Risk Management

by Andrea Wilson

   The Federal Trade Commission projects that consumers lose over $60 billion a year to cross-border telemarketing scams operating just beyond the boundaries of the United States, and a few miles away from US laws and the jurisdiction of the Courts. The operators know the chances of American victims (usually the elderly or less privileged) recovering their losses are relatively slim. According to the most recently issued 2002 FTC Consumer Complaints Report, total cross-border fraud complaints from U.S. consumers jumped from 13,905 in 2001 to 24,213 in 2002. Total cross-border complaints have risen from 12 to 14 percent. The FTC reports, 46% of the total complaints came from U.S. consumers against Canadian companies; 33% of the complaints were lodged by U.S. consumers against companies in other foreign countries; 12% were from foreign consumers against U.S. or Canadian companies.

  • Advance-Fee Loans - 24%
  • Foreign Money Offers - 24%
  • Prizes/Sweepstakes/Gifts - 23%
  • Internet Auctions - 10%
  • Shop-at-Home Catalog Sales - 5%
  • Lotteries/Lottery Ticket Buying Clubs - 3%
  • Business Opportunity/Franchises/Distributorships - 2%

   Con artists believe they won't get caught if they target citizens of another country. They assume their own country's law enforcement aren't interested in building a case when the victims of their deception are residents in another country. They also believe that U.S. officials in the victims' country won't have authority to investigate deceptive telemarketing practices from outside their borders. Reviewing the Federal Trade Commission's web site (www.ftc.org) and you will see just how cooperative the Canadian and U.S. authorities are becoming. Almost weekly in the past twelve months, the FTC has successfully shut down illegal cross-border telemarketing operations targeting U.S. citizens to the tune of tens of millions. The FTC reports Internet, telemarketing, identity theft and other fraud complaints in the Consumer Sentinel, a secure online database created in conjunction with the National Association of Attorneys General and Canada's PhoneBusters. The Consumer Sentinel provides over 635 law enforcement agencies in the U.S., Canada, and Australia with access to more than one million consumer complaints, enabling countries to coordinate their investigations against cross-border fraudsters. The FTC and other consumer advocacy groups are encouraging consumers to report all related fraud information to the FTC and other organizations such as PhoneBusters.
   So, let's go back to the basic root of the problem � addressing how the merchant account facilities for cross-border telemarketing operators are opened. The answer is through U.S. based ISOs and factoring agents who are lured by huge discount rates, fast profits and absolutely no risk. A merchant account is established, a virtual terminal provided and the cross-border business is underway in hours. But ISOs beware � the FTC is becoming aware of your involvement in establishing these operations and is making strides to ensure these avenues are closed off and the ISOs are held accountable for the deceptive activities they promote.
   The bank acquirer/ISO relationship has been a steadfast in the U.S. credit card processing industry for many years and for most telemarketing merchants, the most reliable and cost-efficient method of obtaining a merchant account. But what due diligence is conducted by ISOs on the products and services these cross-border telemarketers are attempting to get off the ground? Here's a checklist of questions to ask and "red flag" answers to watch out for that are useful in determining if an ISO is being targeted to obtain a cross-border merchant account, on the way to deceptive consumer sales practices:

What type of product or service is the telesales merchant proposing to sell?

   If the answer is any one of the products listed in the 2002 Consumer Complaints list, then don't place the merchant account.

Where is the merchant located?

   Where are the telemarketing sales agents operating? If they are across the Canadian border or in another country then decline a U.S.-based merchant account, this is a sure sign that a deceptive cross-boder operation is about to get underway.

What is the selling methodology for the product being sold?

   If the pitch involves statements such as "You must act now or the offer won't last", "You've won a free gift, vacation or prize but you must pay postage and handling charges", "You can't afford not to take advantage of this credit card protection or advance-fee loan service" "You must send cash, provide a credit card or your bank account information to cover legal and administration costs in order to claim your prize", "Your credit card was charged illegally last month and we can help you recover your losses for a small fee", � don't place the merchant account (and run for the hills!).

How does the telesales merchant expect to process credit card transactions?

   Are they asking for a virtual terminal solution and a way to track sales for "rooms"? Are they asking for an open Internet processing solution even though they have no intention of selling products through the Internet? This is an immediate sign they are likely lurking across the border.

Find out more on their processing methodology and the physical office location. Find out if the telemarketing merchant implements TSR compliance requirements by obtaining their phone scripts as part of your due diligence.

   If the scripts contain any pushy and deceptive sales practices encouraging the consumer to provide personal or financial information to 'close' the telesale, then take caution in placing the merchant account. Get more information on their telemarketing operations and target market base.

Are they using consumer lists they've purchased from list brokers?

   Don't place the merchant account. These lists contain names and numbers of elderly and targeted individuals who are susceptible to deceptive sales pitches and persuasive phone operators.

It is illegal for a telesales merchant to misrepresent any information including facts about their services, how they market and who they market to and where.

   They must disclose the price of their goods or services, any restrictions on getting or using them, and their refund policies. This must be contained in their sales pitch as part of the FTC/TSR compliance requirements.

Don't turn a blind eye to the sales practices of the telesales merchant for the sole purpose of making short-term discount income.

   In the end, it's the entire industry that is hurt by newly imposed and tougher regulations, higher fraud rates (equating to higher priced merchant solutions) and degradation in consumer confidence.

Never place a merchant account for a telesales merchant selling a product you wouldn't buy yourself over the phone using your own credit card.

   If it sounds too good to be true, it usually is!

   Cracking down on deceptive telemarketers must begin and end with the ISO or the acquiring bank who is providing the merchant account and processing methodology. Without a merchant account these telemarketers must resort to more difficult means of payment, like cheques and drafts, where profits are lower and the sale more onerus. Be diligent and report all suspicious cross-border telesales operations to the FTC or the Consumer Protection Agency. You will be doing everyone a big favour.
   Help our industry stay healthy by hanging up on these cross-border telemarketing fraudsters.