United States. Congress. Senate. Committee on Gove.

At-home business opportunity scams : hearing before the Subcommittee on Regulation and Government Information of the Committee on Governmental Affairs, United States Senate, One Hundred Third Congress, first session, July 28, 1993 online

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Online LibraryUnited States. Congress. Senate. Committee on GoveAt-home business opportunity scams : hearing before the Subcommittee on Regulation and Government Information of the Committee on Governmental Affairs, United States Senate, One Hundred Third Congress, first session, July 28, 1993 → online text (page 5 of 6)
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Who 's Vulnerable to These Appeals?

The individual stories behind these numbers are often sad ones. Our survey re-
veals that the two largest groups victimized by the scam are stay-at-home mothers
(mentioned by 48 Bureaus) and the elderly (cited by 35 Bureaus). Many stay-at-home
mothers are looking for a way to supplement their family's income without having
to worry about finding affordable child care. The elderly are also prime targets. An
ad which promises: "work from home, no experience required, set your own hours"
appe£ds to many senior citizens who are housebound, but eager to supplement their
fixed incomes.

Other groups likely to be duped by work-at-home offers include college students,
persons with disabilities, the unemployed and low-income families. Several Bureaus
noted that victims of such scams include full-time workers who are searching for
ways to supplement their income. Our Honolulu Bureau reports: "In Hawaii where
the cost of living is so high, we have many, many full-time workers who are explor-
ing ways to earn extra income."

Our survey asked Bureaus how consumers hear about work-at-home "opportuni-
ties." Ninety-three percent of the Bureaus report that such offers appear in classi-
fied ads, most often in free weekly newspapers or "shopping" newspapers. However,
Bureaus also cite legitimate, respectable newspapers and periodicals that nin mis-
leading work-at-home ads. Many Bureaus noted that most classified work-at-home
ads are not placed by local companies. Instead, companies advertise in states other
th£m where they are located to escape the scrutiny of local law enforcement agen-
cies.

Other methods of promotion include direct mail (noted by 15 Bureaus), cable tele-
vision and directories of work-at-home opportunities.

A new method of advertisement by work-at-home "job" promoters was noted by
the Fort Wayne Bureau in their survey response. "Many scam artists now use bulle-
tin boards in grocery stores, cafeterias, laundromats, etc. to avoid mailing out work-
at-home offers. They therefore avoid use of the U.S. Postal Service and subsequent
investigation by the postal authorities." The Fort Wayne BBB encourages its mem-
bers to monitor bulletin boards at their businesses to check for offers that appear
"Too Good to Be True."

Curbing Work-at-Home Schemes

"Work-at-home" schemes are easy to spot, but hard to stop. BBBs routinely bring
such scams to the attention of law enforcement agencies. But our survey results
show that despite receiving thousands of inquiries and complaints annually, law en-
forcement officials rarely crack down on the operators that run the scams because
the amount of money involved is seemingly insignificant. Postal Inspectors close
down many such scams each year, but new ones spring up to replace them. Some-
times the companies go out of business before the Postal Inspector can be notified
and an investigation gotten underway. One Bureau noted that its Postal Inspector
won't open a ceise untU $250,000 in losses are recorded.

Only 23 percent of the Bureaus reported any actions taken by law enforcement
agencies. In most cases, crackdown efforts were made by the U.S. Postal Inspection



32

Service, distantly followed by state attorneys general, the Federal Trade Commis-
sion and local district attorney offices.

Better Business Bureaus also attempt to combat such schemes with information.
We preach "investigate before you invest." The BBB issues millions of reliability re-
ports on work-at-home and other businesses and attempts to educate the public
through pamphlets (such as our "Tips on Work-at-Home Schemes"), news release
warnings about various scams, radio and TV appearances, speeches before commu-
nity groups, and newsletters to member businesses.

BBBs urge those victimized by work-at-home offers to file a complaint. Remaining
silent only allows others to be victimized by the same scam. Bureaus report that
they are sometimes, but not always effective in helping victims to recover their
money. Our experience shows that companies that offer product assembly jobs are
more responsive to complaints when presented than are companies that offer enve-
lope-stuffing opportunities.

As I mentioned, it's not unusual for even the most respectable newspapers and
magazines to run ads for "work-at-home" schemes. Publishers have the power to
block such ads, but only a few do. Many BBBs offer help to local publications to
check such ads before publication. Our Tacoma and Boston Bureaus report that
their local newspapers print a statement in the classified and "business opportuni-
ty" ad sections advising readers to contact the BBB before doing business with a
company.

