Va. A.G. Miyares Urges FTC to Create Robust Rule Outlawing Impersonation Scams
A comment letter from the attorneys general raises concerns about the plethora of impersonation scams targeting consumers and the current lack of a national rule to outlaw these fraudulent acts and protect Americans.
Attorneys general serve as the front-line defense against impersonation scams, seeing first-hand the pervasive problem these acts create for consumers, small businesses, and charities in their states.
"Too often,
As illustrated in the letter, impersonation scams take on many forms:
Impersonation of government entities: Fraudsters claim to be from or affiliated with a government agency to persuade victims of the urgency to provide payment to obtain licensing or certificates in document preparation or regulatory compliance scams.
In a recent case, the
Business impersonation: These are scams in which fraudsters claim to be working directly for an actual business or as a third party endorsed by the business. Common examples include tech scams in which the imposters claim they are contacting the victim on behalf of companies such as Microsoft or Apple to assist with a ransomware or technology issue.
Person-to-person deceptions: Grandparent scams, romance scams and others use personal information to make a connection with victims. Whether claiming a grandchild is in urgent need of money or creating a fake profile to gain the trust of someone on a social media or dating site, these impersonation scams account for thousands of complaints to attorneys general each year.
Though the methods may vary, impersonation scams cause injury to consumers who lose money, drain resources from regulators tasked with protecting the public, and cause confusion and loss of trust in government agencies and services.
"There is a pressing need for
A robust national standard outlawing impersonation scams should:
* Deter bad actors and reduce consumer harm.
* Provide needed clarity on what conduct constitutes impersonation, since government and business impersonation scams can range from overt pretense to misleading subtlety.
* Deprive bad actors of the excuse that they were allegedly not aware their activities were illegal in some jurisdictions as opposed to others.
* Provide more opportunities for the states to collaborate with the
* Allow states to enforce their own standards, free of any preemption by a federal rule.
The
"The attorneys general hope to continue working with the
Attorney General Miyares was joined by the attorneys general of
* * *
To:
Re: Impersonation ANPR; FTC File No. R207000 - Trade Regulation Rule on Impersonation of Government and Businesses
Dear Ms. Khan:
The undersigned attorneys general, led by the attorneys general of
As the chief law enforcement officials of their respective jurisdictions, attorneys general often act as a "front line" defense against impersonation frauds. Consumers commonly file large volumes of complaints about such activities with attorneys general. In addition to constantly receiving and evaluating consumer complaints, attorneys general are charged with protecting consumers from fraud through the dutiful administration of consumer protection laws, sometimes called unfair and deceptive acts or practices ("UDAP") laws or mini-FTC Acts./1 Also, attorneys general often work collaboratively in other ways. For example, attorneys general have commissioned a
Attorneys general have not attempted to answer all the questions posed in the Advanced Notice of Rulemaking but have addressed the ones most important to protecting consumers. Overall, attorneys general believe there is a pressing need for
I. THE WIDESPREAD IMPERSONATION SCAMS TARGETING AMERICAN CONSUMERS
Impersonation scams are a pervasive problem impacting millions of American consumers. The numbers of consumer complaints regarding impersonation scams received by specific attorneys general can vary, but they illustrate that impersonation scams are a serious problem. Several examples of complaint volumes in specific jurisdictions during years 2019 through 2021 are instructive. For example, the
In
And while the volume of consumer complaints filed with attorneys general are alarming, consumer complaints do not fully capture the reality regarding the number of imposter scam victims. One of the most nefarious aspects of impersonation scams is that many victims never become aware they were defrauded. Attorneys general often find that consumer complaint numbers are just the "tip of the iceberg" in terms of actual victims impacted by specific imposter activities.
For example, the
Similarly, the
In yet another example, the
A. Impersonation of Government Entities
1. Document Preparation Scams
Attorneys general find that it is commonplace for bad actors to employ government imposter tactics at the expense of consumers. In particular, consumers who start small businesses and charities often navigate the process of legally formalizing the corporate entity without the assistance of legal counsel. They can become easily confused regarding associated legal requirements and paperwork. For example, unsophisticated consumers may not grasp the legal distinctions between a "certificate of organization" necessary to formalize an LLC, and a "certificate of existence [or good standing]" or a "certificate of status" merely attesting to the fact that a business is in good standing pursuant to a loan application. These conditions are ripe for predatory actors to blur the meaning and import of various government forms and procedures to their benefit.
