars.
The Chairman. Mr. Schwanke, in your investigations and your
attempts to help Kansans, have you discovered any place that it
makes most sense for a victim to go with his or her problem?
Who is best at providing relief and satisfaction?
Mr. Schwanke. I think that's a lot of their frustration. I
think once they've been a victim of a scam, they often turn to
the Better Business Bureau or us to warn others, and oftentimes
they understand that that is their only option at that point,
is to stop it from happening to anyone else. Calling law
enforcement often goes nowhere just because they can't do
anything.
The Chairman. You indicated something that was discouraging
to me because one of the conversations we've had already just
in this hearing is the value of information, but you indicated
that in a particular instance, the victim had seen the similar
identical fraud being talked about on your program, but still
felt necessary to respond to the cries of a grandchild. Do you
have evidence that this consumer awareness actually makes a
difference? Do you have instances in which you've been told,
``I saw your program. It warned me, and the same thing about
happened to me, but I knew not to fall for it''?
Mr. Schwanke. That's one example. Oftentimes we do hear
from victims who say, ``I knew better,'' and when they see
these stories of victims, they sit back in their home and
think, ``How in the world could I ever fall for something like
that?'' In that case, she saw our story, and she explained it
as tunnel vision. And I think that's what these scammers depend
on. When I talk to these senior groups and I lay out these
scams, and even the crowd will say, ``Well, I would never fall
for that,'' but I used her as an example of once she thought
that her granddaughter was in trouble, she said, ``It was
almost like I had blinders on, and that's the only thing I
could see at that point.''
So in that story, that is really what she tried to get
across to viewers, is you really have to stop and think because
you are not going to be thinking clearly when someone calls for
a grandparents scam or someone calls claiming to be with the
IRS saying that they're going to haul you off to jail if you
don't pay your taxes. Once you hear that, your mind shuts off
oftentimes. That's what we try to get across in our education.
The Chairman. General, you've been involved in public
service announcements. Is there evidence that they're useful,
successful, and prevent additional fraud?
Mr. DeWine. We do get calls, Mr. Chairman, from people, and
sometimes I'll actually see people who say, ``I saw you on TV
talking about the grandparents scam,'' or, ``I saw you on TV
talking about the IRS scam.'' So while we are successful in
some prosecutions, the ones that are over the Internet, the
ones that are long distance, are very, very difficult for all
of the reasons that have already been stated. And, frankly, we
think that our prime job in this case is to really warn people,
trying to warn them about this.
So, yes, we have some results, but it's the same, we've
all, I think, had the same experience. You know, many times
people say, ``I never would have thought I would fall for this,
but I did,'' and what I think the public sometimes thinks is,
``Well, I wouldn't do that,'' or they think these are people
who aren't very smart. That's not true. These are smart people.
These are average just regular people who you find in Ohio, and
because some button has been pushed, whether it is the
compassion for your grandchild, or in the case of the IRS scam,
where they call you up and threaten you, it's just total fear,
that emotion overrides.
The Chairman. Mr. Abagnale, regarding the perpetrator of a
fraud, what is it about them that allows them to be able to get
that, elicit that, response from somebody who is apparently
smart and has seen information about the potential scam and
still falls for it? What's the way to capture somebody?
Mr. Abagnale. Well, first of all, thank God that the
majority of Americans are honest, and because they're honest,
they don't think in a deceptive way. So when the phone rings
and the caller ID says it's the Internal Revenue Service or
U.S. Government or their local police department, they believe
that to be true. They're not aware that the caller ID is easily
manipulated. So people believe at the start that the call is
legitimate. And then the person on the other end of that call
can be very, very persuasive in getting people to give them
information or to get money from them with some of these scams
that we've heard about here today that are very common.
Now, we've said so much about the IRS scam over the last
few years and have reached so many American citizens about it
that the criminal is now changing gears a little bit realizing
that a lot of people know that when you get a call from the IRS
demanding money, that the IRS usually doesn't make phone calls,
that they would write you a letter.
So the scammers in the last year have started writing
letters on the IRS letterhead, postage paid by the Federal
Government over on the right-hand corner of the envelope, and
mailing out letters supposedly from the IRS with a reference
number up in the top right corner, and simply saying to call
this 800 number to speak with Agent So-and-so. And, of course,
someone answers, ``Internal Revenue,'' they connect you to that
person, who is not really that person.
So, as you can see, they're able to understand how it
works. When it gets a little tight or they realize people are
catching on, they switch gears a little bit and go to something
a little more sophisticated.
Again, through my entire career, I believe that if you
explain to people these scams, you tell them how they work,
that's the best way to prevent those scams from occurring. When
I go out with AARP Fraud Watch Network, I spend my afternoon on
the phone speaking to about 15,000 people who call in to the
AARP's office, state office, and get on the line, and they hear
about all these scams and get to ask me questions about things
that have happened to them and how to understand how some of
these work. I find that it's a very powerful tool of reaching
people and getting that information.
It's interesting to me that back in the 1970s, before there
was ever a book about me, I did some public service ads for the
Department of Justice that were given to police departments
across the country. Those ads ran for years on television. They
were 30-second ads. The police department was able to put their
logo at the end of it, sponsored from that police department.
In the 1980s, only a book had been written about me, and those
people didn't know who I was, but I actually did millions of
bank statement stuffers for banks that went out to people in
their bank statement, and it had tips about protecting their
checkbook, protecting their credit cards.
Today, there is very little of that. We very rarely see
public service ads on TV. We very rarely see that reaching out
to explain to people what is going on. I think we need to get
back to that. It's very important, and it's the only way to
really fight crime, is through education. And I think that
that's the way that I try to approach it in the 40 years I've
been doing this.
I would remind you, the Committee, of one thing. I always
teach FBI agents to follow the money, and have for 4 decades.
So what we find is that most of these crimes that are committed
by people living in Russia, India, China, that are making these
calls in their pajamas or on their laptop from their kitchen,
are stealing money from the American consumer. It is leaving
our economy, but it will come back, it always comes back,
because it will tend to boomerang and return to our country,
but in the form of drug trafficking, human trafficking, child
pornography, and much more hideous crimes.
So it is very important that we try to prevent that money
getting in the wrong hands of people who are going to do a lot
worse--commit a lot worse crimes with that money.
The Chairman. Thank you.
Senator Blumenthal.
Senator Blumenthal. Thanks, Mr. Chairman.
Let me ask you, Chairwoman Ohlhausen, as you know about
mobile cramming, it is the unscrupulous practice by wireless
carriers of allowing third parties to add charges onto their
monthly bills without authorization by the consumer. And in
many, many cases, the consumer receives nothing for those
charges, or receives something they didn't want, didn't know
they were going to get. And this practice has been a problem
for 2 decades or more, and it's really not much more or less
than outright theft.
In 2013, the FTC brought numerous enforcement actions then
and since against wireless carriers, including T-Mobile and
AT&T, for those corrupt practices, which I welcome and I've
lauded and thank you for doing because the settlements have
reached as high as $105 million and $90 million in refunds,
fines, and penalties. The wireless industries and companies
across the board should protect their consumers from these
kinds of abuses.
I'm hoping that you will commit that the FTC will continue
to pursue these cases by holding both individuals and companies
that may have aided and abetted them accountable no matter how
insulated or big they may be.
Commissioner Ohlhausen. Ranking Member Blumenthal, thank
you for mentioning those cases. I have been personally very
supportive of the FTC's cramming cases. I'm concerned about our
ability to continue to act in that space given the Ninth
Circuit's decision on the common carrier exemption.
Senator Blumenthal. But given the legal ability to do so,
will you commit to holding the aiders and abettors accountable
to the maximum degree you can?
Commissioner Ohlhausen. To the extent we are capable of
doing that under our current authority, I would certainly
commit to that. As you may recall, we've been able to reach
certain actors, like particularly in the Western Union case,
under our unfairness authority.
Senator Blumenthal. Commissioner McSweeny, do you agree?
Ms. McSweeny. Yes, I strongly agree. I think that Congress
has from time to time seen fit to give us assisting and
facilitating authority, for example, in the Telemarketing Sales
Rule Act, and I think that kind of authority is very, very
helpful in making sure that we can not just play the game, as
you alluded to, of ``Whack-A-Mole,'' of going after fraudsters,
but also making sure that we're holding people accountable if
they know that they are facilitating fraud and processing those
payments.
Cases like the Western Union case are very, very important,
because a huge amount of the money that was transferred out in
the kinds of scams you've just been hearing about out of our
country to other countries was transferred through that system.
And so having that entity have more accountability and, in
fact, acknowledge that they are doing a much better job
policing their own platforms is very, very important to
protecting consumers in the first place. So I think that's an
important area, not just in cramming, but across all
industries.
Senator Blumenthal. Thank you. A lot of consumers probably
have no idea that new car dealers are prohibited from selling
vehicles with open recalls, but used car dealers are free to do
so, even though the defects can be deadly, and the recalls can
be very, very important. In fact, used car dealers can
advertise cars with unrepaired safety recalls saying they are,
``safe,'' or have passed ``rigorous inspection'', even if they
have defective Takata airbags that can explode and kill them or
maim them, and other potentially deadly defects.
This disclosure issue is extraordinarily important. And as
long as I am a member of this committee, I am going to continue
working to try to close that gap in the law. I disagree with
the FTC's proposed final orders against GM, Jim Koons, and
Lithium Motors for their deceptive advertising actions. If you
could tell me just very simply yes or no, in your opinion, to
the two Commissioners, the Chairwoman and Commissioner
McSweeny, in your opinion, is a car with an open unrepaired
recall a safe car?
Commissioner Ohlhausen. If it was advertised as safe, I
would have a concern about that.
Senator Blumenthal. If it's advertised as safe?
Commissioner Ohlhausen. Right. If there is a claim made
that this car is safe, then I would have a concern if it had an
open recall without a disclosure about that.
Senator Blumenthal. What about if it's just--if it just has
a deadly defect? Would you call it safe without any
advertisement?
Commissioner Ohlhausen. I'm not sure that this--that's an
FTC issue. I mean, I may not personally call it safe, but under
the FTC Act, we have to look at the claims that are made.
Senator Blumenthal. Commissioner McSweeny?
Ms. McSweeny. I strongly share your concerns about the sale
of used vehicles with open safety recalls. This has resulted in
documented tragedy. We struggled, I think, with the scope of
the FTC authority in those cases, and I strongly support your
efforts to provide a better solution to consumers to this
problem.
Senator Blumenthal. Thank you both. And thank you to all
the members of our panel. I apologize in advance. I probably
will have to leave early because we have an ongoing
confirmation hearing in the Judiciary Committee concerning
Judge Gorsuch to the United States Supreme Court, so I will
probably have to go back to that.
But I want to thank again the Chairman of this
Subcommittee, Senator Moran. And I also want to thank the
Chairman of our Committee, Senator Thune, who has just arrived.
And he has enabled us to go forward with it. It's very
important. And I hope we can continue this work. Thank you.
The Chairman. Senator Blumenthal, thank you very much. We
attempted to change the hearing. We would have lost our
witnesses, and Senator Blumenthal was agreeable to us
proceeding despite his demanding schedule, as a Member of the
Senate Judiciary Committee now considering a nominee to the
U.S. Supreme Court. I think you made that point, didn't you?
We are honored to have the Full Committee Chairman join us
today, and I now recognize Chairman Thune.
STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Well, thank you, Mr. Chairman, and thank
you, Senator Blumenthal, for having the hearing. I want to
thank our panel, too. This is an important issue. It affects
American consumers. And clearly consumers need protection from
those who would seek to defraud them through scams. I think we
can all agree the best use of the FTC's resources is to pursue
conduct and practices that cost Americans billions of dollars
without any benefits.
I just wanted to highlight one example of how this sort of
plays out in the real world. Last summer, I participated in a
telephone town hall that was sponsored by AARP where the bulk
of the calls focused on these kinds of scams.
And I, for instance, heard from a constituent named Louella
from the town of Salem, South Dakota, who had twice been the
victim of the so-called grandparents scam. In her case, not
only did she receive a call from someone posing as a grandchild
who claimed to be in jail and in desperate need of bail money,
but when she wavered, she got a follow-up call from someone
claiming to be a police officer verifying that her grandchild
would remain in custody until the bill was paid.
And in her case, fortunately, she talked to her son who
assured her that her grandkids were home safe. But it's still
not hard to imagine the grandparent hoping to save their
grandkids from embarrassment and legal peril by wiring money to
such a scammer.
And so I appreciate the subject of this hearing. It is an
important issue that does affect people all across our country
and across our states, and very grateful, a great panel.
And, Senator DeWine, so nice to have you back. Welcome.
It's good to see a former colleague. And so thank you for being
here.
I just want to ask one quick question because I know my
colleague from Oklahoma I think has been waiting patiently, as
have some of our colleagues on the other side.
But, Mr. Abagnale, we've talked about several different
types of scams that hurt American consumers. I guess the
question I would have is, is there a particular scam that
worries you the most that you would like to highlight in terms
of the things that are out there?
Mr. Abagnale. Obviously, I am very concerned about the
breaches we read about literally every day without
exaggeration, some reported, some not reported. We've had over
a billion people have their identity stolen already. When I
first started writing about identity theft, 750,000 victims
filed a police report. Today, there's a victim every 2 seconds
in the United States.
I'm a true believer that most all breaches occur because
somebody in that company did something they weren't supposed to
do or somebody in that company failed to do something they were
supposed to do, and that most of those breaches can be easily
prevented. Again, there is social engineering that occurs, et
cetera.
I had a call at my home just a couple of days ago from the
CFO of a large technology company on the West Coast, 4,000
employees. He said that someone in bookkeeping had received an
e-mail from the CEO saying he needed all the W-2 files on all
the 4,000 employees e-mailed up to him. The only reason they
found out about it a couple of days later, someone from
bookkeeping called up to the CEO or sent an e-mail to say, ``I
hope you got all the material you requested,'' and he said, ``I
didn't request that.'' Four thousand employees' information is
now on the street.
I'm a big believer you verify. So if I was in that
accounting department, that would be an unusual request. I
would have got up, walked up to the CEO's office, and said,
``Did you in fact send me this e-mail?'' or if they're out of
state, to get in contact with them over the telephone and make
sure I spoke to them.
So all of these scams that we hear about, whether it be the
grandparents scam, the sweepstakes scam, the IRS scam, is
really that I tell people all the time, you just simply need to
stop and verify. So if I call and I say I'm from the police
department, it comes up on my caller ID I'm from the police
department, I hang up the phone, I pick up the phone book, I
don't take the number they gave me, I look up the police
department's number in the phone book, I call the police
department and say, ``Do you in fact have my grandson in
custody at the police department?'' or, ``Did you make a call
to me for his bail?''
And that's the main message, that you prevent most of these
crimes, just simply stop and verify, whether it's a large
corporation, a small business, or an individual, you teach
people that you have to check things out.
We had 56 million phishing scams in 2016, 5,000 every
single day of the week, 7 days a week, each day. People need to
learn that just because an e-mail comes in, the e-mail looks
legitimate, if it is specifying information or requesting
information that could be devastating to the clients, to their
customers, to their employees, they need to verify that that e-
mail is correct. Those are the things that worry me the most,
that these breaches happen every single day, and more and more
information is given away every single day.
Senator Thune. Thank you. And thank you, Mr. Chairman, for
your leadership on this issue and on our committee. And again
thanks to the panel. My time is expired. And I'm sure you hear
this all the time, but you really are better looking than Leo
DiCaprio.
[Laughter.]
Senator Thune. Thank you.
The Chairman. The Senator from Oklahoma, Senator Inhofe.
STATEMENT OF HON. JIM INHOFE,
U.S. SENATOR FROM OKLAHOMA
Senator Inhofe. Thank you, Mr. Chairman.
All right, Mr. Abagnale, how close to reality was the
movie?
Mr. Abagnale. I didn't have a lot to do with the movie. I
obviously would have preferred not to have a movie made about
my life. As you know, I raised my three sons in Oklahoma to
keep them away from just that, even though I officed here in
D.C., and commuted back and forth. I saw you on the plane all
the time with your lovely wife. However, I thought that he did
a very good job of telling the story.
As he said many times, he loved the redemption side of the
story. He had owned the rights for more than 20 years. He
bought the rights back when he was making the movie with the
shark, Jaws, and when Barbara Walters asked him why he waited
so long to make the movie, he said, ``I waited to see what
Frank Abagnale did with his life before I immortalized him on
film.'' And so in the end, I think he was very much into the
redemption side of the story, and I was probably very fortunate
that it was he who told the story.
Senator Inhofe. Yes. Well, thank you. You know, back in
your scamming days, if there is any truth to the story, you
were always one step ahead. You knew where to go if the old
technology wasn't used, working, you would try something else.
As you apply that background to what's out there now, you
mentioned in your opening statement that there are things that
shift around for a while, the technology we'll be working on,
maybe the grandparents. What do you see in the future now as a
prospect for scamming in the future that is not there now?
Mr. Abagnale. Well, you know, up until this--up until
present day, cyber crime, for example, is all about money and
getting information. I'm very concerned that cyber crime in the
next few years is going to turn very black. So we have the
ability now to shut someone's pacemaker off, but we have to be
within 35 feet of that individual to shut that pacemaker off or
speed it up. We have the ability to get within 35 feet of an
automobile, shut off the car, turn on the airbags, lock the
person in the vehicle. Again, we need to be within 35 feet. I
believe that within the next 5 years you'll be able to do that
from 5,000 miles away.
So I am very concerned about our infrastructure. I'm very
concerned about our electrical grid. These are the things that
I think eventually cyber crime will come to be more of a
terrorist tool and more of as a tool to eliminate individuals,
and that's when it will get very, very scary.
Senator Inhofe. Yes, and that is scary. It happens that the
one sitting to your right is an old friend of mine from the
House, and the two of us know more about grandkids than anybody
else probably in this room, and he forgot to introduce his
wife. So I'll introduce her.
Fran, hold your hand up.
All right. Mr. Schwanke, I was fascinated, first of all,
that was the worst wildfire in the history of Oklahoma and
Kansas. And I got in my little plane last week and went up to
Woodward. And then yesterday I was in Buffalo, Oklahoma, and we
had over 300 farmers and ranchers, half of them were from
Kansas. And not one time in those meetings did it come up that
anyone was scammed. And you mentioned that scamming was
something that's fairly common. Explain how it worked. I need
this to take back to----
Mr. Schwanke. What they were doing was they were calling
these victims and calling that area with those victims in it
offering Federal grant money. So you would have thought----
Senator Inhofe. Well, pause right there. How would they
expect money to be wired to them because--procedurally, how
would that work?
Mr. Schwanke. I don't know how they were going to get the
money, and I don't think that we had anyone fall for it in that
area because it was reported.
Senator Inhofe. Oh.
Mr. Schwanke. But they were asking for that money. You
would have had to have paid--you would have had to have paid an
application fee in order to receive this free Federal grant
money for rebuilding after the fires.
Senator Inhofe. Yes, that's really, because that's such a
cruel thing. I mean, Mr. Abagnale, they were telling stories
about how they were watching their livestock burn alive during
this thing. It was really a tragedy, and that hasn't come up as
an issue in the meetings that we had. So I'll maybe talk to you
afterwards. And I want to visit with them out there because I'm
sure if it was happening--it was taking place.
Mr. Schwanke. Well, and I want to give a lot of credit.
That's an example where local law enforcement stepped out so
quickly on it. In these scams, you can't wait on something like
that a week or 2 weeks. They stepped out that day, called a
news conference, and talked about it. So they were able to get
that information out quickly, both through the news, but also
the incredible tool that we have in social media, and it passed
around very quickly.
Senator Inhofe. Yes. General DeWine, I remember so well
recently, and you would have no way of knowing this, but OG&E,
that's in Oklahoma, Oklahoma Gas and Electric, they had their
representatives make phone calls to customers and get them to
make payments to the scammers. Is this something that has
happened other places where utilities and this type of group
out there would be involved in scamming?
Mr. DeWine. Senator, I'm not--I don't have any specific
recollection that we had one of those cases. You know, most of
these cases come down to some representation to you that you're
going to get something, you, the consumer are going to get
something, and it's usually, as we tell people, if it sounds
too good to be true, it probably is not true. But they all kind
of follow that, you're going to get something, and to get
something, we'll send you a check, but you have to send us a
check type thing. And it could be the attorneys' fees or the
cost of handling or something.
