ACCC Chairman Rod Sims delivers the opening address to National Consumer Fraud Week releasing the findings of the ACCC's targeting scams report. With a 65 per cent increase in online shopping and auction scams, Mr Sims discusses online consumer issues and some of the wider challenges. He also welcomes research aimed at better understanding scams and the factors which lead people to fall victim.
It is a great pleasure to open proceedings for the key event of National Consumer Fraud Week. It is particularly pleasing to see that Fraud Week has become such a widely supported fixture on the consumer protection calendar.
Dealing with scams is an all too common and much increasing experience for Australian consumers, especially in our digital age. The Australian Competition and Consumer Commission continues to see a significant level of scam activity.
The ACCC’s 2012 Targeting scams annual report on scams activity in Australia shows that last year we received nearly 84,000 scam-related contacts with more than $93 million reported lost. Scams hit more than just the hip pocket. They also strike an emotional chord. Scams can leave people who are often already in the middle of difficult life situations with further untold stresses. Scams also cost our small businesses precious time and resources in dealing with the consequences.
As Delia mentioned, it is timely that we focus our efforts on raising awareness about how to buy and sell safely online. Just this month, Roy Morgan Research declared that internet shopping is the new Australian norm. It reported that, for the first time, Australians who don’t buy online are in the minority. What an amazing change from not so many years ago. The same research also said that security and trust are still unresolved issues for online retailing.
Last year over 8,000 people reported online shopping and auction scams to the ACCC, an increase of 65 per cent with more than $4 million reported lost. While the increase is a sign of the times with more people buying online, it also reflects the reality that scammers are shopping online too – for victims. As the popularity of online shopping grows, scam activity is likely to increase at a similar rate. In other words we ain't seen nothing yet.
To help set the scene to outsmart the scammers, I would like to cover three topics:
- Firstly, I will release the main findings of the ACCC's scam activity report for 2012. The report raises awareness about the extent of scams in Australia, and the need for people to protect themselves.
- Secondly, given the focus of today's events, I will provide you with the ACCC's perspective on online shopping scams and touch on some of the broader online consumer issues we are dealing with.
- Thirdly, I like would to pose some questions about how we can better understand scams and the factors which lead people to fall victim.
Scam activity report
First to the report. Our Targeting Scams report draws heavily on information provided by members of the public when they contact us to report a scam.
As I run through some of the main findings, keep in mind that other agencies also field the same types of complaints and many scams are likely to go unreported.
As with previous years, the headline figures continue to be daunting. The ACCC received close to 84,000 contacts. The amount reported lost totalled more than $93 million, a nine per cent jump from 2011.
Losses ranged from very small amounts to $3.5 million reported lost to an inheritance scam. The good news is the vast majority (87 per cent) of consumers and small businesses reported no financial loss.
For those who did suffer a loss at the hands of scammers it was usually between $100 and $499. This has been a consistent trend in recent years where scams take a little from a lot of people.
At the other end of scale we received reports of individuals suffering very high losses. There were six cases where people reported losing more than $1 million. I repeat these are reported losses.
For the fourth consecutive year advance fee or up-front payment scams ranked number one in terms of contacts and money lost. In fact this type of scam makes up about a third of all scam contacts. They really do range from the outlandish offers of riches to the extremely sophisticated. Advance fee frauds continue to work on the premise of paying a little with the belief that a substantial benefit will follow.
Unfortunately, dating and romance scams continue to cause significant financial and non-financial harm to Australian victims. Out of the 2440 contacts received by the ACCC in 2012, 46 per cent reported a financial loss. On average, each victim reported a loss of almost $21,000, with over 30 per cent of reported losses being more than $100,000. These stats show that scammers have a high success rate when they approach victims under the guise of an admirer.
The report also reveals that the phone is the number one delivery method of choice for scammers. Over half – 56 per cent – of all scams reported to the ACCC in 2012 were delivered either by a call or SMS to one’s phone.
This is a very personalised approach, with victims typically being called on their landline at home, or receiving a text message. The ACCC believes that this move to phone-delivered scams is due to the growing availability of low or no-cost VoIP call services.
Phone scammers are the masters of disguise pretending to be from government or well-known companies including banks, tech and telco companies or lottery agencies.
Another aspect of the report that is very satisfying is our activities to disrupt scams and increase awareness. The number of people visiting the SCAMwatch website increased by 25 per cent and the number of people signed up to our radar alerts grew by 20 per cent.
It is also pleasing that our Little Black Book of Scams is internationally recognised as a best practice educational resource, with several overseas regulators producing their own localised versions. Last year we sent out 127,000 copies of the free booklet to consumers, businesses and community groups.
While education as been the focus of our disruption activities there have been some enforcement outcomes. We initiated proceedings or concluded action against a number of traders allegedly involved in misleading and deceptive or scam-like conduct in 2012.
Two court actions were finalised against traders engaging in pyramid selling schemes. It was the old trick of promising rewards of easy money that never eventuated. The ACCC also took action against a group of traders that were targeting small business operators with scam-like conduct to falsely sign them up to buy advertising services.
Our report also pays tribute to the ACCC’s fraud prevention partnerships. In particular, I would like to acknowledge the collaborative work done to prevent investments scams as part of ‘Taskforce Galilee’.
I would also like to recognise the work being done on a daily basis. Recently we’ve seen NSW Fair Trading’s campaign to stop travelling conmen in their tracks and Consumer Affairs Victoria helping people avoid accommodation scams. There is ‘Project Sunbird’ over in Western Australia which investigates money transfers to Africa. The Queensland Police have adopted a similar approach. They are tracking large sums of money being wired to certain countries and then visiting the sender to persuade them that they are likely to be the victim of a scam– there is a lot going on to disrupt scams.