One operation allegedly induced thousands of consumers in multiple states to buy an unnecessary "certificate of existence" for newly formed entities./2 The operators regularly accessed public information from Secretaries of State or other agency websites where corporate documents are filed to harvest contact information regarding those consumers who recently started new businesses or charities. The operators used the information to send consumers a "Certificate of Existence [or Good Standing] Request Form" mailer that appeared to be a government invoice for a payment needed to complete the corporate entity formalization process. Although the certificates were available from the state for a nominal fee, the operation often peddled the certificates for more than a 1000% markup of their bona fide cost. These extreme "profits" stemming from the "service" of forwarding the certificates to consumers who unknowingly ordered them from a private company could be easily pocketed by the scammers or otherwise leveraged against the efforts of attorneys general investigating and prosecuting them.
Similar operations in
As another example, multiple attorneys general have taken legal action against or achieved settlement agreements with participants of a notorious operation targeting consumers in multiple jurisdictions over a protracted period./3 The company names used by the operators varied, including "Corporate Records Service," "Labor Law Poster Service," "
2. Regulatory Compliance Scams
Many government imposter scams do not target broad swaths of consumers starting all manner of small businesses and charities, but instead focus on niche industries involving workers tasked with fulfilling regulatory reporting requirements. For example, motor carriers must file a free and simple report with the
By way of further example, in
3. Lead Generation Scams and Others Targeting Specific Populations
Other government impersonation scams target specific populations that can be more vulnerable to them. For example, some lead generation companies send mailer solicitations to older consumers requesting them to return personal information they will sell to insurance salespersons for subsequent telemarketing purposes./6 The mailers can include headers like "2019 Benefit Information For [Recipient's state] Citizens Only," and language like: "As a resident of [Recipient's state], you are entitled to more benefits not provided by government funds. You now have access to a 2019 regulated program which may pay 100% of all final expenses... Return this postage paid card within 5 days to request this new benefit information." The envelope including the solicitations may contain statements conveying an unjustified sense of urgency to respond, such as: "Dated Material," "Open Immediately," "Important Information Enclosed," and "Second Notice: Time Sensitive." These tactics can be particularly confusing to older consumers, who may respond believing they are applying for government help but instead receive aggressive telemarketing calls from insurance agents who commission the solicitations.
Some government impersonation scams target specific classes of people like teachers and other public employees earning a pension. The
While many government imposter scams tend to solicit consumers via the
B. Impersonation of Businesses
Year to year, impersonation of businesses is a persistent problem reported to state consumer protection agencies, either outpacing or running a close second to government imposter scams. An exact count is difficult due to differences in categorization from state to state, but business imposter scams have targeted thousands of consumers nationwide, with the number of complaints increasing over the last several years.
1. Impersonation Scams Involving False Affiliations with Other Businesses
Business imposter scams can be separated into two general categories. In the first category, the imposter claims to be either working directly for an actual business or else for a third party endorsed by that business. A common example is a tech support scam, in which the imposter claims that they are contacting the consumer on behalf of Microsoft or Apple to convince the consumer to grant the imposter remote access to their computer. The imposter is then able to access personal information or else direct the consumer to pay for unnecessary, overpriced software. For example, the
Imposters have also commonly posed as a consumer's energy company or bank. These scams typically occur over the phone, but scammers have also reportedly used letters bearing the logo of the business they are imitating to the same effect.
In 2020 and 2021, the
2. Impersonation Scams Exploiting the Appearance of Legitimacy
In the second category of business imposter scams, an individual, utilizing either a fictitious name or an actual business entity, uses the apparent legitimacy of a business name to convince consumers to engage in fraudulent or deceptive conduct. In one 2019 case, the
3. Impersonation Scams Involving Person-to-Person Deceptions
Imposter scams are not limited to situations where a government agency or business is being impersonated. State consumer protection agencies also receive, cumulatively, thousands of complaints every year regarding imposter scams that do not cleanly fit into any single category.