Senator Inhofe. Yes, well, maybe it's just particularly of
concern in Oklahoma, but it did lead off into a lot of scams
that were taking place just through that company.
Thank you, Mr. Chairman.
The Chairman. Senator Udall.
STATEMENT OF HON. TOM UDALL,
U.S. SENATOR FROM NEW MEXICO
Senator Udall. Thank you very much, Chairman Moran. And I
also want to thank the panel and the witnesses today. I think
this has been excellent. And clearly this is a critical issue
for the American public.
As State Attorney General in New Mexico, we brought many
consumer protection cases in the areas that you all are talking
about. One of them in particular was fraudulent telemarketers;
we fought hard against them. These predators often targeted
senior citizens. State Attorneys General were one of the key
forces behind passing a Federal law that allows states to
prosecute telemarketers who cross state lines, which I'm sure,
Attorney General DeWine, you're familiar with.
Technology evolves and con artists adapt and deploy new
techniques. Scammers also seem to quickly find ways to abuse
Internet technologies. One example is credit card skimming.
Chairwoman Ohlhausen, drivers in Albuquerque have had their
credit cards compromised after purchasing gas at a pump. Local
TV stations KRQE and KOB have reported that Albuquerque police
believe 22 credit card skimmers were recently installed at gas
station pumps across the city. These skimmers are hidden and
can be especially hard to spot if you're in a hurry to fill up
your car with gas. And other skimmers are more sophisticated
and read credit card information wirelessly, so you can just
put them in a backpack, and I think there are pictures of those
in front of you, both the first photo and the second photo, so:
skimmers at a gas pump, and then the second one is a kind of
skimmer that can get things wirelessly.
A Russian company sells this type of skimmer, the wireless
one, and gives directions on how to steal credit card
information. The Russian seller's website recommends targeting
restaurants by hiding the skimmer in a backpack or in a car
parked outside. This skimmer will, quote and they say in their
advertisement ``automatically connect to the network, can do
all the job for you. You could probably get up to 20 card
details from one restaurant depending on how busy the
restaurant is.''
The FTC previously issued a warning to Americans traveling
abroad to be alert for card skimmers at ATMs and gas stations,
but these scams are now happening in New Mexico and across the
Nation.
And so, Madam Chair, what action will the FTC take to help
stop credit card skimming scams at the gas pump?
Commissioner Ohlhausen. Senator, thank you very much for
your question. You raise a very important issue. In fact, it is
happening across the country. And just locally recently WTOP
reported that it was happening in Arlington, Virginia. And it
is a problem, and we have issued consumer education for
consumers, to tell them to be alert for things where it looks
like it has been affixed overtop the regular card reader. And
we give consumers advice about covering up with their hand as
they're putting in their PIN number. I certainly hope that as
credit cards move toward the PIN and chip technology, that
might help reduce the issue.
Now, you also raised the point about the websites selling
this. I will certainly look into it. It's possible that it
could be reached under our unfairness authority. We have a
three-part unfairness test. But one of the challenges is when
things are sold abroad, it can be difficult sometimes for us to
get authority over a foreign seller, but we can certainly see
what we can find out.
Senator Udall. Well, we hope you will work with the state
attorney generals to try to shut these operations down.
Commissioner Ohlhausen. Certainly.
Senator Udall. Now, for years, as you know, I've urged the
FTC to take action against false marketing of so-called ``anti-
concussion sports equipment.'' These false claims put children
at greater risk of brain injury. And these false claims can put
responsible companies at a competitive disadvantage. And
tomorrow, in fact, is Brain Injury Awareness Day, and there is
much greater awareness these days that concussions are a form
of brain injury and should be treated seriously. So I was
disappointed by President Trump's tough guy comments at a
campaign rally last year after an audience member fainted and
then returned to the crowd, and he compared her favorably to an
NFL player who sit on the bench after suffering a concussion.
And Trump used to own his own professional football team, and
he said, and I quote, These new and very much softer NFL rules,
concussion, oh, oh, got to get a little ding on the head, no,
no, you can't play for the rest of the season, our people are
tough. That's the end of his quote. The President said that,
I'm sure, for a laugh, but chronic traumatic encephalopathy, or
CTE, and other forms of brain injury are no joke.
So, Madam Chair, are you aware that these current state
laws and Federal health guidelines from the Centers for Disease
Control recommend that athletes should not return to play
immediately after a concussion?
Commissioner Ohlhausen. Senator, you raise a very, very
important issue, and one that I care about deeply. I actually
have four children, and two of them did suffer concussions
playing sports. So I appreciate the attention that you've
brought to this.
And at the FTC, we have brought enforcement actions in this
case, the brain guard case. We've had consumer ed. I will
continue to pay close attention to this issue. And I was also
pleased to see that the university is doing a study about the
possibility of the concussions in the soccer--the sport of
soccer. So we will definitely continue to pay attention to this
issue.
Senator Udall. Yes. Thank you for that answer. Thank you
for the courtesies. I know I ran over a little bit.
Thank you, Mr. Chairman.
The Chairman. You're welcome, Senator Udall.
Senator Cortez Masto.
STATEMENT OF HON. CATHERINE CORTEZ MASTO,
U.S. SENATOR FROM NEVADA
Senator Cortez Masto. Thank you, Mr. Chairman. And I
apologize, I have dualing committees going on, so I just had to
run over real quick.
First of all, let me say to my colleague, General DeWine,
it's good to see you.
Mr. DeWine. Good to see you.
Senator Cortez Masto. Had some important work we did
together, and I thank you for continuing that work down the
path of consumer protection.
And then, Mr. Schwanke, it's important what you do. We have
a station in Nevada, KTNV, that does similar work to protect
consumers and bring education and awareness, which I think is
one of the most important pieces protecting consumers, that
education and awareness piece, and it's the first step in
prevention. So thank you for what you do.
I appreciate all the panelists here today.
And to the FTC, great partners of mine when I was Attorney
General in the state of Nevada. Thank you for all of that hard
work, because I do believe, as Chairwoman Ohlhausen has said,
that the FTC is the primary consumer protection agency, so are
the AGs, and when we have a partnership together, that is the
most important thing. And so that's where I would like to
start.
And I really want to talk about and kind of get your
position, Dr.--or excuse me, Chairwoman Ohlhausen, on your
vision for the FTC. In your statement, upon your appointment as
Acting Chair of the FTC, you stated, ``I'm deeply honored that
President Trump has asked me to serve as Acting Chairman of the
FTC, and to preserve America's true engine of prosperity, a
free, honest, and competitive marketplace.'' And then on
January 24, 2017, at the Heritage Foundation, you said,
``Although well-intentioned, the majority Commission, under
President Obama, at times pursued an antitrust agenda that
disregarded sound economics. It imposed unnecessary costs on
businesses and substituted rigorous analysis of competitive
effects for conclusory assertions of unfair competition.''
With that said, I will tell you during that period of time,
the FTC, they were wonderful partners of ours in the state of
Nevada when we were addressing anticompetitive conditions in
the marketplace that were there--we were there fighting to
protect consumers.
So I'm curious, exactly which policies do you believe the
Obama administration pursued that disregarded sound economics?
And can you elaborate on that for me?
Commissioner Ohlhausen. Certainly. So in those remarks, I
was talking about the FTC's antitrust enforcement. For the most
part, I supported it, I voted in favor of most of our
enforcement, particularly in the pharmaceutical space, hospital
mergers, challenging a wide variety of mergers. But there were
a few cases that I didn't support, and I filed dissents in
those because I didn't think that on balance they would make
consumers better off, and I didn't believe that the economic
evidence supported finding an anticompetitive impact from that
behavior that was being challenged.
Senator Cortez Masto. OK. So can you commit that there
won't be a rollback of antitrust protections intended to
protect consumers?
Commissioner Ohlhausen. I think that all of our antitrust
enforcement definitely should protect consumers. I certainly
wouldn't want to forego any enforcement that I think has
accurately shown there is a likely impact on consumers, an
anticompetitive effect. And I've generally been very supportive
of antitrust enforcement in those areas, or I would say
hospital mergers, pharmaceuticals, mergers that raise
problematic overlaps.
Senator Cortez Masto. And have you spoken to the President
or anyone else in the White House about your antitrust views?
Commissioner Ohlhausen. I have not spoken to the President.
I have spoken to members of the White House staff.
Senator Cortez Masto. OK. So to both commissioners, while
I'm aware that the FTC's authority does not specifically extend
exclusively to banks, savings and loans, and Federal credit
unions, you do work in concert with the CFPB. They were great
partners of ours in the state of Nevada, as attorney general.
How would you rate that cooperation in the CFPB's ability to
protect consumers?
Commissioner Ohlhausen. So we--once the CFPB was created,
we reached a Memorandum of Understanding with the CFPB so that
there weren't inappropriate overlaps or burdensome overlaps,
and we used our resources effectively. So I believe that we
worked well with the CFPB. They worked in their area, and the
FTC continued to operate in the areas that Congress left to us.
Senator Cortez Masto. And do you think there is a good
working relationship between the two of you in respecting those
boundaries and then working together when necessary for
consumer protection?
Commissioner Ohlhausen. I have not been aware of any
problems with our relationship with the CFPB pursuant to the
MOU.
Senator Cortez Masto. OK. Thank you. And then to General
DeWine. We have talked about this several times amongst our
colleagues. But given the growing aging population, and you
brought it up as well as constantly evolving technology that's
out there that you talked about, that we know that makes scams
easier to perpetrate, what additional resources or innovations
does law enforcement need to keep up with the financial threats
posed to seniors?
Mr. DeWine. Senator, I think that the biggest challenge is
lack of resources and prioritizing. We have been successful in
the Attorney General's Office in helping local law enforcement.
Ohio has a very local law enforcement; we're county by county,
88 counties. And where we have been able to be successful I
think is when we've been able to see a pattern of crime that
goes from county to county to county, and we get involved, and
then we work with local law enforcement.
So I think it is, frankly, if there is one thing that is
needed, it's just more of that, more of that not only at the
state level and the local level, but also with our partners at
the Federal level. We work very closely every day with the DEA,
with the FBI, other Federal agencies, but, again, as has been
pointed out many times, when you have these cases that start,
they're on the Internet, some scammer may be sitting in halfway
around the world, it's a rare case, frankly, that we're going
to be able to be successful, and, quite candidly, I think what
I would like to see is the Federal Government prioritize, we
understand they can't take every case, make some examples. It
would be good just to have some high-profile cases where they
say, ``We're going to go do what has to be done.'' Because
these scammers by and large are sitting offshore, and they
don't feel any heat.
Senator Cortez Masto. Right.
Mr. DeWine. They don't feel any heat at all. So I think--I
understand the lack of resources and prioritizing, and so maybe
if we could do some of those cases for--you know, to make an
example of them.
Senator Cortez Masto. Thank you.
Mr. Chair, I see my time is up. Thank you for your
indulgence. And thank you to the panelists.
And, Mr. Abagnale, thank you for coming forward with your
insight and helping those of us to protect consumers. I
appreciate it.
Mr. Abagnale. Thank you.
The Chairman. Senator Hassan.
STATEMENT OF HON. MAGGIE HASSAN,
U.S. SENATOR FROM NEW HAMPSHIRE
Senator Hassan. Thank you, Mr. Chair. And I'll add my
thanks to all of the panelists. Thank you for being here today
on this really important topic. And I just wanted to follow up
on something my colleague just talked to you all about because
your testimony and certainly the experience of our constituents
makes clear that our consumers are facing threats from bad
actors pretty much across the board. We have Federal entities
in place in addition to the FTC, the CFPB, which Senator Cortez
Masto just referenced, the FCC.
So can you just--to the two commissioners here, can you
talk a little bit about what you're doing to make sure that
there is excellent communication and coordination across the
Federal Government on behalf of consumers? Are there any things
in addition to what you're already doing that are particular
challenges or you need help with?
Commissioner Ohlhausen. So we do work closely with our
Federal partners across the government, and we also as well as
working with the states as much as possible. So we do a
Memorandum of Understanding with a variety of Federal agencies.
I mentioned CFPB. We have the FCC. We have the FDA. We
participate in task forces. We're a part of the Robocall Strike
Force Task Force and the Identity Theft Task Force, so we do
try to leverage our resources and work cooperatively.
Senator Hassan. Thank you.
Commissioner?
Ms. McSweeny. I would just add that I think your point
really underscores the need for strong consumer protection
enforcement agencies to collaborate in order to make sure that
we can adequately protect consumers in this environment. We
really don't see the threat to consumers or the marketplace
diminishing, in fact, we see it increasing, and so what we need
to make sure we're doing is all using the tools that we have to
do the best job that can do, and I think the FTC has been
working hard to do that and will continue to do that, but we
need to make sure that we have strong partners at the Federal
level, at the state level, and in the business community as
well.
Senator Hassan. Thank you. And it has been part of my
experience, as a Governor, that with all of this kind of law
enforcement challenge, communication at all levels is just
really, really important. So I appreciate your efforts.
This is a question for the entire panel. Mr. Abagnale today
discussed how much easier it is to commit the kind of fraud you
did as a teenager because of the proliferation now of new
technologies, and to be sure, technology has played a
tremendous role in enabling nefarious actors to commit schemes
and to prey on innocent Americans.
So the question to all of you is technology is clearly part
of the problem. Can it be part of the solution? And what should
we be looking for it to do? Are state and Federal entities
investing in the right kind of research and new technology that
can help us prevent scams or identify them earlier? And can
businesses help government do this?
Go right ahead, Mr. Abagnale.
Mr. Abagnale. I would just say absolutely. Technology can
be used to fight crime. For example, as you know, a year ago
the IRS paid out $5.8 billion in refunds to individuals who
used someone else's Social Security number. A simple technology
that exists today and used by American corporations and banks
every day in fraud detection would have prevented probably 70
percent of those payments being made. So the question is we
have the technology, but it has to be used and it has to be
implemented.
I work on retainer to LexisNexis on government risk
solutions; have for years. I work on retainer to Experian, and
they operate in 80 countries around the world. Obviously, I
know the technology exists; I know we use it in the commercial
marketplace. So yes, you can prevent a lot of these things from
occurring by simply using the right technology to do so, but
you have to be willing to spend the money and take the time and
effort to do so.
Senator Hassan. Right. Thank you.
Anyone else want to add?
Ms. McSweeny. I would just add one of the other ways we try
to do that is by using our authority to run competitions to
create new and innovative solutions to consumers. So in the
past, we have used the authority to create apps that help
consumers block unwanted calls, for example. Now we're using it
to create new tools to help consumers secure their home
Internet of Things technology. And that kind of entrepreneurial
creative use of authorities can really spur innovation in the
marketplace as well.
Senator Hassan. Thank you.
And, Commissioner, do you have anything?
Commissioner Ohlhausen. Yes. I just wanted to mention we at
the FTC have tried to stay up-to-date on these things. We have
an OTech, an Office of Technology, in our Bureau of Consumer
Protection, and we also have a chief technologist at the
agency.
Senator Hassan. Thank you very much. And, again----
Mr. DeWine. Senator, very, very quickly.
Senator Hassan. Yes.
Mr. DeWine. As I've traveled around the state, a lot of
business people have been saying to me, ``What are you doing
about identity theft and other problems?''
Senator Hassan. Right.
Mr. DeWine. And, quite frankly, I went back to my office
and I said I'm not sure really what we're doing.
Senator Hassan. Right.
Mr. DeWine. So what we have done is reached out to
businesses and asked them to give us their best people
literally to put on a group to start working on these issues.
They're going to be coming out with a report fairly quickly.
Our concern is not the big companies, they have the resources
to do it, but the vast majority of companies in Ohio are small
and frankly don't have the resources. So what we hope to do by
getting people loaned frankly to us--and we've been very, very
pleased with the quality of people the companies have given us,
we think we're going to come up with some recommendations,
maybe some legislation, best practices, that will help small
business.
Senator Hassan. Great. Thank you very much. Thank you all.
Thank you, Mr. Chair.
The Chairman. Senator Klobuchar.
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. Thank you very much, Mr. Chair, and
thank you to the Ranking Member as well for this important
hearing. I apologize I was late. I was over at the Judiciary
hearing, and I was telling Senator Moran I would use the very
same tone and start asking you guys about things you wrote 10
years ago.
[Laughter.]
Senator Klobuchar. So many of the witnesses today have
highlighted the growing problem of senior fraud. I introduced
the Senior Fraud Prevention Act with Senator Susan Collins, the
Chair of the Senate Committee on Aging, to help the FTC more
effectively combat senior fraud. The bill was passed by this
committee in January. Chairman, thank you for being here. One
provision of the bill would establish an office within the
Bureau of Consumer Protection focused on senior fraud. Have
efforts to provide specialized resources for other targeted
groups, like Spanish speakers, military consumers, and small
businesses been successful?
Commissioner Ohlhausen. Thank you, Senator. We are very
pleased to say that we also share your interest in focusing on
fraud against seniors. We've developed a lot of consumer ed and
help for seniors in that area, we are doing the same for
military, we have Military.Consumer.gov, and also for Spanish
speakers. We think there are certain populations that might
have particular needs, particular interests, and we want to
reach out to them.
Senator Klobuchar. Very good. Thank you.
Attorney General DeWine, thank you for being here. I wanted
to hear more about your elder justice initiative. I actually
embarked on such a thing when I was county attorney in
Minnesota. And just one little aside, right after I announced
it, 5 days later we started to prosecute an 88-year-old who had
shot her boyfriend in the back, he survived, because she was
mad he was dating someone else. And so people that were her
friends accused me of that was my senior initiative. Of course,
it was designed to help seniors. Could you talk about what
you've done?
Mr. DeWine. Well, thank you, Senator, very much. As you
know, and the members of the Committee know, a lot of these
scams are targeted specifically at elderly. And I think it has
been this way forever. You know, there's a reason that mature
neighborhoods are targeted that have the older trees and the
older citizens, for the tree scams, where they roll in and tell
you that your tree is about to fall on your house. They're
doing it also more sophisticated now, of course, and that is
through the Internet.
What we have done in the Attorney General's Office is we
have put together people from different parts of our office to
really be kind of a strike force to respond when local law
enforcement has a consumer instance where there has been elder
abuse. Elder abuse, as you know, can be financial, it can be
physical, and it also can be psychological. And what we find is
that particularly the smaller jurisdictions simply do not have
the resources to go after this, and sometimes it can take----
Senator Klobuchar. Then you're helping the smaller
jurisdictions?
Mr. DeWine. We're helping the smaller jurisdictions, so we
can bring forensic accountants in, for example, if we're
dealing with something having to do with fraud, money fraud. As
I indicated, Ohio is a very local government state, and we like
it that way, but what happens sometimes is the local
jurisdiction just does not have the resources.
Senator Klobuchar. OK.
Mr. DeWine. The other thing that we really have tried to
put an emphasis on is getting cooperation from the banks and
other people who are dealing with the seniors on issues of
money, and to inform them, educate them, that they can really
be an advocate and stop some of this stuff right there.
Senator Klobuchar. OK. Thank you.
Madam Chair, one last question along that issue of money
and deception. I'm Chair with Senator Blunt of the Travel
Caucus, Tourism Caucus, and one of the trends that we've seen
to threaten this huge industry, of course, which has so many
jobs in our country, and certainly as Senator Cortez Masto
knows, is the rise of deceptive online companies that imitate
the websites of actual hotels or airlines in order to attract
bookings. These fraudulent websites can leave consumers with
airline itineraries or reservations that have errors and they
can't be honored. That's why Senator Fischer and I wrote to the
FTC to ask you guys to investigate the matter, and why Senator
Daines and Nelson and I introduced the Stop Online Booking
Scams Act. What actions has the FTC taken in this area?
Commissioner Ohlhausen. Senator, I am aware of your letter
and appreciate you bringing that to the FTC's attention. This
is an important issue. We're always concerned about deception
for consumers. I can't comment on whether we have any
investigations ongoing, but we have looked into the issue and
we've also issued consumer education on this.
Senator Klobuchar. OK. Very good. Thank you. I am now
returning because my colleague, Senator Franken, is asking his
questions, which would almost be as exciting as yours,
Catherine. So thank you, everyone. Thank you.