Are There Any Legitimate Work-at-Home Companies'?

Not too long ago, Ann Landers ran a column reciting the experience of a 73-year-
old man who'd been "taken" by a work-at-home scheme. Ms. Landers invited Bietter
Business Bureaus to respond to her belief that BBBs aren't cracking dovsTi on these
operators. Thankfully, she printed my response detailing ongoing BBB efforts to
combat such schemes.

I now receive severed inquiries a week from readers of Ann Landers asking if I
know of any legitimate work-at-home companies. We forward such letters to the Bu-
reaus which keep records of individual companies. I would have to say though that
it's very rare for a company that's on the "up and up" to employ a complete strang-
er to work from their home and ask them to pay something for the privilege.

The best piece of advice I can offer to those interested in pursuing work-at-home
opportunities is to carefully evaluate £my such promotion, and to check with their
local BBB to ascertain the reputation of the company. They shouldn't assume that
the offer doesn't warrant checking out because it involves only a "small" fee ui>-
front. That's the attitude that allows work-at-home scam artists to prosper.

Mr. Chairman, I commend you for focusing the attention of Congress on the age-
less, timeless work-at-home scam. I volunteer the attention of the Council and local
Bureaus in assisting you in evaluating how best to combat this serious problem.

Thank you.



33



Attachment 1 to Testimony of James H. Mcllhennv, President, Council of Better Business Bureaus
Survey results ~ Number of Inquiries on Work-at-home Schemes by Bureau City

laaZ 1993

1,152 (through April)



Albuquerque


2,454


Amarillo. TX


125


Asheville. NC


554


Augusta, 6A


617


Baltimore


1,117 plus


Baton Rouge


1,891


Beaumont, TX


324


Birmingham


1,282


Biountville, TN


435


Boise


567


Boston


4,393


Bryan, TX


177


Chattanooga


141


Chicago


5,204


ancinnati


2,049


Colorado Springs


1.017


Columbus, GA


50


Columbus, OH


1,363


Cypress/Colton, CA


11.036


Dallas


514


Denver


2,228


Des Moines


319


Detroit


5,084


Evansville


549


Fairfield, CT


3.892


Ft. Wayne. IN


1.022


Grand Rapids


1.059


Greenville SC


198


Honolulu


99


Hounta, LA


462


Indianapolis


200


Knoxville


970


Ufayette, LA


2,500


Lake Charles, LA


240


Uncdn. NE


372



2,125 (through March, and
is the Bureau's number one
inquired about category)
1 77 (through May)



34



UttieRock


1,052


Louisvilto


1,084


Macon, 6A


72


Memphis


2.600


Miami


1,049


Mobiie. AL


785


Monro*, LA


408


N«w Yorli aty


3.000 plus


Norfoilc


451


Omaha NE


3.000


Orlando


505


Paranuis NJ


1.300


Philadelphia


3,000 plus


Phoenix


5.091


Pittsburgh


680 plus


Portland, OR


1.605


Pueblo, CO


152


Sacramento


1.034


San Diego


604


San Jose


370


St. Louis


3,411


St. Paul


3.489


Salt Lake City


127


Santa Barbara


1.457


Scranton, PA


1.117


Seattle


4.000


Shreveport, LA


435


Sioux City, lA


200 plus


Stockton, CA


201


Tacoma


600


Toledo


2.000 plus


Topeka


1,300


Tulsa


200 plus


Tucson


1.560


Tyler, TX


650


Waliingford, CT


982


Weslaco. TX


144


Westmont, NJ


2.204


West Palm Beach


1,354


Winston-Salem


443



509 (through May)



1,200 (through April)



35



Attachmant 2 to Testimony of Jamfls H. Mcllhenny, President, Council of Better Business Bureaus
Survey Result* ~ Number of Inquiries on Work-at-Home Schenies by State