Some of these "miscellaneous" scams may occur over the phone, as in the case of a "grandparent scam," in which the victim receives a call from someone posing as their grandchild, who frantically claims to be in trouble and in need of immediate money. Another scam is known as a "romance scam," which typically begins on a dating app, where the imposter has assumed a fake identity, which they use to gain a victim's trust to deceive them into wiring money to pay for items such as travel documents or plane tickets for a trip to visit the victim which never materializes.
II. THE MEANS AND INSTRUMENTALITIES EFFECTUATING IMPERSONATION FRAUD MUST Belgium ADDRESSED
A. Common Tools of Impersonation Fraud Should be Explored
The businesses and individuals that impersonate government entities and other businesses are not the only participants in impersonation schemes that defraud millions of consumers each year. Impersonators often use other companies' products and services to execute their scams. As with other types of consumer fraud, impersonators often use marketing companies, call centers, attorneys, third-party mailing services, payment processors, lead list providers, remote offices, and other platforms to expand their reach to consumers, to make their advertisements look more official, to appear "local," or to mimic different facets of government entities and other companies. For example, in F.T.C. v.
Another example of impersonators using an instrumentality to effectuate their scams involves using third-party payment processing services. Scammers often require certain payment methods for fictitious overdue debts (mortgages, utilities, student loans, etc.). In another common scam, a person posing as a government official tells a consumer that his identity has been compromised and that he must transfer money to the official using a prepaid debit card in order to protect his accounts. Many government agencies have issued press releases and warnings trying to stem the proliferation of this government imposter scam. See, e.g., Taxpayers should watch out for gift card scam,
Dating websites and social media are other tools that impersonators utilize for their schemes. In 2020, consumers reported losses of
Impersonators who combine multiple instrumentalities can increase the pervasiveness and effectiveness of their deceptive behavior. In the last year, for instance, many impersonators utilized the ubiquity of social media to receive their ill-gotten funds in the form of one of the least-regulated forms of payment--cryptocurrency. For example, last year, an impersonator using footage from the YouTube channel "Everyday Astronaut," created a fake live stream of a space launch to solicit bitcoin donations under the guise of a fundraiser for
B. Enablers of Impersonation Fraud Should be Held Accountable in Appropriate Circumstances
The staggering financial loss from impersonation fraud requires strong consideration of who should be held responsible for impersonation scams. In some cases, companies that facilitate impersonation schemes have sufficient information to detect wrongdoing but willfully turn a blind eye. Although few imposter cases have held these companies responsible for their contributions, cases in other consumer fraud contexts illuminate the standards that could be applied to those entities when there is sufficient evidence of culpability.
Some courts have held that companies may be responsible for fraudulent conduct when 1) they know or should have known that their products or services are used to perpetuate the fraud and 2) they have substantially contributed to the fraud. In Brooks v.
See Id; Brooks, 2010 WL 3781841 at *11; 16 CFR 310.3(b) (creating a parallel impersonation rule with respect to any person who "provide[s] substantial assistance or support to any seller or telemarketer when that person knows or consciously avoids knowing that the seller or telemarketer is engaged in any act or practice that violates Sec.Sec. 310.3(a), (c) or (d), or Sec. 310.4 of [the Deceptive telemarking acts or practices] Rule."
To be clear, businesses are often victims themselves, and often are partners with regulators in investigations of imposter schemes. But, when a business makes an intentional decision to substantially support or to willfully ignore an imposter scheme that does harm consumers, they should be held accountable for their part in that harm.
III. THE FAR-REACHING CONSUMER HARMS CAUSED BY IMPOSTER SCAMS
Impersonation scams cause injury to consumers in several ways. First, consumers who fall victim to impersonation scams lose money. Consumers can lose money even though the supposed "service" offered by the imposters often does not meet the requirements of the law, is unnecessary or is available through the state for free or a nominal fee. For example, in document preparation imposter scams, a consumer may receive a solicitation offering them "annual minutes" or "annual records" that appears to originate from the state. The consumers may respond with an unnecessary check to the imposter believing they met their annual filing requirements. They may not realize they paid for a product that is not required by the state until they later receive a notice from the state that the annual report is due. Consumers may lose additional money as a cost of curing errors stemming from the scam. For example, as a result of receiving a legitimate notice from the state that an annual report is due after having already sent a check to an imposter, the consumer must still pay to renew their business registration through the proper channels. They often pay hundreds of additional dollars in addition to the unnecessary amount they lost to the scammer to ensure they are compliant.