The Chairman. We'll take a pause just for--right there,
that length of time. We won't take a pause any longer, although
when he returns, I'll be glad to--oh, he's here. The Chair
recognizes Senator Markey.
STATEMENT OF HON. EDWARD MARKEY,
U.S. SENATOR FROM MASSACHUSETTS
Senator Markey. I apologize. I thought I was----
The Chairman. Senator Klobuchar was briefer than normal.
[Laughter.]
Senator Markey. Thank you. Commissioner McSweeny, last year
the FCC wisely adopted broadband privacy rules that put
consumers in control of their sensitive information, but now
the broadband industry and their allies are fighting to strip
away the fundamental privacy protections under the guise of
harmonization of regulations. We could vote this week on a
Congressional Review Act resolution rescinding these rules.
When the industry says ``harmonization,'' they really mean
self-regulation.
Commissioner McSweeny, in a recent op-ed, you stated that
efforts to rescind the broadband privacy rules through the CRA
process will not actually harmonize regulations, but create a,
quote, yawning chasm where broadband and cable companies have
no discernable regulation. Could you explain?
Ms. McSweeny. Thank you, Senator, for the question. The
point that I'm trying to make is that both the FTC and the FCC
have an important role to play in making sure that people have
choices and control over their sensitive personal information.
And in the always-on, always-connected environment that we now
live, those choices are even more important than ever.
Something like 91 percent of American consumers feel they have
lost control of their data. So rather than rolling back rules
that simply guarantee that they get a choice, we should be
doing everything in our best efforts both at the FTC and at the
FCC and other parts of the government to protect those choices
and guarantee them.
Senator Markey. So should we be allowing broadband
companies to collect, to use, to sell sensitive information
about subscribers' health, finances, and children without first
getting consent from those families?
Ms. McSweeny. Well, the FTC's perspective over 20 years of
protecting consumer privacy----
Senator Markey. No, I'm talking about the Federal
Communications Commission.
Ms. McSweeny. Right. And----
Senator Markey. Those rules should stay on the books.
Ms. McSweeny. I strongly support those rules because they
are consistent with what the FTC has required, which is choices
be offered to people before their sensitive information is
used.
Senator Markey. Thank you. A last-minute provision in the
2015 budget deal makes it easier for government debt collectors
to harness tens of millions of consumers on their mobile
phones. And last summer, the Federal Communications Commission,
in response to a Supreme Court ruling, exempted the entire
Federal Government and its contractors for key robocall
protections.
This carve-out for government robocallers coincides with a
rise in tax and debt collection scams where criminals posing as
IRS agents and debt collectors call innocent Americans telling
them they must promptly wire them money or be subject to
arrest, deportation, or revocation of driver licenses.
Americans have lost millions of dollars because of these scams.
A provision in the 2015 Surface Transportation Bill
actually encourages the IRS to hire private debt collectors to
collect certain unpaid taxes, private tax collectors that can
now robocall and robotext consumers without their consent. I'm
concerned that consumers could find it even more difficult to
detect fraudulent calls because of these recent actions.
Commissioner McSweeny, Commissioner Ohlhausen, do you agree
with me, that there should be much concern about this change in
law?
Commissioner Ohlhausen. Senator, when the FCC proposed a
Notice of Proposed Rulemaking about government debt collection,
the FTC's Bureau of Consumer Protection did file a comment
raising some concerns. And when the FCC adopted the final rule,
they did adopt several of the recommendations that the FTC
staff had included, that things such as limiting the duration
of the call, excluding any calls from that coverage that would
have any marketing, requiring callers to affirmatively inform
debtors of their right to make the request to stop calls. So I
did share those concerns, and I was pleased to see that the FCC
took those into account in the final rule.
As for the IRS plan to use private debt collector
contractors, I think it will raise an additional informational
challenge and educational challenge for the FTC as they tell
consumers how to be wary of imposter scams.
Ms. McSweeny. I would just add I agree. I think consumer
confusion here is a very strong possibility, and that could be
problematic, and that our second most prevalent complaint is
bad debt collection practices, and to the extent that we have
debt collection occurring, we need to make sure that rules are
followed that protect consumers' interests in those
proceedings.
Senator Markey. Thank you. And earlier this month, Senator
Lee, from Utah, and I introduced the bipartisan HANGUP Act, the
Help Americans Never Get Unwanted Phone Calls Act. The bill
closes these loopholes and ensures that consumers do not
receive unwanted robocalls and robotexts from Federal
Government contractors without consent.
Last year, the FTC received over 5 million complaints about
unwanted calls. In light of this high volume of consumer
complaints, would you support our legislation, Senator Lee and
I--the HANGUP Act?
Commissioner Ohlhausen. Senator, I haven't seen the Act. I
would certainly be happy to take a look at it, and I share the
goals of that Act. I am concerned about consumer complaints,
and it's something we have paid close attention to at the FTC
over the years.
Senator Markey. Commissioner McSweeny?
Ms. McSweeny. I agree.
Senator Markey. OK. Thank you.
I am the original House author of the Telephone Consumer
Protection Act. And I'm going to oppose anything that
undermines these fundamental protections, which people want in
their homes from unwanted invasions of their privacy and
compromise of information that is sensitive to their families.
So I thank you, Mr. Chairman.
The Chairman. Thank you, Senator Markey.
I have just a couple of wrap-up things. Maybe we can get
this concluded quickly. It's terribly warm in here. But you all
never took your coats off, so I left mine on.
Mr. Abagnale, is there any level of cooperation between
those protecting consumers here in the United States and those
abroad? What we heard today was a lot of things are beyond our
reach, and what you indicated was the best opportunity we have
is to prevent through education and consumer awareness and the
actual enforcement, the ability to--the Attorney General said
something very similar, the actual ability to prosecute, to put
somebody out of business, or to get the funds restored is
pretty limited, and I assume in part that's because we no
longer know the person who is perpetrating the fraud. I would
guess in most instances there is no, any longer, any
relationship between the victim and the perpetrator. Is that
true?
Mr. Abagnale. That's true. And I think that there are, of
course, some countries that we're able to have cooperation with
and be able to use enforcement tools to stop those individuals
or arrest those individuals, but when you look at most of these
scams that come over the phone, they're coming out of China,
they're coming out of India, they're coming out of Russia. We
have gangs in Russia that bring in about $20 billion a year
annually from these types of scams and crimes that are
committed by these gangs, and there aren't a lot of American
companies that make $20 billion a year tax-free in that case.
So I think there are some countries that we can work with.
When I get calls--and what I wanted to comment on earlier is
when people ask me, ``I've been a victim. Where is the best
place for me to call?'' I always tell them the Attorney General
of their state and to the office of their consumer protection.
They're the ones who really do the most about these things.
They're the ones who have the tools to help with those
problems. So I always direct them there first.
Unfortunately, the FBI, as you know, has only 13,000
agents, and obviously those agents are dealing with kidnappings
and counterintelligence items and things of that nature, so
those crimes get to where there is a dollar amount has to
exceed that amount before there is an investigation, and the
U.S. Attorney only prosecutes when it exceeds a certain dollar
amount. And I understand why that is done.
So it's best to probably try to deal with those things on
the local level with the Attorney General and then get the
cooperation when we know that someone might be out of state or
somewhere we need Federal law enforcement to help investigate
or apprehend that individual.
The Chairman. Are there any successful instances in which
the Internet provider or the phone carrier or the company has
acted in a way that then shuts down or prevents additional
fraud?
Mr. Abagnale. Well, what happens, if the phone company was
to shut down a phone number tomorrow, it's just a throw-away
cell phone, so they just have hundreds and hundreds of phones,
and so a new number is a couple of seconds away, so it's very
difficult to do that.
I would encourage, again, there probably is ability with
technology to--phone companies could use to track a lot of
those calls and then stop those calls from coming into an
individual number, but I don't know that there is anyone really
doing that at this time.
The Chairman. From an FTC point of view, where are you in
the FY18 budget request? Anything transpiring in regard to what
request the administration will make for your agency?
Commissioner Ohlhausen. So we weren't mentioned
specifically in the President's, quote, skinny budget, so we're
still waiting to see exactly how we'll be treated.
The Chairman. And let me ask while I'm visiting with you,
Madam Chairman, it was mentioned earlier in Senator
Blumenthal's opening statement about the BOTS Act, that this
subcommittee and full committee passed and was signed into law
by the President, designed to rid us of the so-called ticket
BOTS, who automatically have the ability to corner the market.
Commissioner Ohlhausen. Yes.
The Chairman. What's the status of--any complaints, any
inquiries made to the FTC, in regard to that law?
Commissioner Ohlhausen. So I commend you for passing the
Act. And we are currently talking to people and finding out if
there are complaints that we can act upon.
The Chairman. So nothing at this point. I mean, give me a
little more detail of what that means.
Commissioner Ohlhausen. So our staff is reaching out to
other entities, other enforcers, finding out if there are
violations of the Act ongoing and how we would track them down,
finding out if there are consumer complaints, and using our
usual tools to investigate whether there is a violation that we
could pursue.
The Chairman. Attorney General, that legislation also
allows for state enforcement. And I would highlight that
legislation for you, and maybe you're aware of it, but the
opportunity to try to rid us of those automatic acquisition of
tickets then sold to, I don't know, Buckeye games or something
that may be popular. Are you aware of that?
Mr. DeWine. No. I'll take a look at that. Thank you, Mr.
Chairman, very much.
The Chairman. Thank you very much.
Mr. Abagnale, tell me a bit, I'll give you a chance to talk
about perhaps your sponsor or your host, the AARP. So what is
it that I can do with Kansans with AARP to further highlight
how to avoid being scammed?
Mr. Abagnale. You know, it's interesting, I have spent most
of my career dealing with crimes against businesses, business-
to-business crimes, but I was well aware of all these consumer
issues. Most of my time has been spent dealing with those
crimes. A few years ago, AARP contacted me and asked me if I
would work with them in helping educate their members and non-
members about these scams that are being perpetrated, how
they're done, and how to prevent them.
I found toward the end of my career that this would be
something really worthwhile for me to do and spend my time
helping consumers instead of just businesses deal with crime.
And it has been absolutely amazing. Over the last few years, I
have talked to people who have lost their life savings, 80
years old, they've lost their home, they lost their car, due to
some scam.
But I have found that the reach of the Fraud Watch Network
to over 50 million people, the ability for me to go out and get
on a phone and speak to 15,000 people on one phone call and
reach those people and answer those questions, and when I do go
out and do a presentation somewhere, the AARP does not allow
for the sale of any items, they do not allow the promotion of
their company, and they allow anyone to attend. So you don't
need to be an AARP member.
And we're amazed that when we sit there watching the people
come in, and we get crowds of 1,500-2,000 people, we notice
that a lot of them are people in their twenties and in their
thirties, and then married couples that are very young, and we
ask them later why they came, and they say, ``Because I'm
concerned about my identity being stolen, and I'm concerned
about my information being taken or being scammed myself.''
So it has been a great way to reach people, and I will
continue to do so this year to reach consumers en masse and be
able to help them understand these issues and how to help
protect themself.
I would like to add one thing that I didn't get to comment
on earlier. I am very concerned about children's identities. If
you are selling an identity on the black market today, and you
told me in Envelope A I have a 62-year-old male who is a multi-
millionaire, owns hotels, restaurants, office buildings,
shopping malls, and I'll sell you his identity complete, or I
will sell you the identity of a 12-year-old that's in junior
high school and has no credit or any assets, I would take the
12-year-old. And the reason for that is that if I can become
that 2-year-old, that 5-year-old, that 12-year-old, I can
become that person for a long period of time before that person
will ever realize I stole their identity.
So when I was a child, you didn't get your Social Security
number until you got a job, so you were 16, 17 years old, only
three people knew it--the government, your employer, and you.
Today, you don't leave the hospital without that number, and if
I can get that number as that child leaves that hospital or
shortly thereafter, that means I have 18 years of reselling,
reusing that identity of that child before anyone else would
know that. So I think we need to start paying a little more
attention. It's not just the elderly, but it is also children's
identities that are very much at risk, and we need to be able
to try to come up with some solutions for helping those
individuals.
The Chairman. There are increasing examples of fraud
against Federal agencies and departments. Anybody have any feel
for what that's like? And are there departments that are taking
the necessary steps to prevent that?
Mr. Abagnale. That's my area, and it's quite amazing. I
used to tell people that I worked in the millions, but I only
work in the billions now. So last year, Medicare and Medicaid
paid out $100 billion in fraudulent claims, that was 10 percent
of their combined budget. So we mentioned earlier the IRS paid
out $5.8 billion in fraudulent tax returns that people filed
using someone else's name, $7.7 billion in fraud from
unemployment fraud, and almost $10 billion in fraud from food
stamp fraud.
This is billions and billions of dollars that in many cases
leaves our country because it's being stolen and benefits
collected from people who are not even citizens or in this
country. And what bothers me most about that is we have the
ability to prevent a lot of that.
So I know that in the private industry, you have a board of
directors, and you have shareholders, and you have a profit to
make. Inside the government, that's not there, so consequently
the criminals start to realize, ``Who has all the money?'' The
government: Federal, county, state, and city. And, ``Who's the
easiest target?'' Unfortunately, the government, because they
don't have the proper infrastructure in place, let's say, for
example, Chase Bank, that spends more than $600 million a year
to put technology in their bank to keep criminals out of their
bank.
So I would like to see the Federal Government, even if you
were to cut those losses by 20 percent, 25 percent, that's
billions of dollars that go back into building roads, helping
the homeless, and people who need that money. So I think the
government can do a better job of preventing a lot of the
crimes that are perpetrated against them; they just need to
take the time, the money, and the effort to do so.
The Chairman. I also serve on the Appropriations Committee,
and it has been one of our standard questions to ask agency
heads, Cabinet secretaries, chief information officers, ``What
is it that you're doing to protect the data that you have
authority over?'' and we're trying to improve the status. I
hadn't thought about states and local units of government, but
it would be the same kind of challenge that we have.
One thing you said today, among many others that was said
by all of you that stands out with me, I thought about the
consequences of fraud or scamming and the economic loss to the
victim. What you said, Mr. Abagnale, that will stick with me is
the consequences of the money then coming back and used in
different ways so damaging to our society, more than just a
personal loss, the volume, the amount of dollars, that are
accumulated can be used in nefarious and damaging ways.
Mr. Abagnale. Absolutely.
The Chairman. Ms. Cortez Masto?
Senator Cortez Masto. Mr. Chair, thank you. And let me just
add because I completely agree, as somebody who oversaw the
Medicaid Fraud Unit for the state of Nevada. It was so
important to put resources into the staff, both the prosecutors
and investigators, who can investigate and prosecute for that
fraud. One case alone we were able to put $2 million back into
the Medicaid system.
So part of this process I believe is also funding those
inspector generals or funding those agencies and their units
within those agencies that can continue to go after the type of
fraud and keep that money in the system to the benefit of the
people who really need it. So I appreciate those comments.
Thank you very much.
The Chairman. Thank you very much. Anyone have anything
they want to add that they felt like they didn't get the chance
to make because I was inarticulate in my questions?
Mr. Schwanke.
Mr. Schwanke. Real quickly, on the IRS law that's going to
allow the collection via phone that was brought up, I can tell
you that I would have significant concern as over the past few
years that's all we have done, was try to educate consumers
that the IRS will not call you. I think I echo concerns of the
BBB that I talked to here, that there will have to be
significant reeducation happening because over and over again
we have told viewers that the IRS will not call you to collect
any tax debt. So as--and the IRS has also gone on our air many
times saying that. So that would be a concern.
The Chairman. And another takeaway from the hearing for me
is the lack of emphasis or the declining emphasis on public
service announcements awareness campaigns that was described as
used to be more prevalent than it is today.
Anyone else?
Mr. DeWine. Mr. Chairman----
The Chairman. General.
Mr. DeWine.--just one last thing to follow up on what Mr.
Abagnale said in regard to young people and the identity theft
of young people. One of the things that we've done in Ohio is
pass a law that provides that a parent can go to the credit
reporting agencies and actually freeze that child's credit, and
once that credit is frozen, then obviously it is not as
beneficial for someone to steal it, and if they do steal it,
there is not a whole lot they can do with it, or not as much.
So that's one thing that we're doing in Ohio and we think can
help.
The Chairman. Thank you very much.
Mr. Schwanke, you're the Kansan on the panel; therefore,
you're the expert. Anything you want to make certain I know
before I conclude this hearing?
Mr. Schwanke. I would just say we're getting--I think there
has to be better communication from government agencies to
private businesses, not that there has to be more regulation,
but we've seen drastic improvement really over the past year or
two. It was brought up by one of the members of up here that
when they go to the banks or when they go to these businesses,
especially the senior citizens, to withdraw money, or in my
example, purchase $13,000 in iTunes cards, that a lot of times
private business, through their education efforts, can stop
this. That same grocery store that had that happen now has had
multiple cases where their clerks have stopped the scam from
happening, as have banks.
Banks in the past I think have been concerned with privacy,
not prying into people's personal lives and finances when
someone comes to withdraw $20,000 cash, but I think that's
getting better that they're able to ask some of those important
questions to seniors when they go to make those type of
withdrawals, whether it be a gift card or a cash withdrawal
from a bank.
The Chairman. You and I both grew up in small towns, and
you're too young to know this, but in days gone by, everybody
knew each other, and you knew when somebody might be doing
something that made no sense to you, and you had enough of an
awareness of their lives, their person, and their family, that
you were willing to say, ``Are you sure you know what you're
doing?'' And we have fewer of those personal barriers and
opportunities in today's global economy.
Thank you all very much. We appreciate the time that you've
spent with us this afternoon. We appreciate the education that
we've received. This hearing record will remain open for 2
weeks. During that time, Senators are asked to submit any
questions for the record. Upon receipt, the witnesses are
requested to submit their written answers to the Committee as
soon as possible. And with that necessary announcement, I bring
this hearing to a conclusion. Thank you all very much.
[Whereupon, at 4:26 p.m., the hearing was adjourned.]
A P P E N D I X
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Response to Written Questions Submitted by Hon. John Thune to
Hon. Maureen K. Ohlhausen
Question 1. You have stated your interest in combating scams as a
top priority for the FTC's Bureau of Consumer Protection. What specific
practices do you intend to target? Can we expect to see increased FTC
enforcement activity in this area?
Answer. Fighting fraud is at the core of the FTC's consumer
protection mission. Our anti-fraud program tracks down and stops some
of the most pernicious frauds that prey on U.S. consumers, often on
those who can least afford to lose money. The Commission will target
the most egregious scams that cause significant economic injury to
consumers, including imposter scams, such as government and business
imposters; tech support scams which may disproportionately impact the
elderly; robocall and other telemarketing scams; fake debt relief
services and phantom debt collection schemes; and miracle cure scams.
The agency also will work to combat scams that defraud small
businesses, such as fake business directory services, as well as scams
that deceive aspiring entrepreneurs, including business opportunity
scams. I also will increase our efforts to fight scams that target
members of the military and veterans.
Question 2. At the hearing, you testified that the annual
macroeconomic cost of scams to the U.S. economy is ``billions and
billions of dollars.'' Apparently, you based this figure on the redress
FTC received in 2016, which included a settlement order the Commission
secured against Volkswagen Group of America in excess of $10 billion.
Presumably, however, this redress represents only a small fraction of
the total cost of scams to the economy.
a. Has the Commission's Bureau of Economics examined these costs?
If so, what conclusions did it reach?
Answer. Over the last 15 years, the Bureau of Economics has
conducted three surveys to study the degree to which consumers are
affected by consumer fraud. Because of the limitations of the data
available to the Bureau and other resources constraints, these studies
researched the number of consumers affected by fraud, but did not
address the question of the total costs such frauds impose on the
economy.
The most recent survey, which was conducted in 2011, asked about 15
specific types of fraud, as well as two more general types.\1\ The
types of fraud included in the survey are among the most common frauds
perpetrated by mass-market fraudsters, based on information gathered
from consumer complaints submitted to the Commission's Consumer
Sentinel database and Commission enforcement actions.
---------------------------------------------------------------------------
\1\ Consumer Fraud in the United States, 2011: The Third FTC Survey
(March 2013), available at https://www.ftc.gov/sites/default/files/
documents/reports/consumer-fraud-united-states-2011-third-ftc-survey/
130419fraudsurvey_0.pdf.
