You know the drill ­ you sit down to dinner and the phone rings. You answer it and there's a pleasant voice trying to sell you anything from credit repair kits, to wash balls for your laundry to state quarter collector boards. If you're the slightest bit tempted by these pleasant voices with promises of wonderful goods or vanishing credit history, get the facts, because you are more than likely a victim of consumer deception or fraud.
   According to the Federal Trade Commission, consumers lose over $40 billion a year to telemarketing fraud. The heart of fraudulent telemarketing is usually a 'boiler room', or a rented space with desks, and banks of phones, experienced (or not) sales people who talk to hundreds of people every day, with the only objective to sell gullible people bogus products and make hundreds if not thousands of dollars in commission. Telephone fraud knows no race, ethnic profile, gender, age education or income, however, the unfortunate side of this business is that the majority of the deceived consumers are the elderly and disadvantaged.
   There are a number of scams generally attempted with modus operandi to set up the boiler room, purchase card numbers or 'sucker lists', strike quickly using easily accessible phone services, victimize thousands of consumers in about a 4-6 week period of time, and then disappear along with the proceeds of their fraud.
   So how is it that these boiler room frauds are perpetrated cross-border and which borders are primarily used? Vancouver and Toronto represent the two Canadian city hot spots for perpetrating cross border fraud against US cardholders. These fraudsters face relatively low threat of civil or criminal prosecution because law enforcement agencies have only a limited ability to pursue fraud operators outside their jurisdiction and may be constrained in sharing evidence with their foreign counterparts. Additionally, gathering evidence and statements from victims trans-border represents its own challenges. Court ordered remedies prohibiting domestic operators from engaging in certain deceptive practices is generally ineffective once the border is crossed, so they leverage these gaps in the system to perpetrate consumer deception and fraud without remorse.
   How are the merchant account facilities opened to even get their boiler room on the front burner? The answer is through US 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. The scam works like this ­ the owner of the boiler room purchases or obtains access to consumer lists with names, addresses and phone numbers plus other information such as how much money was spent by people who have responded to telemarketing solicitations in the past and in some instances personal information about family or friends which assist in friendly conversation. These lists are easily available on the street through unscrupulous brokers and are invaluable to scam artists who know that these consumers are vulnerable to further scams. Then the boiler rooms are staffed with pleasant speaking sales people who contact the consumers on the lists and read from pre-drafted scripts describing the product with only one goal ­ to close the sale. Closing the sale generally means convincing the consumer to provide their credit card or debit card number and expiry date to them over to phone (usually deceptively) and then plying the consumer with streams of fast talk to confuse the consumer to 'accepting' whatever the product is they are selling. A week or so later, some worthless package of information arrives at the consumer's door and they realize too late, that they have been scammed, sometimes for thousands of dollars. A few weeks later, the cardholder often finds themselves contacted again (not realizing by the same boiler room), claiming to be able to recover funds from the previous telemarketing scam and for a small 'fee' they will recover the lost money. These scams are called 'Recovery Room' operations and often the cardholder is duped twice by the same Canadian-based cross border boiler room operation.
   The Federal Trade Commission has spent years tracking down cross border fraudsters with some success. The Telemarketing Sales Rule (TSR), has been implemented in the USA primarily to prevent misrepresentations to consumers. It has now has been amended to add a further layer of protection by way of the 'Do Not Call' registry (link available from the FTC web site www.ftc.gov) which is waiting Congressional approval for funding. In addition to the 'do not call' registry, amendments to the TSR restrict call abandonment, crack down on unauthorized billing and require telemarketers to transmit caller ID information. Under the amended TSR, telemarketers will be required to search the registry at least quarterly and drop from their call lists the phone numbers of consumers who have registered. After the changes take effect (predicted mid 2003) a consumer who receives a telemarketing call despite being on the registry will be able to file a complaint with the FTC. Violaters could be fined up to $11,000 per incident. The Federal Communications Commission also regulates the industry through the Telephone Consumer Protection Act (1991) which contains strict guidelines for telemarketing. Information about the TCPA can be found at www.the-dma.org.
   These are some of the ways to combat cross border fraud, but they are only effective if telemarketers are in the honesty business. Capital One credit cards promote 'no telemarketing' as part of their product branding but this is only effective if the acquiring bank registers the merchant with a telemarketing merchant category code.
   Cracking down on deceptive telemarketers must begin and end with the ISO or the acquiring bank who is providing them with the merchant or factoring account and virtual terminal to aid them in their deceptive act. 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 onerous. Credit card charging facilities represent the 'quick hit' in this industry and what these fraudsters are willing to pay huge fees to obtain. In and out of the boiler room business in 6 weeks flat, these telemarketers either abscond with the funds through some offshore bank account or rely heavily on 'breakage' where they know a large percentage of cardholders will never charge back the fraudulent transaction. Breakage runs anywhere from 40 to 60%.
   Fraud hits at the heart of our industry and increased fraud usually equates to increased fees and insurance premiums. In order to foil these fraudsters, the answer lies right at the doorstep of our bankers and ISOs and the buck must stop there if we are to clean up the rampant fraud in our industry.