We trust this report can assist you in your endeavours to increase awareness about scams in Australia.
Online consumer issues
Australians are increasingly going online to buy goods and services, taking advantage of benefits from increased competition, choice and convenience. Businesses also have new opportunities to gain access to new customer bases.
Scammers are also taking advantage of these benefits. As previously mentioned, in 2012 the ACCC observed a 65 per cent spike in the number of people reporting online shopping and auction scams.
How do they work and what do they look like? Scammers target unsuspecting consumers by placing fake ads on legitimate shopping and auction websites for popular items at prices which seem too good to be true. Common bait used includes puppies, used cars, boats and bikes, as well as electronic items such as smart phones, tablet devices and laptops.
Scammers then lure you to close the deal away from the legitimate site and outside of any protection offered on the platform. Unfortunately, once you agree to buy an item and send payment, the delivery never arrives and the money is lost. Even worse, scammers can take your credit card or bank account details and defraud you.
Online sellers are also fair game and are targeted by overpayment scams. Imagine you've been trying to sell your old Toyota Corolla without luck for several months and then a generous offer comes your way. The buyer happens to be based overseas on some sort of posting and is happy to purchase the car unseen but 'accidently' pays above and beyond the agreed amount. "No trouble, just a minor mix up" the buyer says while asking you to refund the excess amount by money transfer. You quickly do so, however in the meantime the buyer's original cheque bounces. You're left out pocket. The refund you sent is lost and not recoverable and you're still stuck with the old Corolla.
When grappling with online consumer issues, how quickly we forget that 20 years ago internet browsers were in their infancy. The term 'smartphone' wasn't used before the late 1990’s. Skype was created in 2003, and its users now consume two billion call minutes each day. Ten years ago there was no Facebook, it now has over one billion active users, and Twitter only began in 2006. The first iPad was released only three years ago, but now some form of tablet is seen everywhere.
The online or digital economy therefore, presents rapidly growing challenges to the ACCC on a number of fronts. Indeed, we've made online competition and consumer issues a compliance and enforcement priority.
There's no question consumers now have access to a variety of information about products and services which should help them make informed purchasing decisions. However, the ability to filter and assess the veracity of the information is a growing challenge.
For example, there have been reports that both local and international businesses are using fake online reviews in order to increase their own sales and to harm competitors. This is a great concern as consumers are increasingly relying on online reviews.
The May 2013 Sensis Yellow Social Media Report said 74 per cent of all social media users have read or do read online reviews or blogs. The report found that the average users would expect to read four reviews before making a purchasing decision.
Other consumer protection matters on our radar include group buying websites, price comparison websites, unfair contract terms online, product safety online, and consumer guarantees rights.
We are also interested in pursuing matters which impede competition online. For instance, we have concerns about arrangements which involve businesses limiting online sales through exclusive dealing arrangements. Resale price maintenance is also an issue where new entrants have been advised by their suppliers to stop discounting products and bring prices up in line with recommended retail prices.
For the last part of my speech, I'd like focus on how we can bolster our scams prevention and awareness activities by finding out what motivates scam victims to make fraught decisions. There is much we do not know.
Asserting that scam victims are greedy, for example, ignores the serious emotional traumas that are so often at the root of each victims’ vulnerability.
The Australian Institute of Criminology has looked at the risk factors that contributed to people becoming victims of advanced fee fraud. Their research showed that there were statistical differences of note, such as different age groups being more likely to fall for different types of scams, or income levels serving as a proxy for likelihood of falling victim to a scam.
This information allows us to better understand scams victims from the point of view of the scammer. The AIC research, however, also shows that most victims had experienced one or more forms of emotional trauma or financial hardship prior to becoming a scam victim, and it is this information that allows us to better understand scams from the point of view of a scam victim and develop the education and outreach tools to prevent scams from succeeding.
In addition, in 2009 the UK Office of Fair Trading released the results of a large-scale research into the psychology of scams and why consumers fall victims to them.
While previous victims of scams are more likely to respond to a scam again, victims are not in general poor-decision makers. For example, they may have successful business or professional careers, but tend to be unduly open to persuasion by others and less able to control their emotions.
Victims were also willing to check details and had good background knowledge of the subject of a scam offer, such as experience of investments, which may actually have increased the risk of becoming a victim through 'over-confidence'.
The research also found that many scams use a range of highly persuasive techniques. A common tactic is to seek to exploit basic human emotions such as excitement or fear to provoke a spontaneous 'gut reaction' to the scam offer. Such scams also abuse people's trust of authority by making a scam look like a legitimate offer from a reputable business or official institution.
The ACCC believes that there is still a lot more research to be done in the Australian context around what factors lie behind why people respond to and subsequently get duped by scams. I commend the efforts of the Australian Institute of Criminology to conduct further research in this area, as I understand they are currently developing a proposal for broader research into scam victims’ experiences.
This sort of research will help both law enforcement agencies and industry to know what trigger points scammers use to push people’s buttons, and therefore how we can target our response through education, disruption and, where necessary, legal intervention.
The problem of online shopping and auction scams is likely to continue to increase as more and more scammers jump online to shop for victims. It is pleasing to see that in the spirit of the Taskforce we are taking a collaborative approach to put some measures in place to stem the tide.
Finally, I welcome the Taskforce's commitment to ensuring research and prevention go hand-in-hand. Finding out the factors or circumstances which make people vulnerable is another important step in preventing scams and outsmarting the scammers.