---------------------------------------------------------------------------
The 2011 survey found that 10.8 percent of U.S. consumers polled--
which translates to an estimated 25.6 million American adults--had been
victims of one of the frauds about which the survey asked.\2\ The most
frequently experienced of these frauds were weight loss products that
were marketed as making it easy for consumers to lose weight or as
enabling weight loss without diet or exercise, and that did not deliver
what consumers had expected. An estimated 2.1 percent of American
adults had purchased such weight loss products during 2011. Fraudulent
prize promotions--a situation where a consumer paid money, purchased a
product, or attended a sales promotion to obtain a promised prize and
then did not receive the prize or found that the prize was not what
they thought they had been promised--was the second most prevalent of
the studied frauds, having been experienced by an estimated 1.0 percent
of U.S. consumers.
---------------------------------------------------------------------------
\2\ In at least some cases, the figures that result from the FTC's
survey likely understate the prevalence of fraud. This is because fraud
here involves paying for a product or service that the consumer had not
agreed to purchase. This could occur, for example, if a consumer was
deceptively offered a free trial of some service--perhaps a buyers'
club--and the seller then converted the free-trial to a regular paid
subscription if the consumer did not cancel the membership during the
free-trial period. (These types of offerings are often referred to as
``negative option'' offers.) However, if the charges just appear on
consumers' credit card or telephone bills and consumers do not realize
that the charges are unauthorized, they will not be able to correctly
report that they have been victimized.
b. Do you believe it is important to establish a baseline of the
economic impact of scams to assess the effectiveness of FTC's
enforcement and education efforts?
Answer. To fulfill its goal of protecting consumers, the FTC must
identify consumer protection problems and trends in the fast-changing,
increasingly global marketplace. The agency strives to understand the
issues affecting consumers, including any newly emerging methods of
fraud or deceit, so that it can target its enforcement, education, and
advocacy on those areas where consumers suffer the most harm or where
there will be the greatest impact. I am committed to continuing to
improve the effectiveness of the FTC's enforcement and education
efforts, including by setting appropriate baselines against which to
measure those efforts.
A number of external factors pose significant obstacles to
establishing a baseline of the economic impact of scams. For example,
many injured consumers do not report when they have been harmed,
whether out of embarrassment or for other reasons, and some consumers
may not even realize that they have been victimized.
Nevertheless, I do believe it is important for the Commission to
attempt to measure the economic impact that its enforcement and
education efforts have on consumers and the economy, and the agency
does set performance goals that can be used as a proxy for consumer
harm. For example, in the FTC's current strategic plan, the agency has
set baselines from past performance, as well as goals designed to
improve that performance. These baselines and goals apply several
different measures, including the percentage of the FTC's consumer
protection law enforcement actions that targeted the subject of
consumer complaints to the FTC; the total estimated consumer savings
compared to the amount of FTC resources allocated to consumer
protection law enforcement; and the amount of money the FTC returned to
consumers or forwarded to the U.S. Treasury. The agency also has set
performance measures for providing the public with knowledge and tools
to prevent harm to consumers. For example, the agency has set
performance goals for the rate of consumer satisfaction with FTC
consumer education websites; the number of federal, state, local,
international, and private partnerships to maximize the reach of
consumer and business education campaigns; the number of workshops and
conferences the FTC convened that address consumer protection problems;
and the number of consumer protection reports the FTC released.
Question 3. In April 2016, the American Medical Association adopted
a resolution supporting a ``requirement that attorney advertising,
which may cause patients to discontinue medically necessary medications
have appropriate and conspicuous warnings that patients should not
discontinue medications without seeking the advice of their
physician.'' Could attorney advertising, which induces a patient to
stop taking a prescribed medicine, be actionable under Section 5 of the
FTC Act? Has the Commission examined any recent cases involving such
advertising, and has Commission staff been in contact with the American
Medical Association and the American Bar Association regarding this
matter?
Answer. Section 5 of the FTC Act prohibits ``unfair or deceptive
acts or practices in or affecting commerce.'' 15 U.S.C. Sec. 45(a).
Whether the advertising that you describe would constitute an unfair or
deceptive act or practice is a factual question that can only be
answered on a case-by-case basis. However, I am happy to provide a
general overview of the factors the Commission would consider in making
such a determination.
The Commission has explained that a deceptive act or practice is a
representation, omission, or practice that is likely to mislead a
consumer acting reasonably under the circumstances and that is
material.\3\ If a representation, omission, or practice targets a
particular group, the Commission will examine reasonableness from the
perspective of that group. Further, a representation, omission, or
practice is material if it ``is likely to affect the consumer's conduct
or decision with regard to a product or service.'' \4\ Pursuant to
Section 5(n) of the Act, an act or practice may be deemed unfair if (1)
it ``causes or is likely to cause substantial injury to consumers'';
(2) the injury ``is not reasonably avoidable by consumers themselves'';
and (3) the injury is ``not outweighed by countervailing benefits to
consumers or competition.'' 15 U.S.C. Sec. 45(n).\5\
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\3\ FTC Policy Statement on Deception (Oct. 14, 1983) (appended to
Cliffdale Associates, Inc., 103 F.T.C. 110, 174 (1984)) (``Deception
Policy Statement''), available at https://www.ftc.gov/public-
statements/1983/10/ftc-policy-statement-deception.
\4\ Id.
\5\ See also FTC Policy Statement on Unfairness (Dec. 17, 1980)
(appended to Int'l Harvester Co., 104 F.T.C. 949 (1984)) (``Unfairness
Statement''), available at https://www.ftc.gov/public-statements/1980/
12/ftc-policy-statement-unfairness.
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The first element of unfairness is that the act causes or is likely
to cause substantial injury to consumers. Accordingly, an inquiry would
consider how likely is it that a particular ad would cause consumers to
discontinue their medication and what consequences would likely follow
if that happened, in order to obtain an overall understanding of the
level of risk and harm to which consumers are exposed in a particular
case. These factors would likely vary depending on the particular
claims made in the ad, as well as the type of medication at issue.
The next element asks whether the injury would be reasonably
avoidable by consumers themselves. Again, the answer to this question
would likely depend on the claims made in the advertising, the
medication involved, and the condition at issue.
The final element is whether the consumer injury is outweighed by
countervailing benefits to consumers or competition. Attorney
advertising advising consumers who might have suffered injury to seek
legal consultation can serve an important public purpose. Moreover,
required disclosures impose at least some cost on advertisers. However,
when there is a substantial injury to health, or the likelihood of such
injury, that is not reasonably avoidable by consumers, a cost-benefit
analysis will generally favor disclosure, if such disclosure will
mitigate the injury.
At this point in time, no specific cases involving patients
discontinuing medically necessary medication in response to attorney
advertising have been brought to our attention. We plan to contact the
AMA to request additional information.
Question 4. Under Democrat leadership, the FTC sought to introduce
novel harms into its ``substantial injury'' analysis, for example
recognizing intangible harm as the basis for unfairness cases. A prime
example of this is in the FTC's LabMD enforcement, which you supported.
Previously, the Commission tended to find substantial injury in cases
of actual or likely economic harm, and in other instances, where
physical health and safety is threatened.
a. Do you agree that the Commission should consider intangible harm
as part of its unfairness analysis?
Answer. In order to effectively and efficiently protect consumers,
the FTC must focus its enforcement efforts on stopping conduct that
causes or is likely to cause substantial consumer harm. Public exposure
of sensitive information of the type frequently used to facilitate
identity theft can be likely to cause substantial economic injury. And
it may create a significant risk of a concrete harm, which the
Commission has also long considered to constitute substantial
injury.\6\ Furthermore, the Commission's longstanding view has been
that an invasion of a consumer's highly sensitive medical information
can itself constitute an actual, concrete consumer harm under the FTC
Act.\7\
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\6\ Unfairness Statement n.12.
\7\ The Commission's very first data security case, in 2002,
addressed lax data security procedures that caused disclosure of the e-
mail addresses of Prozac users. See Eli Lilly & Co., No. C-4047 (May
10, 2002), available at https://www.ftc.gov/enforcement/cases-
proceedings/012-3214/eli-lilly-company-matter. More recently, the
Commission has brought cases against a company that disclosed notes of
medical examinations on the internet, GMR Transcription Servs., Inc.,
No. C-4482 (Aug. 14, 2014), available at https://www.ftc.gov/
enforcement/cases-proceedings/122-3095/gmr-transcription-services-inc-
matter, and a company that solicited consumer healthcare reviews
without indicating that the reviews would be publicly posted on the
internet, Practice Fusion, Inc., No. C-4591 (Aug. 16, 2016), available
at https://www.ftc.gov/enforcement/cases-proceedings/142-3039/practice-
fusion-inc-matter.
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I do believe, however, that the FTC needs to examine more
rigorously what constitutes substantial injury in privacy cases. This
is one of the reasons I have asked the FTC's Bureau of Economics to
study the economics of privacy and data security. I expect that this
work will help ensure our data security and privacy program stands on a
strong policy foundation.
b. If economic or physical harm is not required, what is the
predictable limiting factor on the types of harm that will result in
enforcement?
Answer. As required by the first prong of Section 5(n) of the FTC
Act and noted in the Unfairness Statement, the harm in question must
constitute a substantial injury. Trivial, speculative, or certain
subjective harms, such as those that offend the tastes or social
beliefs of particular consumers, do not meet the first prong of Section
5(n). Unfairness Statement, 104 F.T.C. at 1073. In addition, for there
to be a violation that may result in enforcement, the other prongs of
Section 5(n) must also be satisfied, i.e., the harm must not be
reasonably avoidable by consumers or outweighed by countervailing
benefits to consumers or competition.
Question 5. In the FTC's recent enforcement action in the matter of
Vizio, Inc., you supported Count II of the complaint, alleging that
Vizio deceptively omitted information about its data collection and
sharing program, stating that ``[e]vidence shows that consumers do not
expect televisions to collect and share information about what they
watch.'' On this basis, you found that the company's omission to be
material, because ``[c]onsumers who are aware of such practices may
choose a different television or change the television's settings to
reflect their preferences.'' Could, and if so, should, the FTC apply a
similar theory of deception to data collection and sharing in other
contexts--for instance by Internet service providers, websites, or
applications--where consumer may have lower expectations about the
treatment of their data?
Answer. Any determination of whether a specific act or practice is
deceptive is a factual question that must be made on a case-by-case
basis. As noted above, a deceptive representation, omission, or
practice is one that is material and likely to mislead a consumer
acting reasonably under the circumstances. A representation is material
if it is likely to affect the consumer's conduct or decision with
respect to the product or service. As explained in the Commission's
Deception Policy Statement, in making such a determination, the
Commission will analyze the ``net impression'' of the representation
being made from the perspective of a reasonable consumer.
The Commission has previously challenged deceptive omissions in
other contexts involving data collection and sharing. For example, in
Goldenshores Technologies,\8\ the FTC alleged that the makers of a
popular free flashlight app deceived consumers about how their
geolocation information would be shared with advertising networks and
other third parties. While the company's privacy policy told consumers
that any information collected by their Brightest Flashlight app would
be used by the company, it deceptively failed to disclose that the app
transmitted users' precise location and unique device identifier to
third parties, including advertising networks. Likewise, in its case
against Epic Marketplace,\9\ the FTC settled charges that the online
advertising company used ``history sniffing'' to secretly and illegally
gather data from millions of consumers about their interest in
sensitive medical and financial issues ranging from fertility and
incontinence to debt relief and personal bankruptcy. According to the
complaint, while Epic did disclose its privacy and behavioral
advertising practices, it deceptively omitted that it engaged in
history sniffing. Finally, in Sears Management Corp.,\10\ the FTC
settled allegations that the company failed to disclose adequately the
scope of consumers' personal information it collected via a
downloadable software application. Sears allegedly represented to
consumers that the software would track their ``online browsing,'' but
only disclosed the full extent of the tracking in a lengthy user
license agreement, available to consumers at the end of a multi-step
registration process. According to the FTC, the software would also
monitor consumers' online secure sessions--including sessions on third
parties' websites--and collect information transmitted in those
sessions, such as the contents of shopping carts, online bank
statements, drug prescription records, video rental records, library
borrowing histories, and the sender, recipient, subject, and size for
web-based e-mails.
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\8\ Press Release, FTC Approves Final Order Settling Charges
Against Flashlight App Creator (April 9, 2014) available at https://
www.ftc.gov/news-events/press-releases/2014/04/ftc-approves-final-
order-settling-charges-against-flashlight-app.
\9\ Press Release, FTC Approves Final Order Settling Charges
Against Epic Marketplace, Inc. (March 19, 2013) available at https://
www.ftc.gov/news-events/press-releases/2013/03/ftc-approves-final-
order-settling-charges-against-epic.
\10\ Press Release, FTC Approves Final Consent Order Requiring
Sears to Disclose the Installation of Tracking Software Placed on
Consumers Computers; FTC Approves Final Consent Order in Matter
Concerning Enhanced Vision Systems, Inc. (September 9, 2009) available
at https://www.ftc.gov/news-events/press-releases/2009/09/ftc-approves-
final-consent-order-requiring-sears-disclose.
Question 6. On December 14, 2016, the Consumer Review Fairness Act
became the law of the land. This legislation, which I introduced in the
Senate, addresses so-called ``gag clauses'' in form contracts that are
designed to stop consumers from providing public feedback that
criticizes a company, even when that feedback is an honest reflection
of the customer experience. Among other things, this law provides for
enforcement by the FTC, and set a deadline of February 12, 2017, for
the FTC to begin education and outreach for business to provide them
with non-binding best practices for compliance with the law. Please
provide an update with respect to the Commission's activities under
this new authority.
Answer. In February 2017, the FTC issued ``Consumer Review Fairness
Act: What Businesses Need to Know,'' a guidance document that informs
businesses of the conduct prohibited by the statute and provides
information on how to comply with the law.\11\ The FTC and states can
enforce the law as to contracts in place on or after December 14, 2017.
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\11\ The guidance is available at https://www.ftc.gov/tips-advice/
business-center/guidance/consumer-review-fairness-act-what-businesses-
need-know.
Question 7. This hearing included discussion of the Commission's
role with respect to promoting motor vehicle safety. In a recent panel
discussing regulatory and policy issues facing the Commission, you
stated your interest in the ``safety benefits'' of autonomous vehicles
and connected cars.\12\ Earlier this month, FTC announced a joint
workshop with the National Highway Traffic Safety Agency (NHTSA),
seeking stakeholder input on modern motor vehicle technologies that
``promote safety.'' \13\
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\12\ Maureen Ohlhausen, Comm'r, Fed. Trade Comm'n, Remarks at the
CES 2017 FTC Commissioner Roundtable (Jan. 5, 2017).
\13\ Press Release, FTC and NHTSA Seek Input on Benefits and
Privacy and Security Issues Associated with Current and Future Motor
Vehicles (March 20, 2017) available at https://www.ftc.gov/news-events/
press-releases/2017/03/ftc-nhtsa-conduct-workshop-june-28-privacy-
security-issues.
a. Should the Commission defer to the expert Federal agencies, such
as NHTSA and the National Transportation Safety Board, on the issue of
motor vehicle safety?
Answer. The FTC would generally defer to Federal agencies such as
NHTSA and the National Transportation Safety Board (NTSB) regarding
motor vehicle safety. At the same time, however, the line between
issues of safety and non-safety are not necessarily clear. For example,
a data security vulnerability may both expose consumers' personal
information, as well as raise vehicle safety concerns. The Commission
brings much experience to bear on the former. For example, on the
privacy side, several automakers have voluntarily made commitments to
adhere to industry privacy principles, and we have unique experience in
enforcing self-regulatory codes. On the security side, the Commission
has significant expertise in examining software security issues, such
as failure to test for the presence of reasonably foreseeable
vulnerabilities.\14\
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\14\ See, e.g., ASUSTeK Computer Inc., No. C-4587 (July 28, 2016),
available at https://www.ftc.gov/enforcement/cases-proceedings/142-
3156/asustek-computer-inc-matter (alleging that critical security flaws
in computer hardware company ASUS' routers put the home networks of
hundreds of thousands of consumers at risk); Credit Karma, Inc., No. C-
4480 (Aug. 13, 2014), available at https://www.ftc.gov/enforcement/
cases-proceedings/132-3091/credit-karma-inc (alleging mobile app
disabled a critical default process necessary to ensure that apps'
communications were secure); Fandango, LLC, No. C-4481 (Aug. 13, 2014),
available at https://www.ftc.gov/enforcement/cases-proceedings/132-
3089/fandango-llc (same); TRENDnet, Inc., No. C-4426 (Jan. 16, 2014),
available at http://www.ftc.gov/enforcement/cases-proceedings/122-3090/
trendnet-inc-matter (alleging that, due to the company's failure to
properly secure its IP cameras, hackers were able to access and then
post hundreds of online private video and even audio feeds); HTC
America, Inc., No. C-4406 (June 25, 2013), available at https://
www.ftc.gov/enforcement/cases-proceedings/122-3049/htc-america-inc-
matter (mobile device manufacturer HTC for failing to secure its mobile
devices).
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Nonetheless, I share your concern and I am committed to working
with other Federal agencies to ensure that the FTC not impose
duplicative, overlapping, or conflicting requirements on car companies.
b. Does the Commission have jurisdiction over motor vehicle safety
under its unfairness authority, which recognizes that ``[u]nwarranted
health and safety risks may also support a finding of unfairness,'' or
would such actions rely primarily on public policy considerations?
Answer. It is possible that, in certain contexts, the FTC's Section
5 unfairness jurisdiction could apply where a motor vehicle presented
unreasonable health and safety risks to consumers. As noted above, I
remain committed to working with other Federal agencies to ensure that
the FTC not impose duplicative, overlapping, or conflicting
requirements on automotive companies.
Question 8. The Senate Commerce Committee has also focused its
attention on the issue of the marketing of anti-concussion sports
equipment. Does the Commission have sufficient authority under the FTC
Act, 15 U.S.C. Sec. Sec. 41-58, to pursue enforcement actions against
companies that engage in false or misleading advertising with respect
to these products?
Answer. Section 5 of the FTC Act, 15 U.S.C. Sec. 45(a), prohibits
false or misleading advertising, including false or misleading
advertising of the anti-concussion benefits of sports equipment. I
believe this authority is sufficient to allow the Commission to pursue
enforcement actions against companies that engage in false or
misleading advertising with respect to these products.
Question 9. In the FTC's written testimony, the Commission noted
scams targeting small commercial trucking businesses wherein scammers
impersonate government agencies to solicit payment for Federal motor
carrier registration. Small, family-owned trucking companies are an
important part of the South Dakota transportation sector. These
companies, along with their larger counterparts, must register with the
U.S. Department of Transportation (DOT) and re-register periodically.
As part of this process, registrant contact information is routinely
made available online where it can be accessed by anyone, including
scammers. I have heard from South Dakota trucking companies who are
concerned about the illegitimate requests for payment and other
solicitations for unnecessary services they receive. Sometimes, these
requests and solicitations come from companies with official-sounding
websites such as ``DOTcompliance.com'' and ``ExpressDOTService.com.''
Particularly for smaller companies, it is difficult to discern
legitimate requests from illegitimate ones.
a. What steps has the FTC taken to combat this fraudulent behavior?
How will the Commission address future incidents?
b. To what extent has the FTC worked with DOT to address these
scams?
Answer. The FTC is concerned about this possible misconduct and has
been working with the U.S. Department of Transportation (USDOT) to
address it. In 2015, USDOT approached the FTC about the deceptive
marketing of registration services by companies pretending to be
affiliated with government agencies to small, family-owned trucking
companies. Since then, the FTC has offered guidance to USDOT on
consumer warnings and education measures to combat government-imposter
registration solicitations. In addition, USDOT and the FTC worked
together to identify and investigate relevant consumer complaints. As a
result, this past Fall, the FTC filed an action alleging that several
interrelated companies, including DOTAuthority.com, Inc., deceived
small commercial trucking businesses into paying them for Federal and
state motor carrier registrations by impersonating government
transportation agencies. Our complaint alleges that the defendants have
taken in more than $17 million from thousands of small businesses by
sending misleading robocalls, e-mails, and text messages that create
and reinforce the false impression that they are, or are affiliated
with, the USDOT, the Unified Carrier Registration system, or another
government agency. As alleged in the complaint, the defendants used
official-sounding names, official-looking websites, warnings of civil
penalties or fines for non-compliance, and threats of imminent law
enforcement to trick companies into using their registration services
instead of using official government website services. The USDOT
submitted two declarations in support of the FTC's complaint. The court
has entered a preliminary injunction against the defendants and the
litigation in this case is on-going.\15\
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\15\ See FTC Press Release, FTC Charges Operators of Scheme That
Used Fake Government Affiliation to Sell Commercial Trucking
Registration Services, (Oct. 17, 2016) available at https://
www.ftc.gov/news-events/press-releases/2016/10/ftc-charges-operators-
scheme-used-fake-government-affiliation.