Alabama




Birmingham


1,282


Mobile


785


Arizona




Phoenix


5,091


Tucson


1.560


Arliansas




Linle Rock


1,052



California
Cypress/Colton 1 1 ,036



Sacramento


1,034


San Diego


604


San Jose


370


Santa Barbara


1,457


Stockton


201


Cotorado




Cotorado Springs


1,017


Denver


2,228


Pueblo


152


Connecticut




FairfieM


3,892


Wallingford


982


Ftorida




Miami


1.049


Orlando


505


W. Palm Beach


1,354



Georgia




Augusta


617


Columbus


50


Macon


72


HawaU




Honolulu


99


Idaho




Boise


567


Illinois




Chicago


5,204


Indiana




Evansville


549


Ft. Wayne


1.022


Indianapolis


200


Iowa




Des Moines


319


Sioux City


200 plus


Kansas




Topeka


1.300


Kentucky




Louisville


1,084


Louisiana




Baton Rouge


1,891


Houma


462


Lafayette


2,500


Lake Charles


240


Monroe


408


Shreveport


435



36



Maryland




Oldahoma




Baltimore


1,117 plus


Tulsa


200 plus


Matsachusatts




Oregon




Boston


4,393


Portland


1,605


Michigan




Pennsylvania




Detroit


5,084


Philadelphia


3,000 plus


Grand lipids


1,059


Pittsburgh


680 plus






Scranton


1,117



Minnesota
St. Paul

Missouri
St. Louis

Nebraska

Lincoln
Onraha

New Jersey

Paramus
Westmont

New Mexico

Albuquerque

New York
New York City

North Carolina

Asheville

Winston-Salem

Ohk)

Cincinnati
Columbus
Toledo



3,489



3,411



372
3,000



1,300
2,204



2,454



3,000 plus



554
443



2,049
1,363
2,000 plus



South Carolina
Greenville 1 98



Tennessee




Blountville


435


Chattanooga


141


Knoxville


970


Memphis


2,600


Texas




Amarillo


125


Beaumont


324


Bryan


177


Dallas


514


Tyler


650


Weslaco


144


Utah




Salt Lake City


127


Virginia




Norfolk


451


Washington




Seattle


4,000


Taconr^


600



37

Prepared Statement of Richard A. Barton

Good morning, Mr. Chairman and Members of the Subcommittee. My name is
Richard Barton and I am the Senior Vice President for Government Affairs of the
Direct Marketing Association. I appreciate the opportunity to meet with you today
to discuss the impact of fraud — specifically work at home schemes — on consumers
and legitimate businesses.

As a representative of one of the most important segments of the American busi-
ness community — direct response marketing my purpose today is to provide you
with an understanding of the contributions direct response marketing has made to
the American public and to describe the self-regulatory activities of the DMA and
the direct marketing industry, particuleirly in the context of consumer education
and protection.

Direct response marketing is an American tradition that dates back to 1774 with
the publication of the first catalog by the well-known statesman Benj£miin Franklin.

Franklin's promotional materials carried a guarantee that "those persons who
live remote, by sending their orders and money to said B. Franklin, may depend on
the s£une justice as if present." Modem direct marketers honor Franklin's tradition
of customer satisfaction, aided by modem technology which allows them to target
consumers with information about products and services of value to them.

Today, virtually ail big businesses use direct response methods as a part of their
marketing strategy. They include some of the best-known and most respected names
in America: American Express, Walt Disney Productions, Colgate-Palmolive, AT&T,
General Mills, Reader's Digest, IBM, Xerox, and major automobile manufacturers
such as BMW and Toyota.

Direct response marketing also plays an important role in supporting the Ameri-
can political process. The abUity to effectively communicate with the voting public
by using direct response marketing methods is an integral component of today s suc-
cessful political campaigns.

Presently, more than 101.5 million Americans rely upon the convenience and di-
versity of products available when shopping by phone or mail. Because of direct re-
sponse marketing, consumers can select from thousands of essential, hard-to-find
products and services in the comfort of their living rooms.

77ie Direct Marketing Association

The Direct Marketing Association is a trade association of more than 3,500 com-
panies that utilize direct response advertising methods to market goods and serv-
ices. The association was established in 1917. Members of DMA encompass all as-
pects of the American business community. Because con artists prey on our custom-
ers and n^atively impact consumers regarding direct marketing, DMA has a deep
and abiding interest in joining the fight against the small number of con artists that
use direct marketing to defraud consumers.

Work at Home Opportunities

There are legitimate opportunities for professionals who are interested in home-
based careers or working at home. Indeed, several of today's largest mail order com-
panies began on the kitchen tables of enterprising young professionals interested in
balancing the needs of the family and the n^d for financial freedom. Lillian
Vernon, a multi-million doUar company based in New York is an excellent example.
The company was started in the late 50's by Lillian Vernon, a young mother inter-
ested in supplemental income to support the needs of her young family.

Many business experts predict the home-based office may be the wave of the
future. For business professionals, home-based careers offer valuable alternatives to
the often conflicting demands of home and family, and the fin£incial expense of
starting a new business. Physically chedlenged and retired professionals often opt
for the convenience of home-based careers as well.