Second, imposter scams drain the limited resources of regulators tasked with protecting the public from a wide range of other harms. The amount each consumer loses to impersonation scams is often significant to them but is almost invariably insufficient to justify the burdens of private litigation that may be required to recover the money without government intervention. Simply put, scammers are often counting on the fact that consumers rarely have the time and resources to hold them accountable by themselves and hope to avoid the attention of regulators. For example, to keep "under the radar" of regulators, they may offer to refund only those few consumers who notice they have been scammed and complain to law enforcement. The imposters seem to believe this increases the appearance of legitimacy to regulators who investigate complaints about them. However, even if the per-consumer loss is relatively small in the grand scheme of a particular imposter operation, those scams involving hundreds or thousands of victims often return substantial sums of money to the scammer on the whole. The startup costs of running imposter scams are also typically low. Therefore, it is often incumbent upon government regulators to spend limited time and resources addressing the conduct. These resources could be spent helping the public in other ways if imposter scam activities were lessened.
Third, there are other less tangible but nonetheless troubling harms resulting from imposter scams. Government imposter scams can cause immense consumer confusion and loss of trust in government services and inquiries. Widespread mimicking of government documents contributes to the erosion of the state's status as an identifiable, trusted source of important information for the public. Business impersonation scams can cause consumer mistrust of technologies and well-known companies whose legitimacy scammers exploit. Consumers who fall victim to such scams often report they are unsure whether to trust future documents from the state, which may be wholly legitimate and beneficial to them./8
Finally, imposter scams cause unnecessary stress and embarrassment for consumer victims. This is especially problematic in person-to-person imposter scams, including grandparent and romance scams, which often involve the loss of thousands of dollars after deeply personal scams are perpetuated.
IV. THE BURGEONING NEED FOR A ROBUST NATIONAL STANDARD OUTLAWING IMPERSONATION SCAMS
A. The Need for New Regulation
The quantity and variety of the cases the states have seen manifest a need for new regulation from the
While impersonation scams affect all kinds of consumers, impostors themselves often target vulnerable and marginalized communities, including the elderly and the un-banked. State attorneys general play an important role in the prevention and redress of the harm these impostors cause, but a robust enforcement scheme at the federal level would help deter bad actors and reduce consumer harm. In addition, such a regulation could provide needed clarity on what conduct constitutes impersonation, since government and business impersonation scams can range from overt pretense to misleading subtlety. A robust national standard would also deprive bad actors of the excuse they were allegedly not aware their activities were illegal in some jurisdictions as opposed to others and provide more opportunities for the states to collaborate with the
Any regulation that the
B. The Need for Continuing Consumer Education and Collaborative Prevention Efforts
Sincerely,
Herbert H. Slatery III,
Leevin Taitano Camacho,
* * *
Footnotes
1/ Examples of such laws include the Mississippi Consumer Protection Act, Miss. Code Ann. Sec. 75-24-1 et seq., the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 P.S. Sec. 201-1 et seq., Florida Deceptive and Unfair Trade Practices Act, Chapter 501, Part II, Florida Statutes ("FDUTPA") and the Iowa Consumer Frauds Act, Iowa Code Sec. 714.16.
2/ The allegedly deceptive mailer associated with the operation is attached to this comment as Attachment 1
3/ Allegedly deceptive mailers associated with the operation are attached to this comment as Attachment 2.
4/
http://www.myfloridalegal.com/newsrel.nsf/newsreleases/4C4154E8189472AB852583B5005AEB84?Open&
5/
6/ The allegedly deceptive mailer associated with the operation is attached to this comment as Attachment 3.
7/
8/ "[D]eceptive advertising engenders distrust, which negatively affects people's responses to subsequent advertising from both the same source and second-party sources. This negative bias operates through a process of defensive stereotyping, in which the initial deception induces negative beliefs about advertising and marketing in general, thus undermining the credibility of further advertising."
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