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______
Response to Written Questions Submitted by Hon. Deb Fischer to
Hon. Maureen K. Ohlhausen
Question 1. Acting Chairman Ohlhausen, in both this Congress and
the last, I introduced the Spoofing Prevention Act with Ranking Member
Nelson and Senators Blunt and Klobuchar. That bill would take steps to
close loopholes in the Truth in Caller ID Act so we can better combat
spoofing scams against seniors, law enforcement, and members of our
military. What do you see as the Federal Trade Commission's role in
eliminating spoofing, and what more needs to be done to fix this
problem?
Answer. The FTC uses every tool at its disposal to combat illegal
spoofing and fraudulent and deceptive calls to consumers, including
aggressive law enforcement, initiatives to spur technological
solutions, and robust consumer education. We have brought more than 130
law enforcement actions shutting down operations responsible for
billions of illegal calls, as well as numerous enforcement actions
targeting fraudulent ``impostors.'' Many of our law enforcement actions
specifically target defendants that engage in illegal spoofing.\16\
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\16\ See, e.g., United States v. KFJ Marketing, LLC et al., 2:16-
cv-01643 (C.D. Cal. Mar. 20, 2016); FTC et al., v. All Us Marketing
LLC, et al., 6:15CV1016-0RL-28GJK (M.D. Fla. June 29, 2015) ; FTC et
al., v. Lifewatch Inc. et al., 1:15-cv-05781 (N.D. Ill. June 20, 2015);
FTC et al., v. Caribbean Cruise, Inc. et al., 0:15-cv-60423 (S.D. Fla.
Mar. 4, 2015). Each of these actions sought relief for the defendants'
use of illegal spoofing and failure to provide legitimate Caller ID
information in violation of the Telemarketing Sales Rule, 16 C.F.R.
Sec. 310.4(a)(8).
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In addition to continuous law enforcement in this area, the FTC is
committed to working with industry to encourage and facilitate the
development and deployment of network-level technological solutions to
illegal spoofing. The FTC provided input to support the industry-led
Robocall Strike Force, which is working to deliver comprehensive
solutions to filter unwanted robocalls and to prevent illegal spoofing.
The Robocall Strike Force highlighted two technological solutions that
have been underway that will help thwart illegal spoofing: (1) a ``do-
not-originate'' list and (2) Caller ID authentication standards.\17\ A
``do-not-originate'' list allows the owner of a number to specify that
it should only be used to accept incoming calls and never to place
outgoing ones. In furtherance of the development of a ``do-not-
originate'' list, the FTC worked with a major carrier and Federal law
enforcement partners to help block IRS scam calls that were spoofing
well-known IRS telephone numbers.
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\17\ Caller ID authentication refers to standards to verify and
authenticate caller identification for calls carried over an Internet
Protocol (IP) network. These standards are known as SHAKEN (Signature-
based Handling of Asserted information using toKENs) and STIR (Secure
Telephony Identity Revisited). Wide-spread adoption of Caller ID
authentication standards would enable blocking and/or flagging of calls
attempting to transmit unverified Caller ID information. See the
October 21, 2016 Robocall Strikeforce Report available at https://
transition.fcc.gov/cgb/Robocall-Strike-Force-Final-Report.pdf.
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The FTC also engages with technical experts, academics, and others
through industry groups, such as the Messaging, Malware and Mobile
Anti-Abuse Working Group (``M\3\AAWG'') and the Voice and Telephony
Abuse Special Interest Group (``VTA SIG''). The FTC serves in a
leadership role in VTA SIG, which currently works to support various
initiatives that tackle voice spam, including Caller ID authentication
standards.
We also arm consumers with the tools and information they need to
protect themselves against fraudulent calls that often use spoofed
numbers. The FTC provides consumer information in English and Spanish
in many forms including print and online articles, fact sheets, blog
posts, brochures and videos with tips for avoiding scams and unwanted
calls. One of our most popular features is a ``Scam Alert'' page that
is frequently updated with blog posts about new scams.\18\ We also
remind consumers in our guidance that they need to be wary of scammers
using fake Caller ID information.\19\
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\18\ See Scam Alerts: What to know and do about scams in the news,
available at https://www.consumer.ftc.gov/scam-alerts.
\19\ See Scammers can fake caller ID info (May 4, 2016), available
at https://www.consumer.ftc.gov/blog/scammers-can-fake-caller-id-info.
Question 2. Acting Chairman Ohlhausen, as you may know, there have
been many recent reports of travel company booking scams. These involve
fraudulent companies imitating the websites of hotels or airlines to
attract bookings and trick consumers into paying fees for services they
do not receive. I have one such account from a hotel in Kearney,
Nebraska, that I entered into the hearing record. Last fall, Senator
Klobuchar and I sent you a letter regarding this fraudulent practice.
Does the FTC frequently hear about these types of complaints? If so,
what would be an appropriate response?
Answer. The FTC has a strong interest in protecting consumer
confidence in the online marketplace for travel and other services. The
FTC has received complaints about websites that mimic those of well-
known travel companies from Members of Congress, industry associations,
and consumers. The Consumer Sentinel complaint database, which includes
complaints received directly by the FTC as well as complaints
contributed by the Better Business Bureau and other agencies, contains
approximately 60 complaints since 2012 indicating that consumers had
booked a hotel through a third-party site when they thought they were
booking directly with a hotel.
In July 2015, the FTC issued consumer education cautioning
consumers about third-party websites that may deceptively mimic hotel
websites. We also have met with Members of Congress to discuss the
issue of deceptive travel sites and have provided technical assistance
and comments on proposed legislation. Although the existence and
details of investigations are non-public, I can assure you that the FTC
staff has taken these complaints seriously and will take law
enforcement action if appropriate.
______
Response to Written Questions Submitted by Hon. Jerry Moran to
Hon. Maureen K. Ohlhausen
Question 1. During the hearing, one of the issues raised by both
panel members and witnesses was the rise of ransomware, especially
targeted at small business owners. One of the devious ways that hackers
can gain access to a computer is by baiting Internet users with the
prospect of free movies, TV shows or music. Recent studies have found
that 1 in 3 so-called pirate websites expose consumers to malware.
Given the rise of piracy as a means to bait and infect computers, and
increase in ransomware, what is the FTC doing to warn consumers about
the connection between piracy and malware?
Answer. I share your concerns about malware on consumers' computers
and the potential harm such malware may cause consumers. Related to the
specific practice you have highlighted, last week, the Commission
issued a consumer education blog post warning consumers that
downloading pirated content is illegal and websites offering such
content often hide malware that can bombard them with ads, take over
their computers, or steal their personal information.\20\
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\20\ Free movies, costly malware (Apr. 12, 2017), available at
https://www.consumer.ftc.gov/blog/free-movies-costly-malware.
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Consumer education is a central part of the FTC's mission. Our
outreach includes publications, online resources, workshops, and social
media. These outreach efforts cover many topics, including malware,
tech support scams, spyware, phishing, peer-to-peer file sharing, and
social networking. We work closely with local, state, and Federal
Government entities, industry representatives, and consumer groups to
maximize the impact of these efforts.
The FTC has many consumer education resources that provide
additional information to consumers about dangers associated with
malware. For example, the Commission has published blog posts and
videos on ransomware \21\ and identity theft.\22\ In addition, our Net
Cetera publication helps parents, teachers, and other adults talk to
children about how to be safe, secure, and responsible online.\23\
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\21\ How to Defend Against Ransomware (Nov. 10, 2016), available at
https://www.consumer.ftc.gov/blog/how-defend-against-ransomware.
\22\ See FTC Consumer Information, Identity Theft, available at
https://www.consumer.ftc.gov/topics/identity-theft.
\23\ Netcetera: Chatting with Kids About Being Online (Jan. 2014),
available at https://www.onguardonline.gov/articles/pdf-0001-
netcetera.pdf.
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Relevant resources also include education materials relating to
individual enforcement actions the Commission has taken. For example,
last year the Commission settled an action with ASUSTeK Computer, Inc.
in which the Commission alleged that the company's routers had security
bugs that allowed malware to commandeer consumers' web traffic.\24\ In
connection with this settlement, the Commission published a blog post
with tips on router security.\25\
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\24\ ASUSTeK Computer, Inc., No. C-4587 (July 28, 2016), available
at https://www.ftc.gov/enforcement/cases-proceedings/142-3156/asustek-
computer-inc-matter.
\25\ Got an ASUS router at home? Read this. (Feb. 2016), available
at https://www.consumer.ftc.gov/blog/got-asus-router-home-read.
Question 2. Another theme of the hearing was the economic loss
caused by scams. A recent investigation by security company RiskIQ
found that hackers are paying pirate website operators $70 million a
year to infect computers. What role should the FTC play in warning
consumers and encouraging those who facilitate online activity--such as
domain sellers, hosting companies, search engine companies and payment
processors--in combatting these piracy/malware operators? For example,
should the FTC post warnings on their website, produce public service
announcements or work with digital platforms to raise awareness and
combat this new threat?
Answer. The FTC`s robust law enforcement and consumer education
platforms combat online threats, such as the unwanted installation of
malware and other software. Last Fall, the FTC held a workshop with
numerous industry participants to discuss the ransomware threat,
including how consumers can avoid--and respond to--ransomware.\26\ And,
as noted in response to the previous question, the FTC recently
published a blog post on its website entitled ``Free movies, costly
malware'' to educate consumers about the possibility that pirate
websites will infect their computers and devices with malware if they
download copyrighted content.\27\
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\26\ Event Description, Fall Technology Series: Ransomware (Sept.
7, 2016), available at www.ftc.gov/news-events/events-calendar/2016/09/
fall-technology-series-ransomware.
\27\ Blog Post, Free movies, costly malware (Apr. 12, 2017),
available at www.consumer.ftc.gov/blog/free-movies-costly-malware.
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In addition, the Commission has brought several enforcement actions
to stop companies from installing malware and other unwanted software
on consumers' computers and devices.\28\ The Commission will continue
to use its investigative, legal, and public outreach tools to protect
consumers from unwanted and harmful software. Moreover, the Commission
will continue, as it has done in the past, to work with high tech
companies, service providers, and industry participants to combat
online threats.
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\28\ See, e.g., Press Release, FTC Charges Tech Support Companies
With Using Deceptive Pop-Up Ads to Scare Consumers Into Purchasing
Unneeded Services (Oct. 12, 2016), available at www.ftc.gov/news-
events/press-releases/2016/10/ftc-charges-tech-support-companies-using-
deceptive-pop-ads-scare; Press Release, Tech Company Settles FTC
Charges It Unfairly Installed Apps on Android Mobile Devices Without
Users' Permission (Feb. 5, 2016), available at www.ftc.gov/news-events/
press-releases/2016/02/tech-company-settles-ftc-charges-it-unfairly-
installed-apps; Press Release, FTC Permanently Shuts Down Notorious
Rogue Internet Service Provider (May 19, 2010), available at
www.ftc.gov/news-events/press-releases/2010/05/ftc-permanently-shuts-
down-notorious-rogue-internet-service.
Question 3. In the FTC's prepared testimony, the agency discusses
the challenges associated with offshore scammers, including
international telemarketing fraud rings. The Committee is also aware
that so-called Jamaican lottery scams have proliferated in recent
years. One tool available to FTC is the U.S. SAFE WEB Act, which allows
the Commission to address consumer protection matters, particularly
those with an international dimension, providing for increased
cooperation with foreign law enforcement authorities, confidential
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information sharing and investigative assistance.
a. How has FTC used the SAFE WEB Act in its fight against scams?
Answer. The FTC has used the Act's powers extensively in cross-
border fraud cases and other matters to protect Americans. Between FY
2012 and FY 2016, for example, the FTC used the Act to share
information in response to almost 65 requests from foreign agencies,
and issued nearly 65 civil investigative demands to aid 28 foreign
investigations. These efforts have enabled foreign counterparts to
investigate conduct that directly harms American consumers, and, in
many instances, also helped to advance FTC investigations. Here are a
few examples since Congress reauthorized the Act in 2012:
The FTC used its SAFE WEB powers to work with Canadian law
enforcement to stop a telemarketing scam that targeted senior citizens.
On the U.S. side, the FTC obtained an order for more than $10 million
in consumer redress and the Justice Department charged some of the
defendants criminally. On the Canadian side, the Royal Canadian Mounted
Police (RCMP) brought its own case, arresting the Canadian-based
defendants and seizing evidence.\29\
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\29\ See, Press Release, Court Orders Ringleader of Scam Targeting
Seniors Banned From Telemarketing (Mar. 12, 2015), available at https:/
/www.ftc.gov/news-events/press-releases/2015/03/court-orders-
ringleader-scam-targeting-seniors-banned.
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The FTC used its SAFE WEB powers to obtain evidence for the Toronto
Police Service's investigation of a sham business that scammed $93
million from consumers by purporting to sell banner ads for websites.
The scheme had thousands of victims worldwide, including in the United
States. Canadian law enforcement broke up the scam and arrested two of
its leaders.\30\
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\30\ See, Press Release, $126M Banners Broker pyramid scheme
dismantled by Toronto police (Dec 02, 2015) available at http://
www.cbc.ca/news/canada/toronto/pyramid-scheme-toronto-1.3356905.
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The agency used its SAFE WEB authority in another telemarketing
scam to repatriate, with Justice Department help, nearly $2 million of
the defendant's assets from Canadian bank accounts frozen by the RCMP;
the FTC has now sent redress checks to 1,630 victims totaling $1.8
million.\31\
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\31\ See, Press Release, FTC Returns $1.87 Million to Consumers
Harmed by Debt Relief Scam (May 09, 2016), available at https://
www.ftc.gov/news-events/press-releases/2016/05/ftc-returns-187-million-
consumers-harmed-debt-relief-scam.
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The FTC has used SAFE WEB in a number of business directory scams
that prey on small businesses, non-profits, and churches to share
evidence with counterparts in Canada and other jurisdictions. This has
led to several FTC judgments and law enforcement actions in Canada.\32\
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\32\ See, e.g., Press Release, FTC Halts Online `Yellow Pages'
Scammers (Dec. 02, 2015), available at https://www.ftc.gov/news-events/
press-releases/2015/12/ftc-halts-online-yellow-pages-scammers; Press
Release, FTC and Florida Halt Internet `Yellow Pages' Scammers (July
17, 2014), available at https://www.ftc.gov/news-events/press-releases/
2014/07/ftc-florida-halt-internet-yellow-pages-scammers.
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SAFE WEB also allowed the FTC to exchange information with Canadian
law enforcement about a company that put unauthorized charges on
consumers' phone bills using phony virus-scan scareware and led to law
enforcement actions involving that conduct on both sides of the
border.\33\
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\33\ See,e.g., Press Release, Jesta Digital Settles FTC Complaint
it Crammed Charges on Consumers' Mobile Bills Through 'Scareware' and
Misuse of Novel Billing Method (Aug 21, 2013), available at https://
www.ftc.gov/news-events/press-releases/2013/08/jesta-digital-settles-
ftc-complaint-it-crammed-charges-consumers; Press Release, Telus
customers to receive $7.34 million in rebates as part of Competition
Bureau agreement (Dec 30, 2015), available at http://
www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04017.html.
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Apart from scams, the Act also supports FTC enforcement of the EU-
U.S. Privacy Shield Framework, which enables transatlantic data flows
for many U.S. companies. The FTC's SAFE WEB powers provide for stronger
cooperation with European data protection authorities on investigations
and enforcement against possible Privacy Shield violations, a point
cited in the European Commission's Privacy Shield adequacy decision.
b. This legislation is scheduled to sunset in 2020. Do you support
its reauthorization? Will you commit to provide technical assistance to
the Committee, including any modifications to improve the FTC's ability
to go after international scammers?
Answer. I strongly support SAFE WEB reauthorization and commit to
providing technical assistance to the Committee for that process. FTC
staff worked closely with the Committee to develop the original
legislation passed in 2006, and to support reauthorization in 2012. We
would be pleased to work with the Committee to continue strengthening
our ability to go after international scammers. We in particular
suggest repealing the sunset provision entirely: greater certainty for
the agency and our international partners about the FTC's enforcement
tools going forward improves our ability to develop enduring
cooperation agreements and enforcement projects with foreign
counterparts. Congress granted the Securities and Exchange Commission
and the Commodities and Futures Trading Commission similar enforcement
powers over 25 years ago, without a sunset provision. Their positive
enforcement cooperation experience, and the FTC's successful experience
with SAFE WEB over the past decade, confirms the value of this
legislation to our enforcement mission.
Question 4. The FTC's prepared statement for the hearing raised
concerns with the controversial ``common carrier'' exception from Title
II of the Communications Act and its impact on the FTC's efforts to
protect consumers from unfair or deceptive acts or practices. Could you
please elaborate on how this provision is harming the FTC's mission?
Additionally, how did the Court of Appeals for the Ninth Circuit's
recent decision holding that the ``common carrier'' exception is
``status based'' affect the FTC's ability to protect consumers?
Answer. Section 5 of the FTC Act prohibits ``unfair or deceptive
acts or practices'' in or affecting commerce and directs the FTC to
prevent such conduct. 15 U.S.C. Sec. 45(a). Section 5, however, excepts
from FTC enforcement authority ``common carriers subject to the Acts to
regulate commerce.'' \34\ The FTC has long interpreted this exception
to be ``activity based''--that is, a company that engaged in both
common carriage and non-common carriage activities would still be
within the FTC's enforcement authority with regards to the non-common
carriage activities. Even with this limiting interpretation, however,
the FTC, on a bipartisan basis, has for many years called for repeal of
the exception as outdated, unnecessary, and a hindrance to consumer
protection efforts.
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\34\ In 1914 when the FTC Act was passed, Section 4 of the Act
defined ``Acts to regulate commerce'' as the Interstate Commerce Act;
Congress later added the Communications Act. See 15 U.S.C. Sec. 44.
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The common carrier exception poses several obstacles to the FTC
effectively carrying out its consumer protection mission. For example,
some companies have objected to an FTC enforcement action on the basis
of the common carrier exception.\35\ Even when such objections are
meritless, the FTC is forced to litigate this issue in the court
systems, which diverts FTC resources from other consumer protection
efforts and can delay redress to fraud victims.
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\35\ See, e.g., FTC v. Verity Int'l, Ltd., 443 F.3d 48 (2d Cir.
2006).
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Furthermore, consumers should be protected from unfair or deceptive
acts or practices in the entire marketplace. But the common carrier
exception effectively excludes a subset of consumers' activities in the
marketplace from this protection. This problem has been put into
sharper focus as a result of the Federal Communications Commission's
action in 2015 reclassifying the provision of broadband Internet
service as a common carrier activity. Prior to this action, provision
of Internet services was considered a non-common carrier activity and
the FTC was able to enforce consumer protection laws against Internet
service providers, even in the early days of the internet. For example,
in 1998, the FTC brought an action against AOL and other ISPs for
allegedly deceptive ``free'' trial periods.\36\ However, the FCC's
reclassification created an enforcement gap in which the FTC may now be
unable to protect consumers from unfair or deceptive practices by ISPs.
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\36\ See, e.g., America Online, Inc., 125 F.T.C. 403 (1998);
CompuServe, Inc. 125 F.T.C. 451 (1998); Prodigy, Inc., 125 F.T.C. 430
(1998).
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The Ninth Circuit's recent decision has further exacerbated the
problem by applying a ``status based'' interpretation to the common
carrier exception. Under this interpretation, if a company has the
status of common carrier, all of its activities, even those not related
to common carriage, could be immune from FTC enforcement authority.