Thousands of consumers are benefiting from home-based careers offering clerical
support for large companies, including data entry. Multi-level marketing programs
such as Shaklee, Inc., also offer opportunities for income while working out of the
home. Memy Fortune 500 companies employ home-based telephone sales representa-
tives. Consumers with special skills such as sewing or needlework may also be
prime candidates for home-based careers.

Work-at-Home Scams

However, there are many scams that prey on unknowledgeable people who are
susceptible to claims that one can make easy money while working at home.

Con artists promoting work-at-home scams are successful because they prey on a
basic human emotion — the need for financial success.



38

The more common, easily identifiable envelope stuffing scams are being replaced
by more sophisticated ads for reading books or newspapers, taking pictures, making
gift items, watching TV, developing mailing lists, mailing letters, and my personal
favorite, eating at restaurants. Regardless of the offer, these advertisements use
phrases such as:

ANYBODY CAN DO IT!

NO EXPERIENCE NEEDED!

WORK IN THE COMFORT OF YOUR HOME IN YOUR SPARE TIME/-
SECRET PLAN FOR SUCCESS, AVAILABLE FOR A LIMITED TIME.
EARN THOUSANDS IN YOUR SPARE TIME!

The ads commonly ask for money up front. The graphics for these ads often depict
consumers holding a fistful of dollars and prominently feature pictures of luxury
items. Consumers' testimonials detailing fabulous overnight success stories are an-
other common feature of the deceptive work-at-home scam.

The Direct Marketing Association shares the concerns of those present today
about deceptive work-at-home scams. We believe the most effective solution can be
achieved through a combination of both regulation and self-regulation. The combi-
nation of self-regulatory methods, such as eiggressive consumer education, and in-
dustry cooperation with state and Federal regulatory programs provide an excellent
means by which success in curtailing consumer fraud can be achieved.

Self-Regulatory Activities

DMA is a recognized leader among consumer and regulatory agencies in self-regu-
lation.

The concept of self-regulation is not new to the direct marketing industry. Indeed,
one can argue that the adherence to self-regulatory concepts have played a key role
in the prosperity that the industry enjoys today. To the direct marketing industry,
self-regulation and adherence to ethical business standards are no longer moral con-
cepts, but sound marketing concepts essential to the bottom line.

DMA's Guidelines for Ethical Practice and its companion booklets, the Guidelines
for Personal Information Protection, Guidelines for Marketing by Telephone, Guide-
lines for the Acceptance of Print Advertising, Guidelines for Mailing List Practices,
and the Guidelines for Broadcast Advertising, contain articles covering every aspect
of a direct mail piece, from the development of a list, to the fulfillment of an offer.

DMA members believe that the advertising media have a responsibility to careful-
ly monitor advertising for false, fraudulent, or misleading claims.

To this end we have published guidelines for the acceptance of direct response
broadcast advertising and for print mail order advertising and made them part of
our guidelines for mailing list practices.

The guidelines suggest that a broadcaster or publisher check more fully into ques-
tionable or highly inflated offers, check the reputation of the advertiser, and simply
"follow your instincts" about the credibility of an offer. Our guidelines suggest
strongly that the medium carrying the advertising also has a responsibility to its
audience.

These guidelines were develoj)ed to exemplify the industry's commitment to con-
duct its business in an ethical manner. They are also me£mt as living documents to
be utilized as part of a company's business philosophy.

Media guidelines are also included in the booklet "Misleading Advertisements"
that we published jointly with the U.S. Postal Inspection Service. The pamphlet con-
tains sp>ecific examples of suspicious advertisements.

Administration of the Guidelines

The Committee on Ethical Business Practice was established by the Direct Mar-
keting Association in 1960 to investigate and examine mailings and offerings made
throughout the direct marketing field. The Committee was charged with examining
direct marketing mailings and offerings in an effort to increase good business prac-
tices throughout the industry and to provide for consumer protection.

During its history, the Committee has successfully applied the DMA Ethical
Guidelines to hundreds of cases involving (but not limited to) such ethical issues as
work-at-home scams, deception, unfair business practices and other ethics issues. In
this way, the Committee works to counter ethical lapses in direct marketing that
detract from the industry's image. Companies that are found to be in violation of
the Guidelines are contacted by the Committee and given an opportunity to correct
the solicitation or practice in question.



39

If the C!ommittee feels a violation of law has occurred, the solicitation is referred
to the appropriate state or Federal regulatory agency. In this way, the Committee
works in cooperation with such agencies to protect consumers.