This would further weaken consumer protection efforts, including in
areas in which the FTC has taken significant law enforcement actions in
the past. For example, the agency sued AT&T and T-Mobile in 2013 for
placing unauthorized charges for purported third-party services on
consumers' mobile phone bills.\37\ Those and similar cases have
recovered hundreds of millions of dollars for injured consumers. The
Ninth Circuit decision calls into question the agency's ability to take
similar actions in the future.
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\37\ See FTC Alleges T-Mobile Crammed Bogus Charges onto Customers'
Phone Bills (July 1, 2014), available at https://www.ftc.gov/news-
events/press-releases/2014/07/ftc-alleges-t-mobile-crammed-bogus-
charges-customers-phone-bills; AT&T to Pay $80 Million to FTC for
Consumer Refunds in Mobile Cramming Case (Oct. 8, 2014), available at
https://www.ftc.gov/news-events/press-releases/2014/10/att-pay-80-
million-ftc-consumer-refunds-mobile-cramming-case.
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______
Response to Written Question Submitted by Hon. Dean Heller to
Hon. Maureen K. Ohlhausen
Question. Last Congress, Microsoft came before the Senate Aging
Committee and told us about partnerships they had with states to combat
tech scams. For Nevadans, consumer protection is a top issue,
especially because of the impact that scams can have on an individual's
finances or even their privacy.
Are there any FTC initiatives in coordination with State Attorneys
General that are models for protecting consumers from scams?
Answer. The Commission has robust, collaborative relationships with
state law enforcers, including through the National Association of
Attorneys General. The FTC's collaboration with its state partners
takes many forms, including sharing information and targets, assisting
with investigations, and working collaboratively on long-term policy
initiatives.
Over the last two years, the FTC has collaborated with its state
partners on dozens of investigations and numerous joint enforcement
actions, including investigations and enforcement actions concerning
tech support scams,\38\ robocalls,\39\ charity scams,\40\ and debt
collection practices,\41\ among other deceptive and unfair practices.
The FTC also leads law enforcement ``sweeps''--coordinated,
simultaneous law enforcement actions--in conjunction with state and
local partners.\42\ To supplement its law enforcement efforts, the FTC
and its state partners also co-host consumer protection conferences and
workshops designed to protect consumers from fraud and provide guidance
on how to identify and avoid scams.\43\
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\38\ See, e.g., Press Release, Telemarketing Defendants Charged by
FTC in Tech Support Scheme Will Pay $10 Million for Consumer Redress
(Dec. 22, 2016), available at www.ftc.gov/news-events/press-releases/
2016/12/telemarketing-defendants-charged-ftc-tech-support-scheme-will-
pay (case brought by FTC and the Florida Attorney General); Press
Release, FTC and Florida Charge Tech Support Operation with Tricking
Consumers into Paying Millions for Bogus Services (July 8, 2016),
available at www.ftc.gov/news-events/press-releases/2016/07/ftc-
florida-charge-tech-support-operation-tricking-consumers; Press
Release, Tech Support Operators Settle FTC, State of Florida Charges
They Misled Consumers (Feb. 12, 2016), available at www.ftc.gov/news-
events/press-releases/2016/02/tech-support-operators-settle-ftc-state-
florida-charges-they.
\39\ See, e.g., Press Release, FTC, Florida Attorney General Take
Action Against Illegal Robocall Operation (June 14, 2016), available at
www.ftc.gov/news-events/press-releases/2016/06/ftc-florida-attorney-
general-take-action-against-illegal-robocall; Press Release, FTC and
Ten State Attorneys General Take Action Against Political Survey
Robocallers Pitching Cruise Line Vacations to the Bahamas (Mar. 4,
2015), available at www.ftc.gov/news-events/press-releases/2015/03/ftc-
ten-state-attorneys-general-take-action-against-political.
\40\ See Press Release, FTC, All 50 States and D.C. Charge Four
Cancer Charities With Bilking Over $187 Million from Consumers (May 19,
2015), available at www.ftc.gov/news-events/press-releases/2015/05/ftc-
all-50-states-dc-charge-four-cancer-charities-bilking-over.
\41\ See, e.g., Press Release, FTC and Illinois Attorney General
Halt Chicago-Area Operation Charged with Collecting and Selling Phantom
Payday Loan Debts (Mar. 30, 2016), available at www.ftc.gov/news-
events/press-releases/2016/03/ftc-illinois-attorney-general-halt-
chicago-area-operation-charged.
\42\ See, e.g., Press Release, FTC and Federal, State and Local Law
Enforcement Partners Announce Nationwide Crackdown Against Abusive Debt
Collectors (Nov. 4, 2015), available at www.ftc.gov/news-events/press-
releases/2015/11/ftc-federal-state-local-law-enforcement-partners-
announce; Press Release, FTC, Multiple Law Enforcement Partners
Announce Crackdown on Deception, Fraud in Auto Sales, Financing and
Leasing (Mar. 26, 2015), available at www.ftc.gov/news-events/press-
releases/2015/03/ftc-multiple-law-enforcement-partners-announce-
crackdown; Press Release, FTC and Dozens of Law Enforcement Partners
Halt Travel and Timeshare Resale Scams in Multinational Effort (June 6,
2013), available at www.ftc.gov/news-events/press-releases/2013/06/ftc-
dozens-law-enforcement-partners-halt-travel-timeshare-resale; Press
Release, FTC Leads Joint Law Enforcement Effort Against Companies that
Allegedly Made Deceptive ``Cardholder Services'' Robocalls (Nov. 1,
2012), available at www.ftc.gov/news-events/press-releases/2012/11/ftc-
leads-joint-law-enforcement-effort-against-companies.
\43\ See, e.g., Events Calendar, FTC & NASCO Host a Conference
Exploring Consumer Protection Issues and Charitable Solicitations (Mar.
21, 2017), available at www.ftc.gov/news-events/events-calendar/2017/
03/give-take-consumers-contributions-charity; Events Calendar, Working
Together to Protect Midwest Consumers: A Common Ground Conference (Oct.
25, 2016), available at www.ftc.gov/news-events/events-calendar/2016/
10/working-together-protect-midwest-consumers-common-ground; Events
Calendar, Working Together to Protect Michigan Consumers: A Common
Ground Conference (July 13, 2016), available at www.ftc.gov/news-
events/events-calendar/2016/07/working-together-protect-michigan-
consumers-common-ground; Events Calendar, Utah Consumer Protection
Summit (Oct. 22, 2015), available at www.ftc.gov/news-events/events-
calendar/2015/10/utah-consumer-protection-summit.
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______
Response to Written Questions Submitted by Hon. Todd Young to
Hon. Maureen K. Ohlhausen
Question 1. Acting Chairman Ohlhausen and Commissioner McSweeny,
has the FTC focused on the issue of travel booking scams beyond issuing
consumer alerts?
Answer. As you note, in July 2015, the FTC issued consumer
education cautioning consumers about third-party websites that may
deceptively mimic hotel websites.\44\ In addition, we have met with
Members of Congress to discuss the issue of deceptive travel sites and
have proposed technical assistance and comments on proposed
legislation. Because the existence and details of investigations are
non-public, we cannot comment on any specific matters. However, the FTC
will take law enforcement action in appropriate cases.
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\44\ See Did you book that night at the hotel's site? (July 14,
2015), available at https://www.consumer.ftc.gov/blog/did-you-book-
night-hotels-site.
Question 2. Acting Chairman Ohlhausen and Commissioner McSweeny,
what plans does the FTC have to notify and coordinate with State
Attorney Generals prior to peak travel season this year, including
summer, Thanksgiving, and the Christmas holidays?
Answer. The FTC has worked closely with the State Attorneys General
on many issues, including most recently during National Consumer
Protection week. The FTC will explore whether there are opportunities
to coordinate with the states to protect consumers from scams that
affect them during these peak travel periods.
Question 3. Acting Chairman Ohlhausen: In your testimony, you noted
that military consumers are often attractive targets of fraudsters in
part because they receive a regular paycheck and move relatively
frequently. As a former Marine myself, I can imagine there is also a
certain amount embarrassment among our service men and women when they
are taken advantage of and therefore there might be even be lower
reporting from victims in this community.
Answer. I agree. In addition to the points you raise, some
fraudsters have customized their scams to play on the particular fears
of military consumers, such as threatening action under the Uniform
Code of Military Justice, which may also lead to under-reporting by
this community.
Question 4. Acting Chairman Ohlhausen, in looking at this
particular community, do you need additional authority from Congress to
work with our service branches to protect military members from
potential scams?
Answer. At this time, the Commission has not asked for any specific
additional legislation for protecting military members from potential
scams. We would, however, be happy to review and provide assistance on
any specific piece of proposed legislation.
We have used our existing tools, including the FTC Act, the Fair
Debt Collection Practices Act,\45\ the Telemarketing Sales Rule,\46\
and the Mortgage Assistance Relief Services Rule,\47\ to protect
military consumers, and we will continue to do so. For example, earlier
this year, the Commission announced settlements with two online high
schools that claimed their diplomas could be used to join the military
and that their programs conformed to the Department of Defense's SCORM
standards for the training of military and civilian personnel.\48\ The
FTC alleged that these diploma mills violated the FTC Act by failing to
provide the promised valid high school equivalency degrees. As part of
our investigation, we worked with DoD to provide evidence that the
program was not SCORM-conformant.
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\45\ 15 U.S.C. Sec. 801 et seq.
\46\ 16 C.F.R. Part 310.
\47\ 16 C.F.R. Part 322.
\48\ Press Release, Operators of Online `High Schools' Settle FTC
Charges That They Misled Tens of Thousands Consumers with Fake Diplomas
(Feb. 10, 2017), available at https://www.ftc.gov/news-events/press-
releases/2017/02/operators-online-high-schools-settle-ftc-charges-they-
misled-tens.
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In other instances, the FTC has brought actions against scammers
that target the general population but tailor their practices to
deceive military consumers. In one recent case against a fraudulent
debt collector, we talked to a consumer whose family was harassed while
he was on active duty, and who was threatened with action under the
Uniform Code of Military Justice, all about a debt he did not actually
owe.\49\ The FTC was able to obtain a court order banning these
collectors from the debt collection industry and imposing monetary
judgments against them. In another case, the FTC brought an action
alleging that a sham non-profit claimed it would provide legal
representation to struggling homeowners trying to avoid foreclosure but
failed to provide the promised services.\50\ One consumer we talked to
was an elderly veteran amputee who had paid almost $10,000 to the
scammers to obtain a mortgage loan modification and received nothing of
value in return. The FTC obtained an order banning the scammers from
the mortgage and debt relief industries and returned approximately $3
million to alleged victims of the scam.
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\49\ Press Release, Court Halts Debt Collector's Operations,
Freezes Assets (July 21, 2014), available at https://www.ftc.gov/news-
events/press-releases/2014/07/court-halts-debt-collectors-operations-
freezes-assets.
\50\ See Press Release, FTC Mails Refund Checks Totaling Nearly $3
Million to Consumers Victimized by Alleged Mortgage Relief Scam (May
28, 2014), available at https://www.ftc.gov/news-events/press-releases/
2014/05/ftc-mails-refund-checks-totaling-nearly-3-million-consumers.
Question 5. Acting Chairman Ohlhausen, what specific efforts has
the FTC undertaken with our service branches to help protect our
service men and women?
Answer. Protecting military consumers through law enforcement and
education is a top priority of the Commission, and we work closely with
military partners to help the military community avoid frauds. Military
Consumer is the FTC's longstanding campaign to reach service members
and their families. The FTC website I mentioned in my testimony,
Military.Consumer.gov, is a joint initiative with Department of
Defense, the CFPB's Office of Servicemember Affairs, Military Saves,
FINRA Investor Education Foundation, the National Military Family
Association and other partners to empower active duty and retired
servicemembers, military families, veterans, and civilians in the
military community. The site's Military Consumer Toolkit offers free
materials on topics that allow personal financial managers, counselors,
command, and others in the military community to share practical
financial readiness tips.
While Military Consumer is a year-round campaign, each July the FTC
hosts the Month of the Military Consumer with the Department of Defense
to bring additional focus to consumer issues affecting servicemembers
and military families. This year, the FTC will be hosting a free
workshop on July 19, 2017, to examine financial issues and scams that
can affect military consumers, including active duty servicemembers in
all branches and veterans. Topics of discussion at the daylong event
will include auto purchasing, financing, and leasing; student and other
lending; information security issues; financial literacy and
capability, including identity theft; and avoiding scams.\51\ We are
working closely with our military partners in planning this event that
will bring together all service branches, military consumer advocates,
military legal services, government representatives, and industry
representatives.
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\51\ Press Release, FTC Announces 2017 Military Consumer Financial
Workshop: Protecting Those Who Protect Our Nation (Apr. 12, 2017),
available at https://www.ftc.gov/news-events/press-releases/2017/04/
ftc-announces-2017-military-consumer-financial-workshop.
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The agency regularly disseminates short tips through social media
and hosts periodic Twitter chats with federal, state, and military
partners. In addition to our online materials, the FTC also has
presented webinars and made presentations for personal financial
managers in conjunction with the Army, the Navy, the Department of
Veterans Affairs, Military One Source, the Military Family Learning
Network (and USDA Cooperative Extension), and military contractors
serving as counselors to military families.
The Commission will continue to work with our military partners to
protect our service men and women from unfair and deceptive acts and
practices.
______
Response to Written Question Submitted by Hon. Bill Nelson to
Hon. Maureen K. Ohlhausen
Question. The FTC already operates on a tight budget. It is a small
agency with a huge mandate: to police the American economy and enforce
against ``unfair or deceptive acts or practices.'' The Trump
Administration has proposed irresponsible cuts to virtually every
aspect of the government that helps the average American. While we have
yet to see a specific budget proposal for the FTC, the ``skinny''
budget did reference a vague 9.8 percent cut to ``other agencies'' that
were not specifically mentioned. It seems safe to say that funding cuts
may well be coming to the FTC. How would a possible budget cut--say,
along the lines of a 9.8 percent cut--affect the FTC's ability to
protect American consumers from scams and fraud?
Answer. We are currently working with OMB to determine what the
President's 2018 budget will recommend for the Commission and we are
optimistic that it will not propose a significant cut for the agency.
However, if the FTC faced a significant budgetary cut, we would strive
to minimize its effect on the Commission's ability to enforce consumer
protection and competition laws, though it would likely have some
impact.
______
Response to Written Questions Submitted by Hon. Richard Blumenthal to
Hon. Maureen K. Ohlhausen
Question 1. In March, the DOJ indicted four individuals, including
two Russian spies, for hacking into Yahoo's systems in 2014 and
obtaining access to at least 500 million Yahoo accounts. According to
the indictment, defendants spied on U.S. government officials and
private-sector employees of financial companies, among others. One
defendant also exploited the data for financial gain. He searched user
e-mail accounts for gift card numbers, redirected Yahoo search traffic
so he could make commissions, and stole the contacts of at least 30
million Yahoo accounts to conduct a spam marketing scheme. What are the
chances of the United States taking these Russian spies into custody
for their crimes?
Answer. The FTC does not have criminal law enforcement authority,
but it works closely with its criminal and foreign law enforcement
partners to achieve a broader impact and further its mission of
protecting consumers. For example, as noted during the March 21, 2017,
hearing before this Subcommittee, the Commission created the Criminal
Liaison Unit in 2003, and FTC prosecution referrals have led to
hundreds of fraudsters facing criminal charges and prison time.
While the FTC encourages criminal authorities to pursue hackers, we
also believe it is important for companies to shore up the security of
their systems, so that they can help protect against unauthorized
access to, and misuse of, consumer data. Unfortunately, reports of data
breaches like the one you cite affect millions of Americans. The
Commission is deeply concerned about the risk of fraud, identity theft,
and other harm that consumers face as a result of such breaches, which
is why promoting data security has long been, and will continue to be,
a priority.
The Commission enforces several civil statutes and rules that
impose security obligations upon businesses that collect and maintain
consumer data. The Commission's Safeguards Rule, which implements the
Gramm-Leach-Bliley Act, for example, provides data security
requirements for financial institutions within the Commission's
jurisdiction.\1\ The Fair Credit Reporting Act (``FCRA'') requires
consumer reporting agencies to use reasonable procedures to ensure that
the entities to which they disclose sensitive consumer information have
a permissible purpose for receiving that information,\2\ and imposes
safe disposal obligations on entities that maintain consumer report
information.\3\ The Children's Online Privacy Protection Act
(``COPPA'') requires reasonable security for children's information
collected online.\4\ In addition, the Commission enforces Section 5 of
the FTC Act, which prohibits unfair or deceptive acts or practices,
such as businesses making false or misleading claims about their data
security procedures, or failing to employ reasonable security measures
and, as a result, causing or likely causing substantial consumer
injury.\5\ Since 2001, the Commission has used its authority under
these laws to take enforcement action and obtain settlements in
approximately 60 cases against businesses that it charged with failing
to provide reasonable and appropriate protections for consumers'
personal information.\6\
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\1\ 16 C.F.R. Part 314, implementing 15 U.S.C. Sec. 6801(b).
\2\ 15 U.S.C. Sec. 1681e.
\3\ Id. at Sec. 1681w. The FTC's implementing rule is at 16 C.F.R.
Part 682.
\4\ 15 U.S.C. Sec. Sec. 6501-6506; see also 16 C.F.R. Part 312
(``COPPA Rule'').
\5\ 15 U.S.C. Sec. 45(a). If a company makes materially misleading
statements or omissions about a matter, including data security, and
such statements or omissions are likely to mislead reasonable
consumers, they can be found to be deceptive in violation of Section 5.
Further, if a company's data security practices cause or are likely to
cause substantial injury to consumers that is neither reasonably
avoidable by consumers nor outweighed by countervailing benefits to
consumers or to competition, those practices can be found to be unfair
and violate Section 5.
\6\ See generally FTC Business Center, Legal Resources available at
http://www.ftc.gov/tips-advice/business-center/legal-
resources?type=case&field_consumer_protection_topics_tid=249.
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In addition to bringing enforcement actions, the Commission engages
in significant educational efforts discussed in more detail below. In
all of its efforts, the Commission looks forward to continued
cooperation and collaboration with its law enforcement partners, and
with private industry, to protect the security of consumers' data.
Question 2. So, despite our country and the Department of Justice's
best efforts, our country remains vulnerable to outside threats seeking
to infiltrate our systems and prey on our consumers. The New York Times
has also reported that despite DOJ's indictment against the individuals
responsible for these attacks, one billion Yahoo accounts--stolen in
another attack on the company a year earlier--continue to be found for
sale on underground hacker forums as recently as last Friday, for
$200K. This is a stark reminder that while Federal prosecutors are
taking steps they can to hold the criminals and perpetrators
accountable, private consumer information is still available and
vulnerable for abuse. Do you think Yahoo has implemented reasonable
security standards to protect its customers?
Answer. The Commission can only determine whether a company's
practices are reasonable after conducting an investigation. Because
Yahoo has made our investigation public in a filing with the Securities
and Exchange Commission, I can confirm that we are investigating the
company. But Commission rules prevent me from making any further
comments about the details of our investigation.
More generally, through its enforcement actions and education
materials,\7\ the Commission has publicly provided the core principles
that it applies when looking at a company's data security practices.
For example, the Commission does not require perfect data security and
the mere fact that a breach occurred does not mean that a company has
violated the law. Rather, a company's security must be reasonable under
the circumstances. There is no one-size-fits-all approach to what
constitutes reasonable data security and what is reasonable will vary,
depending on the size and complexity of a company's operations, the
amount and sensitivity of the data it collects, and the availability of
low-cost tools to mitigate threats. Thus, a large company collecting
vast amounts of sensitive data will need to have different measures in
place than a company collecting small amounts of non-sensitive data.
Reasonable security should also include a continuous process of
assessing and addressing risks.
---------------------------------------------------------------------------
\7\ See, e.g., Start with Security: A Guide for Business (June
2015), available at https://www.ftc.gov/tips-advice/business-center/
guidance/start-security-guide-business; Start with Security: Free
Resources for Any Business (Feb. 2016), available at https://
www.ftc.gov/news-events/audio-video/business; Protecting Personal
Information: A Guide for Business (Oct. 2016), available at https://
www.ftc.gov/tips-advice/business-center/guidance/protecting-personal-
information-guide-business; Data Breach Response: A Guide for Business
(Oct. 2016), available at https://www.ftc.gov/tips-advice/business-
center/guidance/data-breach-response-guide-business.