Ethics Policy Committee

The Ethics Policy Committee was established by the Board of Directors in 1976 to
direct its attention to programs and projects relating to the advancement of the
Direct Marketing Association and to strive for the advancement of ethical practices
in the entire direct marketing arena.

The Committee also has the responsibility of reviewing and revising the DMA eth-
ical guidelines as needed.

One of the most impwrtant programs develop)ed by the Committee in recent years
is the Dialogues Series. The Dialogues are meetings held twice a year in regional
areas across the country between direct marketing professionals and consumer af-
fairs regulatory ofRcials from such organizations as the Postal Inspection Service,
Federsil Trade Commission, United States Office of Consumer Affairs, States Attor-
neys General emd other state agencies. Better Business Bureaus, and others.

The meetings provide exceptional opportunities for the participants to discuss
issues of mutual concern, and to work together to provide effective consumer and
industry educational materials. As a result of the Dialogue program, DMA is cur-
rently, among other projects, developing a consumer educationed booklet on sweep-
stakes advertising.

Mail Preference Service and Telephone Preference Service

DMA's Mail Preference Service (MPS) name removal file was established in 1971
in answer to increased consumer and regulatory concerns regarding personal priva-
cy. A companion service, the Telephone Preference Service C^S), was established in
January, 1985, as an answer to increased consumer complsdnts and reg^atory con-
cerns regarding the usage of the telephone to market goods.

Marketers use the MaU Preference Service and the Telephone Preference Service
for several reasons. The use of the services exemplifies the industry's respect for
consumer privacy expectations and their wish to control their mail volume. The use
of the service is also seen as a means to save valuable marketing dollars by remov-
ing unresponsive consumers from marketing lists.

Mail Order Action Line

Even in the best of companies, mail order complaints can occur. DMA's Mail
Order Action Line was instituted in 1971 to act as an intermediary between consum-
ers and direct marketing companies to insure that complaints are resolved in a
timely manner. Since that time, the service has assisted over 300,000 consimiers.

DMA Consumer Publications

In addition to its programs for industry professioneds, the DMA also sponsors sev-
eral consumer brochures. While not specific to work-at-home scams, these brochures
provide consumers with balanced advice on shopping direct and protecting them-
selves against fraudulent promoters.

"Make Knowledge Your Partner in MaU Order Shopping" was written in coopera-
tion with the Federal Trade Commission to educate consumers on making wise pur-
chasing decisions. "Direct Marketing: Opening the Door to Opportunity" explains
how marketing data is used for direct response promotions.

Conclusion

DMA recognizes that work at home scams are a serious problem for many con-
sumers. We have worked with direct marketers, law enforcement officials, and con-
sumer organizations to fight fraudulent work at home schemes as well as other
frauds that prey on unsuspecting consumers.

We commend this subcommittee for its work in this area, and offer our services to
strengthen both self-regulatory and legal regulatory programs to eliminate fraud.



Prepared Statement of Alvin F. Lamden

Mr. Chairman, I am Alvin F. Ltimden, Manager of the Fraud and Prohibited
Mailings Branch of the Postal Inspection Service. I am accompanied by Jennifer Y.
Angelo, Chief Counsel for Consumer Protection. We are pleased to have this oppor-
tunity to discuss the current efforts of the United States Postal Service to combat
work-at-home schemes.

The Postal Inspection Service is the investigative and audit arm of the U.S. Postal
Service. There are 2,000 postal inspectors, who are responsible for protecting postal



40

employees, the mails and i>ostal facilities from criminal attack, and for protecting
the American public from being victimized by fraudulent schemes involving the
mails. Under our duties as the Inspector General of the Postal Service we also are
responsible for keeping postal management informed of operating conditions within
the Postal Service and for protecting the Postal Service against fraud, waste and
abuse. We have performed these duties for over two hundred years and are one of
the oldest Federal law enforcement agencies.

We enforce a number of statutes which allow us to take action against fraudulent
practices involving the use of the mails, including work-at-home schemes. Our pri-
mary weapons are two statutes originally enacted over a century ago: the Criminal
Mail Fraud Statute (18 U.S.C. § 1341) and the Civil Postal False Representations
Statute (39 U.S.C. § 3005).

The mail fraud statute makes it a felony to use the mails to intentionally defraud.


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Online LibraryUnited States. Congress. Senate. Committee on GoveAt-home business opportunity scams : hearing before the Subcommittee on Regulation and Government Information of the Committee on Governmental Affairs, United States Senate, One Hundred Third Congress, first session, July 28, 1993 → online text (page 5 of 6)