---------------------------------------------------------------------------
The FTC will continue to apply these principles as it uses its
civil law enforcement authority to promote data security in the private
sector.
Question 3. According to a recent study, one out of three content
theft sites expose consumers to malware, leading to compromised bank
accounts, identity theft, and ``ransomware'' that locks a consumer out
of their data until they pay the criminals the required ransom. This
study showed that 45 percent of malware was delivered by ``drive-by-
downloads,'' which invisibly download to a user's computer without
requiring them to click on a link. What is the FTC doing to inform and
educate consumers about the link between content theft sites and
malware?
Answer. I share your concerns about malware on consumers' computers
and the potential harm such malware may cause consumers. Related to the
specific practice you have highlighted, last week the Commission issued
a consumer education blog post warning consumers that downloading
pirated content is illegal and cautioning that websites offering such
content often hide malware that can bombard them with ads, take over
their computers, or steal their personal information.\8\
---------------------------------------------------------------------------
\8\ Free movies, costly malware (Apr. 12, 2017), available at
https://www.consumer.ftc.gov/blog/free-movies-costly-malware.
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Consumer education is a central part of the FTC's mission. Our
outreach includes publications, online resources, workshops, and social
media. These outreach efforts cover many topics, including malware,
tech support scams, spyware, phishing, peer-to-peer file sharing, and
social networking. We work closely with local, state, and Federal
Government entities, industry representatives, and consumer groups to
maximize the impact of these efforts.
The FTC has many consumer education resources that provide
additional information to consumers about dangers associated with
malware. For example, the Commission has published blog posts and
videos on ransomware \9\ and identity theft.\10\ In addition, our Net
Cetera publication helps parents, teachers, and other adults talk to
children about how to be safe, secure, and responsible online.\11\
---------------------------------------------------------------------------
\9\ How to Defend Against Ransomware (Nov. 10, 2016), available at
https://www.con
sumer.ftc.gov/blog/how-defend-against-ransomware.
\10\ See FTC Consumer Information, Identity Theft, available at
https://www.consumer.ftc.gov/topics/identity-theft.
\11\ Netcetera: Chatting with Kids About Being Online (Jan. 2014),
available at https://www.onguardonline.gov/articles/pdf-0001-
netcetera.pdf.
---------------------------------------------------------------------------
Relevant resources also include education materials relating to
individual enforcement actions the Commission has taken. For example,
last year the Commission settled an action with ASUSTeK Computer, Inc.
in which the Commission alleged that the company's routers had security
bugs that allowed malware to commandeer consumers' web traffic.\12\ In
connection with this settlement, the Commission published a blog post
with tips on router security.\13\
---------------------------------------------------------------------------
\12\ ASUSTeK Computer, Inc., No. C-4587 (July 28, 2016), available
at https://www.ftc.gov/enforcement/cases-proceedings/142-3156/asustek-
computer-inc-matter.
\13\ Got an ASUS router at home? Read this. (Feb. 2016), available
at https://www.consumer.ftc.gov/blog/got-asus-router-home-read.
---------------------------------------------------------------------------
______
Response to Written Question Submitted by Hon. Amy Klobuchar to
Hon. Maureen K. Ohlhausen
Question. Malware that gives fraudsters access to consumers'
computers can be a powerful tool for scams. In one model, websites that
offer pirated content, bogus coupons, or fake products are paid to
infect computers with malware. Sometimes just visiting one of these
websites--without even clicking on anything--can be enough to infect
your computer with malware. Scammers can then use the infected
computers to access financial information, launch cyberattacks, or even
take over the computer's camera.
Chairman Ohlhausen, what is the FTC doing to educate consumers
about the danger of websites designed to infect their computers with
malware?
Answer. I share your concerns about malware on consumers' computers
and the potential harm such malware may cause consumers. Related to the
specific practice you have highlighted, last week, the Commission
issued a consumer education blog post warning consumers that
downloading pirated content is illegal and websites offering such
content often hide malware that can bombard them with ads, take over
their computers, or steal their personal information.\14\
---------------------------------------------------------------------------
\14\ Free movies, costly malware (Apr. 12, 2017), available at
https://www.consumer.ftc.gov/blog/free-movies-costly-malware.
---------------------------------------------------------------------------
Consumer education is a central part of the FTC's mission. Our
outreach includes publications, online resources, workshops, and social
media. These outreach efforts cover many topics, including malware,
tech support scams, spyware, phishing, peer-to-peer file sharing, and
social networking. We work closely with local, state, and Federal
Government entities, industry representatives, and consumer groups to
maximize the impact of these efforts.
The FTC has many consumer education resources that provide
additional information to consumers about dangers associated with
malware. For example, the Commission has published blog posts and
videos on ransomware \15\ and identity theft.\16\ In addition, our Net
Cetera publication helps parents, teachers, and other adults talk to
children about how to be safe, secure, and responsible online.\17\
---------------------------------------------------------------------------
\15\ How to Defend Against Ransomware (Nov. 10, 2016), available at
https://www.consumer.ftc.gov/blog/how-defend-against-ransomware.
\16\ See FTC Consumer Information, Identity Theft, available at
https://www.consumer.ftc.gov/topics/identity-theft.
\17\ Netcetera: Chatting with Kids About Being Online (Jan. 2014),
available at https://www.onguardonline.gov/articles/pdf-0001-
netcetera.pdf.
---------------------------------------------------------------------------
Relevant resources also include education materials relating to
individual enforcement actions the Commission has taken. For example,
last year the Commission settled an action with ASUSTeK Computer, Inc.
in which the Commission alleged that the company's routers had security
bugs that allowed malware to commandeer consumers' web traffic.\18\ In
connection with this settlement, the Commission published a blog post
with tips on router security.\19\
---------------------------------------------------------------------------
\18\ ASUSTeK Computer, Inc., No. C-4587 (July 28, 2016), available
at https://www.ftc.gov/enforcement/cases-proceedings/142-3156/asustek-
computer-inc-matter.
\19\ Got an ASUS router at home? Read this. (Feb. 2016), available
at https://www.consumer.ftc.gov/blog/got-asus-router-home-read.
---------------------------------------------------------------------------
______
Response to Written Questions Submitted by Hon. Jerry Moran to
Hon. Terrell McSweeny
Question 1. During the hearing, one of the issues raised by both
panel members and witnesses was the rise of ransomware, especially
targeted at small business owners. One of the devious ways that hackers
can gain access to a computer is by baiting Internet users with the
prospect of free movies, TV shows or music. Recent studies have found
that 1 in 3 so-called pirate websites expose consumers to malware.
Given the rise of piracy as a means to bait and infect computers, and
increase in ransomware, what is the FTC doing to warn consumers about
the connection between piracy and malware?
Answer. The Commission recently published a blog post on the FTC's
website entitled ``Free movies, costly malware'' to educate consumers
about the possibility that pirate websites will infect their computers
and devices with malware if they download copyrighted content.\1\ We
also have posted the blog to military.consumer.gov. The FTC will
continue to warn consumers about the risks associated with downloading
content from pirate websites, as appropriate. I am very concerned about
ransomware and fear the danger to businesses and consumers will only
grow. This is an issue that the FTC, Congress, and law enforcement at
every level must collaborate on to provide better solutions to American
consumers and businesses.
---------------------------------------------------------------------------
\1\ Blog Post, Free movies, costly malware (April 12, 2017),
available at www.consumer.ftc.gov/blog/free-movies-costly-malware.
Question 2. Another theme of the hearing was the economic loss
caused by scams. A recent investigation by security company RiskIQ
found that hackers are paying pirate website operators $70 million a
year to infect computers. What role should the FTC play in warning
consumers and encouraging those who facilitate online activity--such as
domain sellers, hosting companies, search engine companies and payment
processors--in combatting these piracy/malware operators? For example,
should the FTC post warnings on their website, produce public service
announcements or work with digital platforms to raise awareness and
combat this new threat?
Answer. The FTC has a robust law enforcement and consumer education
platform designed to combat online threats, such as the unwanted
installation of malware and other software. For instance, last fall,
the FTC held a workshop with numerous industry participants to educate
consumers about how to avoid--and respond to--ransomware.\2\ And, as
noted in response to the previous question, the FTC recently published
a blog post on the its website entitled ``Free movies, costly malware''
to educate consumers about the possibility that pirate websites will
infect their computers and devices with malware if they download
copyrighted content.\3\ The FTC also produced a consumer education
video about how to avoid, detect, and remove malware.\4\
---------------------------------------------------------------------------
\2\ Event Description, Fall Technology Series: Ransomware (Sept. 7,
2016), available at www.ftc.gov/news-events/events-calendar/2016/09/
fall-technology-series-ransomware.
\3\ Blog Post, Free movies, costly malware (April 12, 2017),
available at www.consumer.ftc.gov/blog/free-movies-costly-malware.
\4\ Video & Media, Protect Your Computer from Malware, (Oct. 3,
2012) available at www.consumer.ftc.gov/media/video-0056-protect-your-
computer-malware.
---------------------------------------------------------------------------
In addition, the Commission has brought several enforcement actions
to stop companies from installing malware and other unwanted software
on consumers' computers and devices.\5\ The Commission will continue to
use its investigative, legal, and public outreach tools to protect
consumers from unwanted and harmful software. Moreover, the Commission
will continue, as it has done in the past, to work with high tech
companies, service providers, and industry participants to combat
online threats.
---------------------------------------------------------------------------
\5\ See, e.g., Press Release, FTC Charges Tech Support Companies
With Using Deceptive Pop-Up Ads to Scare Consumers Into Purchasing
Unneeded Services (Oct. 12, 2016), available at www.ftc.gov/news-
events/press-releases/2016/10/ftc-charges-tech-support-companies-using-
deceptive-pop-ads-scare; Press Release, Tech Company Settles FTC
Charges It Unfairly Installed Apps on Android Mobile Devices Without
Users' Permission (Feb. 5, 2016), available at www.ftc.gov/news-events/
press-releases/2016/02/tech-company-settles-ftc-charges-it-unfairly-
installed-apps; Press Release, FTC Permanently Shuts Down Notorious
Rogue Internet Service Provider (May 19, 2010), available at
www.ftc.gov/news-events/press-releases/2010/05/ftc-permanently-shuts-
down-notorious-rogue-internet-service.
Question 3. In the FTC's prepared testimony, the agency discusses
the challenges associated with offshore scammers, including
international telemarketing fraud rings. The Committee is also aware
that so-called Jamaican lottery scams have proliferated in recent
years. One tool available to FTC is the U.S. SAFE WEB Act, which allows
the Commission to address consumer protection matters, particularly
those with an international dimension, providing for increased
cooperation with foreign law enforcement authorities, confidential
---------------------------------------------------------------------------
information sharing and investigative assistance.
a. How has FTC used the SAFE WEB Act in its fight against scams?
Answer. The FTC has used the Act's powers extensively in cross-
border fraud cases and other matters to protect Americans from cross-
border fraud. Between FY 2012 and FY 2016, for example, the FTC used
the Act to share information in response to almost 65 requests from
foreign agencies, and issued nearly 65 civil investigative demands to
aid 28 foreign investigations. These efforts have enabled foreign
counterparts to investigate conduct that directly harms American
consumers, and also helped to advance FTC investigations in many
instances. Here are a few examples since Congress reauthorized the Act
in 2012:
The FTC used its SAFE WEB powers to work with Canadian law
enforcement to stop a telemarketing scam that targeted senior citizens.
On the U.S. side, the FTC obtained an order for more than $10 million
in consumer redress and the Justice Department charged some of the
defendants criminally. On the Canadian side, the Royal Canadian Mounted
Police (RCMP) brought its own case, arresting the Canadian-based
defendants and seizing evidence.FTC v. First Consumers)\6\
---------------------------------------------------------------------------
\6\ See, Press Release, Court Orders Ringleader of Scam Targeting
Seniors Banned From Telemarketing (March 12, 2015), available at
https://www.ftc.gov/news-events/press-releases/2015/03/court-orders-
ringleader-scam-targeting-seniors-banned
---------------------------------------------------------------------------
The FTC used its SAFE WEB powers to obtain evidence for the Toronto
Police Service's investigation of a sham business that scammed $93
million from consumers by purporting to sell banner ads for websites.
The scheme had thousands of victims worldwide, including in the United
States. Canadian law enforcement broke up the scam and arrested two of
its leaders. (RCMP action against Banners' Broker)\7\
---------------------------------------------------------------------------
\7\ See, Press Release, $126M Banners Broker pyramid scheme
dismantled by Toronto police (Dec 02, 2015) available at http://
www.cbc.ca/news/canada/toronto/pyramid-scheme-toronto-1.3356905
---------------------------------------------------------------------------
The agency used its SAFE WEB authority in another telemarketing
scam to repatriate, with Justice Department help, nearly $2 million of
the defendant's assets from Canadian bank accounts frozen by the RCMP;
the FTC has now sent redress checks to 1,630 victims totaling $1.8
million. (FTC v. Expense Management of America)\8\
---------------------------------------------------------------------------
\8\ See, Press Release, FTC Returns $1.87 Million to Consumers
Harmed by Debt Relief Scam (May 09, 2016), available at https://
www.ftc.gov/news-events/press-releases/2016/05/ftc-returns-187-million-
consumers-harmed-debt-relief-scam
---------------------------------------------------------------------------
The FTC has used SAFE WEB in a number of business directory scams
that prey on small businesses, non-profits and churches to share
evidence with counterparts in Canada and other jurisdictions. This has
led to several FTC judgments and law enforcement actions in Canada.
(E.g., FTC v. Medical Yellow Directories, FTC v. Modern Technology)\9\
---------------------------------------------------------------------------
\9\ See, e.g., Press Release, FTC Halts Online `Yellow Pages'
Scammers (Dec 02, 2015), available at https://www.ftc.gov/news-events/
press-releases/2015/12/ftc-halts-online-yellow-pages-scammers; Press
Release, FTC and Florida Halt Internet `Yellow Pages' Scammers (July
17, 2014), available at https://www.ftc.gov/news-events/press-releases/
2014/07/ftc-florida-halt-internet-yellow-pages-scammers
---------------------------------------------------------------------------
SAFE WEB also allowed the FTC to exchange information with Canadian
law enforcement about a company that put unauthorized charges on
consumers' phone bills using phony virus-scan scareware and led to law
enforcement actions involving that conduct on both sides of the border.
(FTC v. Jesta Mobile Media, Competition Bureau Canada action against
Telus)\10\
---------------------------------------------------------------------------
\10\ See,e.g., Press Release, Jesta Digital Settles FTC Complaint
it Crammed Charges on Consumers' Mobile Bills Through 'Scareware' and
Misuse of Novel Billing Method (Aug 21, 2013), available at https://
www.ftc.gov/news-events/press-releases/2013/08/jesta-digital-settles-
ftc-complaint-it-crammed-charges-consumers; Press Release, Telus
customers to receive $7.34 million in rebates as part of Competition
Bureau agreement (Dec 30, 2015), available at http://
www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04017.html
---------------------------------------------------------------------------
Apart from scams, the Act also supports FTC enforcement of the EU-
U.S. Privacy Shield Framework, which enables transatlantic data flows
for many U.S. companies. The FTC's SAFE WEB powers provide for stronger
cooperation with European data protection authorities on investigations
and enforcement against possible Privacy Shield violations, a point
cited in the European Commission's Privacy Shield adequacy decision.
b. This legislation is scheduled to sunset in 2020. Do you support
its reauthorization? Will you commit to provide technical assistance to
the Committee, including any modifications to improve the FTC's ability
to go after international scammers?
Answer. I strongly support SAFE WEB reauthorization and commit to
providing technical assistance to the Committee for that process. FTC
staff worked closely with the Committee to develop the original
legislation passed in 2006, and to support reauthorization in 2012. We
would be pleased to work with the Committee to continue strengthening
our ability to go after international scammers. We in particular
suggest repealing the sunset provision entirely: greater certainty for
the agency and our international partners about the FTC's enforcement
tools going forward improves our ability to develop enduring
cooperation agreements and enforcement projects with foreign
counterparts. Congress granted the SEC and the CFTC similar enforcement
powers over 25 years ago, without a sunset provision. Their positive
enforcement cooperation experience, and the FTC's successful experience
with SAFE WEB over the past decade, confirms the value of this
legislation to our enforcement mission.
______
Response to Written Question Submitted by Hon. Dean Heller to
Hon. Terrell McSweeny
Question. Last Congress, Microsoft came before the Senate Aging
Committee and told us about partnerships they had with states to combat
tech scams. For Nevadans, consumer protection is a top issue,
especially because of the impact that scams can have on an individual's
finances or even their privacy. Are there any FTC initiatives in
coordination with State Attorneys General that are models for
protecting consumers from scams?
Answer. The Commission has robust, collaborative relationships with
state law enforcers, including through the National Association of
Attorneys General. The FTC's collaboration with its state partners
takes many forms, including sharing information and targets, assisting
with investigations, and working collaboratively on long-term policy
initiatives.
Over the last two years, the FTC has collaborated with its state
partners on dozens of investigations and numerous joint enforcement
actions, including investigations and enforcement actions concerning
tech support scams,\11\ robocalls,\12\ charity scams,\13\ and debt
collection practices,\14\ among other deceptive and unfair practices.
The FTC also leads law enforcement ``sweeps''--coordinated,
simultaneous law enforcement actions--in conjunction with state and
local partners.\15\ To supplement its law enforcement efforts, the FTC
and its state partners also co-host consumer protection conferences and
workshops designed to protect consumers from fraud and provide guidance
on how to identify and avoid scams.\16\
---------------------------------------------------------------------------
\11\ See, e.g., Press Release, Telemarketing Defendants Charged by
FTC in Tech Support Scheme Will Pay $10 Million for Consumer Redress
(Dec. 22, 2016), available at www.ftc.gov/news-events/press-releases/
2016/12/telemarketing-defendants-charged-ftc-tech-support-scheme-will-
pay (case brought by FTC and the Florida Attorney General); Press
Release, FTC and Florida Charge Tech Support Operation with Tricking
Consumers into Paying Millions for Bogus Services (July 8, 2016),
available at www.ftc.gov/news-events/press-releases/2016/07/ftc-
florida-charge-tech-support-operation-tricking-consumers; Press
Release, Tech Support Operators Settle FTC, State of Florida Charges
They Misled Consumers (Feb. 12, 2016), available at www.ftc.gov/news-
events/press-releases/2016/02/tech-support-operators-settle-ftc-state-
florida-charges-they.
\12\ See, e.g., Press Release, FTC, Florida Attorney General Take
Action Against Illegal Robocall Operation (June 14, 2016), available at
www.ftc.gov/news-events/press-releases/2016/06/ftc-florida-attorney-
general-take-action-against-illegal-robocall; Press Release, FTC and
Ten State Attorneys General Take Action Against Political Survey
Robocallers Pitching Cruise Line Vacations to the Bahamas (March 4,
2015), available at www.ftc.gov/news-events/press-releases/2015/03/ftc-
ten-state-attorneys-general-take-action-against-political.
\13\ See Press Release, FTC, All 50 States and D.C. Charge Four
Cancer Charities With Bilking Over $187 Million from Consumers (May 19,
2015), available at www.ftc.gov/news-events/press-releases/2015/05/ftc-
all-50-states-dc-charge-four-cancer-charities-bilking-over.
\14\ See, e.g., Press Release, FTC and Illinois Attorney General
Halt Chicago-Area Operation Charged with Collecting and Selling Phantom
Payday Loan Debts (Mar. 30, 2016), available at www.ftc.gov/news-
events/press-releases/2016/03/ftc-illinois-attorney-general-halt-
chicago-area-operation-charged.
\15\ See, e.g., Press Release, FTC and Federal, State and Local Law
Enforcement Partners Announce Nationwide Crackdown Against Abusive Debt
Collectors (Nov. 4, 2015), available at www.ftc.gov/news-events/press-
releases/2015/11/ftc-federal-state-local-law-enforcement-partners-
announce; Press Release, FTC, Multiple Law Enforcement Partners
Announce Crackdown on Deception, Fraud in Auto Sales, Financing and
Leasing (March 26, 2015), available at www.ftc.gov/news-events/press-
releases/2015/03/ftc-multiple-law-enforcement-partners-announce-
crackdown; Press Release, FTC and Dozens of Law Enforcement Partners
Halt Travel and Timeshare Resale Scams in Multinational Effort (June 6,
2013), available at www.ftc.gov/news-events/press-releases/2013/06/ftc-
dozens-law-enforcement-partners-halt-travel-timeshare-resale; Press
Release, FTC Leads Joint Law Enforcement Effort Against Companies that
Allegedly Made Deceptive ``Cardholder Services'' Robocalls (Nov. 1,
2012), available at www.ftc.gov/news-events/press-releases/2012/11/ftc-
leads-joint-law-enforcement-effort-against-companies.
\16\ See, e.g., Events Calendar, FTC & NASCO Host a Conference
Exploring Consumer Protection Issues and Charitable Solicitations
(March 21, 2017), available at www.ftc.gov/news-events/events-calendar/
2017/03/give-take-consumers-contributions-charity; Events Calendar,
Working Together to Protect Midwest Consumers: A Common Ground
Conference (Oct. 25, 2016), available at www.ftc.gov/news-events/
events-calendar/2016/10/working-together-protect-midwest-consumers-
common-ground; Events Calendar, Working Together to Protect Michigan
Consumers: A Common Ground Conference (July 13, 2016), available at
www.ftc.gov/news-events/events-calendar/2016/07/working-together-
protect-michigan-consumers-common-ground; Events Calendar, Utah
Consumer Protection Summit (Oct. 22, 2015), available at www.ftc.gov/
news-events/events-calendar/2015/10/utah-consumer-protection-summit.
---------------------------------------------------------------------------
______
Response to Written Questions Submitted by Hon. Todd Young to
Hon. Terrell McSweeny
Question 1. Commissioner McSweeny, has the FTC focused on the issue
of travel booking scams beyond issuing consumer alerts?
Answer. As you note, in July 2015, the FTC issued consumer
education cautioning consumers about third-party websites that may
deceptively mimic hotel websites. In addition, we have met with members
of Congress to discuss the issue of deceptive travel sites and have
proposed technical assistance and comments on proposed legislation.
Because the existence and details of investigations are non-public, we
cannot comment on any specific matters. However, the FTC will take law
enforcement action in appropriate cases.
Question 2. Commissioner McSweeny, what plans does the FTC have to
notify and coordinate with State Attorney Generals prior to peak travel
season this year, including summer, Thanksgiving, and the Christmas
holidays?
Answer. The FTC has worked closely with the State Attorneys General
on many issues, including most recently during National Consumer
Protection week. The FTC will explore whether there are opportunities
to coordinate with the states to protect consumers from scams that
affect them during these peak travel periods.
______
Response to Written Question Submitted by Hon. Bill Nelson to
Hon. Terrell McSweeny
Question. The FTC already operates on a tight budget. It is a small
agency with a huge mandate: to police the American economy and enforce
against ``unfair or deceptive acts or practices.'' The Trump
Administration has proposed irresponsible cuts to virtually every
aspect of the government that helps the average American. While we have
yet to see a specific budget proposal for the FTC, the ``skinny''
budget did reference a vague 9.8 percent cut to ``other agencies'' that
were not specifically mentioned. It seems safe to say that funding cuts
may well be coming to the FTC. How would a possible budget cut--say,
along the lines of a 9.8 percent cut--affect the FTC's ability to
protect American consumers from scams and fraud?
Answer. The FTC is still working with OMB to determine what the
President's budget will recommend for us in 2018. We are optimistic
that the budget will not propose a significant cut for the Commission.
To respond to your question, however, were the FTC's appropriation to
be cut by 9.8 percent, this could significantly affect the Commission's
ability to enforce consumer protection and competition laws.
______
Response to Written Questions Submitted by Hon. Richard Blumenthal to
Hon. Terrell McSweeny
Question 1. Last year, the FTC successfully finalized settlements
with two remaining sham cancer charities--out of four--that had
siphoned more than $187 million from donors. This marked the largest
joint enforcement effort ever by the FTC and state charity regulators.
These fraudulent charities--named ``Cancer Fund of America'' and
``Cancer Support Services,'' claimed to help cancer patients.
However, the overwhelming majority of donations were lavishly spent
on the fake charities' operators and their families and friends, as
well as on fundraisers who shamelessly spent donations on cars, trips,
luxury cruises, college tuition, gym memberships, Jet Ski outings,
sporting event and concert tickets, and dating site memberships.
According to the 2015 FTC complaint, this misappropriation of consumer
donations dated back to 2008. How were these sham charities able to rob
donors of so much money and for so long?
Answer. As you note, in March 2016, the FTC, all 50 states and the
District of Columbia resolved litigation against the remaining
defendants in Cancer Fund of America, resulting in, among other things,
a dissolution of the sham charities and a ban on the companies
president's ability to profit from any charity fundraising in the
future.\1\ These sham outfits were quite adept at masking their
charade. For example, they hid their wrongdoing by manipulating their
financial reporting and using deceptive and invalid accounting
techniques to claim huge donations of gifts-in-kind. This allowed them
to inflate their reported revenue and program spending by $223 million,
which allowed the organizations to appear both larger and more
efficient with donors' money than they really were. It was not obvious
from their public financial reports to the IRS or the states that less
than 3 percent of donated cash was being spent on any program services
(collectively).
---------------------------------------------------------------------------
\1\ See Press Release, FTC, FTC, States Settle Claims Against Two
Entities Claiming to Be Cancer Charities; Orders Require Entities to Be
Dissolved and Ban Leader from Working for Non-Profits (March 30, 2016)
available at https://www.ftc.gov/news-events/press-releases/2016/03/
ftc-states-settle-claims-against-two-entities-claiming-be-cancer.
---------------------------------------------------------------------------
In addition, charity fraud is easy to miss and underreported. The
average donation to the sham cancer charities was less than $30, and
the vast majority of those donations were made in response to telephone
solicitations. Consumers who gave in response to the promise that their
donation would help cancer patients never knew that their money did not
go to that cause--and thus did not complain. Further, based on our
experience, we believe that few donors take the time to research a $20
to $30 donation before giving, and in this case, the sham charities'
false reporting would have hidden any red flags from even the most
diligent consumers.
Question 2. In what way has the nonprofit exemption in the FTC Act
hamstrung the Commission's ability to act swiftly to prevent or stop
illegal conduct in the nonprofit sector?
Answer. Since nonprofit entities fall outside of the FTC's
jurisdiction, we cannot take action when a ``legitimate'' charity
crosses the line and engages in deceptive or unfair acts and practices.
Instead, we can only reach illegal conduct if we can establish that the
charity is a ``sham.'' A sham charity is one that operates primarily to
profit individuals and private interests over its beneficiaries.
Proving that a charity is a sham requires significant probing into the
internal operations of the organization, including detailed review and
analysis of bank records and other financial records, board meeting
minutes, and employment practices among other things. Not surprisingly,
making this threshold proof is difficult, and in some cases
impossible--leaving some charitable entities that engage in deceptive
practices beyond our reach.
Question 3. According to a recent study, one out of three content
theft sites expose consumers to malware, leading to compromised bank
accounts, identity theft, and ``ransomware'' that locks a consumer out
of their data until they pay the criminals the required ransom. This
study showed that 45 percent of malware was delivered by ``drive-by-
downloads,'' which invisibly download to a user's computer without
requiring them to click on a link. What is the FTC doing to inform and
educate consumers about the link between content theft sites and
malware?
Answer. I share your concerns about malware on consumers'
computers, which can lead to anything from nuisance adware that
delivers pop-up ads, to software that causes sluggish computer
performance, to keystroke loggers that capture sensitive information.
The Commission will soon issue a blog post warning consumers that
websites offering free content often hide malware that can bombard them
with ads, take over their computers, or steal their personal
information. More generally, the FTC uses a variety of methods to
provide consumers with information about the privacy and security
implications of new and existing technologies, and how to avoid and
detect malicious software.
Our outreach includes publications, online resources, workshops,
and social media. Among the many topics we cover are malware, tech
support scams, spyware, phishing, peer-to-peer file sharing, and social
networking. Among the resources we have that may be useful are a blog
post and video describing the nature of the ransomware threat, how to
defend against ransomware, and essential steps for victims to take.\2\
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\2\ FTC Consumer Blog, How to Defend Against Ransomware (Nov. 10,
2016), available at https://www.consumer.ftc.gov/blog/how-defend-
against-ransomware.
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______
Response to Written Question Submitted by Hon. John Thune to
Hon. Mike DeWine
Question. One of the biggest challenges Federal agencies face is to
fulfil their missions while making the most of limited resources. This
is certainly true of the FTC and its mandate to protect American
consumers. Can you share your views on how the FTC uses its
relationships with state and local law enforcement both to provide
assistance and to bolster its own consumer protection efforts? Is there
a good level of coordination, or would you like to see more from FTC?
Answer. The relationship between my office and the Federal Trade
Commission's (FTC) Cleveland Regional Office has historically been very
strong. Our Assistant Attorneys General are in fairly regular
communication with the FTC's staff and have participated in a number of
coordinated sweeps. That being said, there is always room for
improvement.
Like many Federal agencies, the FTC is hesitant to share
investigative work product with state and local officials. Some of this
may be by necessity. However, by promoting more open lines of
communication and sharing of information, we could avoid duplicative
work and, perhaps, end up with better results for consumers.
In certain cases, the FTC also keeps attorneys general informed of
Federal legislation related to consumer protection issues. This is
helpful for states to use as a guide to create their own legislation if
necessary.
______
Response to Written Question Submitted by Hon. Jerry Moran to
Hon. Mike DeWine
Question. There are a number of state attorneys general that have
made public service announcements (PSAs) warning consumers of the
dangers to their finances and cybersecurity from visiting pirate
websites, and many are in the process of amending their websites to
reflect this. Do you think the state Attorneys General, as well as the
FTC, has a role in these efforts?
Answer. My office does a tremendous amount of outreach and
education relating to cybersecurity and online scams of all types. In
spite of our efforts, Ohioans continue to be victimized by pirated
websites, phony friend requests, and bogus online offers.
There are nearly endless opportunities to reach consumers in their
homes, on their mobile devices, and through traditional and social
media. Having a diversity of sources and voices can be very beneficial
to our efforts to help consumers protect themselves from frauds and
scams.
Messages from Attorneys General can be reinforced by messages from
the Federal Trade Commission, and vice versa. There is plenty of room
in this arena for state Attorneys General and for the Federal Trade
Commission. Each brings value and consumers deserve that maximum
opportunity to learn about risks they may face while online. The FTC
has always promoted states using the FTC resources--such as
publications and videos--at no cost to the state. With the FTC's
abilities to make high-end videos, it's helpful to the states who have
limited resources to produce videos; the same can be said about their
publications.
______
Response to Written Questions Submitted by Hon. Todd Young to
Hon. Mike DeWine
Question 1. Mr. DeWine, what have you experienced in neighboring
Ohio relative to travel booking scams and what additional support do
you believe you could use from the FTC?
Answer. We have experienced some travel booking scams or
complaints, but we do not see a large majority of complaints from this
specific category. That's not to say we don't take action. In 2013, we
had a number of complaints against an individual who accepted money for
vacations booked through her, but she provided nothing. In that case,
we worked with the local prosecutor to prosecute her for two counts of
theft, one of which she eventually plead guilty.
While Ohio has the ability to bring cases on its own, as well as
with other states, the FTC could be instrumental in helping curb bad
practices of larger nation-wide businesses. For example, the FTC could
help set best practices for third-party booking sites, vacation club
memberships, or additional fees imposed by travel booking sites.
Question 2. Mr. DeWine, has the FTC focused in on the issue of
travel booking scams beyond issuing consumer alerts?
Answer. Currently, I'm unaware of any cases the FTC is involved
with regarding travel booking scams; that is not to say, however, that
there are not cases. I do know that in January 2017, the FTC took a
strong stance against and suggested legislation regulating additional
fees imposed by hotels and resorts in which the hotel or resort was
advertising a lower rate but then adding on an additional fee as
``resort fee.''
______
Response to Written Question Submitted by Hon. Bill Nelson to
Hon. Mike DeWine
Question. On this Committee, we often consider consumer-protection
bills in which state attorneys general play a role in enforcement. For
me, I believe multiple ``cops on the beat'' are a good thing, and I
always support legislation where state attorneys general can partner
with Federal agencies to work on the American people's behalf. However,
some bills we consider in this Committee attempt to preempt state
consumer-protection laws and clip the wings of state attorneys
general's authorities. Can you comment on how important it is to
preserve the prerogatives of state attorneys general to protect
consumers from scams and fraud?
Answer. It is imperative that the states' authority to protect
consumers is preserved. The attorneys general are uniquely situated to
address scams and unfair or deceptive practices at the regional, state,
and local levels. Many times bad actors target specific geographic
areas or populations within a state to take advantage of a disaster,
weather event, or unique market. The attorneys general can react to
these problems much more quickly and decisively than a Federal agency.
In many ways, the attorneys general are the first line of defense
for all Americans, as the enforcement actions taken on the state level
influence practices across the spectrum of businesses inside our states
and out.
______
Response to Written Question Submitted by Hon. Richard Blumenthal to
Hon. Mike DeWine
Question. The FTC's ``Every Community Initiative'' recognizes that
fraud affects every community, and creates consumer education materials
for vulnerable and often targeted communities, including older adults,
military families, immigrants, and members of the Latino community.
Would it be fair to say that if our efforts to educate consumers
and small businesses about scams were reduced or discontinued, the
American economy would suffer even more financial loss as a result of
scams?
Answer. I can't speak to the value of any single program, but I can
talk about consumer education as a whole. I believe in the value of
having staff assigned to helping people understand how they can avoid
falling victim to a scam or making a bad purchasing decision and
assisting them with recovering after it's happened.
In Ohio, we put a lot of effort into finding ways to communicate
with our consumer and business communities, including our immigrant and
non-English speaking communities. We do this through social media,
targeted outreach, and by having staff out in the field meeting people
where they live. We are, first and foremost, public servants and we
must do what it takes to protect the families and businesses we serve.
Although we appreciate the efforts the FTC has made, the attorneys
general understand that it's our job to educate our consumers. We will
continue to fulfill our obligations no matter what happens to any
specific Federal program.
______
Response to Written Questions Submitted by Hon. Bill Nelson to
Frank W. Abagnale, Jr.
Question 1. In your various writings over the years, you make a
passionate case about the growth and harms of identity theft and the
need for Federal legislation to tackle the problem. For instance, in
The Art of the Steal, you wrote, ``If we're serious about combating
identity theft, it's going to take a Federal solution [. . .].'' In
Stealing Your Life--in a chapter titled, ``Write Your Company and
Congressperson--Now!''--you wrote, ``Congress and state legislatures
need to provide consumers with more protection.'' Do you continue to
believe that there must be a Federal solution?
Answer. Yes, I do. I believe there needs to be Federal laws on the
books that hold companies, corporations and financial institutions
liable for breaches that occur due to their negligence. The same way I
feel very strongly that companies that produce software and hardware be
responsible when their technology does not protect individuals, as well
as businesses, when they claim it was designed to do so. Having no
legal recourse, individuals, as well as businesses, are left in harm's
way when companies do not take the adequate and necessary steps to make
sure that there are no loop holes in their technology. For example,
over the past 20 years I have worked as an advisor on two great fraud
prevention technologies. The first one was called the 41st Parameter,
eventually sold to Experian and now used in 80 countries around the
world by governments, banks, corporations, airlines, and retailers. I
am currently finishing a technology called Trusona (www.trusona.com)
which does away with passwords and has become the only insured
verification technology in the world insured by an A+ insurance
company. We were able to obtain this insurance because we allowed the
insurance company to spend over a year testing the technology in
various labs around the world to see if it could be defeated before
allowing it to be insured. Even in the paper/print side, more than 10
years ago I designed a high security check for a California security
printer known today as the Supercheck (www.safechecks.com). Today, that
check is used by thousands of corporations, state and city governments
and has never been counterfeited, altered or forged.
I work with technology companies because they can't think like a
criminal. Though I can't write code, I can play ``chess'' with them
until I've taken away every possibility of defeating the technology. I
know this can be done, having done it, so I believe all companies
should be responsible for taking the necessary steps to insure their
technology works instead of rushing to market just to make a buck at
the consumer's risk.
Question 2. As you may or may not know, I introduced legislation
with Senator Blumenthal last Congress--S. 177, the Data Security and
Breach Notification Act of 2015--that would require companies holding
large amounts of personal information to take reasonable security
measures and would establish a uniform Federal standard for breach
notification. In concept, what are your thoughts, if any, on this type
of Federal solution?
Answer. I would be absolutely 100 percent behind this bill. Again,
there is no reason that companies cannot take the time and expense to
educate their employees about the most important job they have. That is
protecting the private and sensitive information they have that has
been entrusted to them by their customers and clients. This means
training everyone from the custodian to the CEO. Over the last 40
years, I've had the opportunity to make presentations to many Fortune
500 Companies who understand that education is the most powerful tool
to fight fraud and cybercrimes. If I company or institution is not
willing to put the interest and protection of their clients and
customers first, then they should be held responsible. I support this
bill.
As a way of example, the Federal Government could do a much better
job of protecting the taxpayers' money and information. I always
believe that the government should take the lead and the rest of the
country will follow.
______
Response to Written Question Submitted by Hon. Richard Blumenthal to
Frank W. Abagnale, Jr.
Question. The FTC's ``Every Community Initiative'' recognizes that
fraud affects every community, and creates consumer education materials
for vulnerable and often targeted communities, including older adults,
military families, immigrants, and members of the Latino community.
Would it be fair to say that if our efforts to educate consumers
and small businesses about scams were reduced or discontinued, the
American economy would suffer even more financial loss as a result of
scams?
Answer. Yes, it would and already has. As I mentioned in my
testimony, in the last 1970s I was featured in a number of public
service ads sponsored by the DOJ that were sent out to law enforcement
agencies on tips for protecting consumers on subjects like protecting
their check book, their credit cards, and personal assets. I donated my
time to this project as I knew how important it was. Those PSAs ran for
a number of years and were very effective.
In the mid-1980s I allowed by intellectual property to be used by a
large bank financial printer for bank statement stuffers with tips for
consumers. Hundreds of banks sent these statement stuffers to hundreds
of thousands of individuals as just a public service message from their
bank. In both of those projects, I was not known by very many people
but they were still very effective.
I strongly believe that the government, through agencies like the
FTC, should begin a public awareness program about consumer crimes and
safety in the cyber world. As in the past, I will always be willing to
provide my services and intellectual property to a government
initiative like this at absolutely no cost or travel expenses to
accomplish this. Whether the government choses me as their spokesman or
not, I absolutely stand behind the initiative to create consumer
educational materials targeted to communities, older adults, military
families, immigrants and members of the Latino community.
I'd like to make one final point. In the last couple of years, I
have actually donated my time and travel to film some public service
ads for the DOJ National Advocacy Center (NAC), as well as the
Association of State Attorneys General. Unfortunately, there was no
money put behind these ads, they were poorly filmed and produced and
consequently, ended up being shown only on government websites. If the
government decides to create a campaign for public awareness, they must
put the money behind it so it is professionally done so that network
and cable TV will show it.
______
Response to Written Question Submitted by Hon. Richard Blumenthal to
Mike Schwanke
Question. The FTC's ``Every Community Initiative'' recognizes that
fraud affects every community, and creates consumer education materials
for vulnerable and often targeted communities, including older adults,
military families, immigrants, and members of the Latino community.
Would it be fair to say that if our efforts to educate consumers
and small businesses about scams were reduced or discontinued, the
American economy would suffer even more financial loss as a result of
scams?
Answer. My name is Michael Schwanke with KWCH TV in Wichita,
Kansas. In my 17 years as a journalist and investigative reporter I
have focused much of time on helping victims of scams and educating the
public so they don't fall victim.
To answer your question, I believe that education is the best
weapon we have to prevent scams. Enforcement is often impossible as the
scammers change tactics daily and operate from other countries.
As I stated in my testimony, the education has to be consistent. We
have seen viewers fall for scams even after they'd been warned.
I personally have seen seniors wire away their entire life savings
to scammers. Everyone, including the Federal Government, has a role in
preventing the next person from falling victim.
I appreciate the opportunity to share my experience.
[all]