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CONSUMER FRAUDS!

Updated: Aug 1, 2023

By Shreya Sharma, DRASInt Risk Alliance


Consumer


A consumer is someone who buys goods for consumption and not for resale or commercial purpose. He thus plays a vital role in the economic system of an economy. According to Consumer Protection Act 1986, “consumer means any person who buys goods or hires any services and make use of utilities or hires any service for consideration which has been paid, or promised, or partially paid or promised”

Consumer Frauds


Consumer frauds are the illicit activities that involve deceit or trickery and are perpetrated against an individual or mass customers often resulting into financial loss or physical harm (Brightman, 2020). Consumer frauds are investigated and prosecuted by regulatory agencies.

These frauds include marketing defective products that result in consumer injury or death, publishing false advertisements (e.g., “bait and switch”), misrepresenting the condition of homes and other real property (e.g., failing to disclose hazardous conditions, tax liens, or the presence of toxic substances), selling motor vehicles with bogus certifications (e.g., fictitious odometer statements, non-existent warranties, or counterfeit inspection stickers), overbilling or generating fraudulent fee statements for professional services, pressuring individuals to invest in “get rich quick” schemes (e.g., high-risk stocks, multilevel marketing strategies, or uninsured bonds or securities), marking counterfeit products or selling inferior quality goods at excessive prices, and tampering with foods, medicines, cosmetics, and other consumer items.


Scams such as those that involve false loan promises, advance-fee fraud, and phony- business employment opportunities serve as easy opportunities for dishonest organizations not only to make a “fast buck” but also to obtain credit-card and other personal information that can be used to commit identity-fraud offenses. Moreover, the Internet allows the smallest illegitimate enterprise to appear professional and reach a broad cross section of consumers. Variations of traditional confidence games, such as “get rich quick” pyramid schemes, fictitious charities, and unsolicited e-mails announcing a free trip, have become common place. All that is necessary is that the addressee provide his or her social security number or other identifying information, date of birth, and credit card number or other confidential details. According to reports:

  • Consumers have maximum shopping apps per person in the India – an average of 4 per person. Just see which all you have used recently: rt, Amazon, eBay, Myntra, Jabong, Snapdeal, Junglee, OLX, Makan etc.

  • 51% of consumers in India have experienced a retail fraud.

  • Levels of trust in Telecom for Indian consumers is lowest.

  • The consumer remain sceptical while trusting banking and payment apps.

  • Indian retail merchants experience high fraud rates of as much as 6% of total Gross Merchandise Value, it could be highest in Logistics and other unorganised sectors.

  • Frauds related to 36% incorrect employment information and false income documents are two most frequent frauds committed in India.

The Rights of Customers


Every year, World’s Consumer Rights Day is celebrated on March 15. This day celebrates the rising global awareness about customer rights and needs. Celebrating this day is somewhere a chance to demand that the rights of consumers are respected and protected and also allows consumers to protect against market abuses and social injustices which undermine those rights. Talking in context to India, the National Consumers Rights day is observed on December 24 every year.

There are various rights of the customers which are present in legal terms. A consumer is an important participant in the market. In case of consumer exploitation, the rights of the consumer must be protected. In order to protect such rights there are various organizations, various laws made for the customers specifically focusing on the frauds that takes places widely in the market. There are six consumer rights defined as per the Section 9 of the Consumer Protection Act, 1986 (Shrivasana, N. Delhi, 2019):


The Right to Safety:

  • This right ensures protection of consumers against the marketing of goods which are hazardous to health or life.

The Right to be Informed:

  • To be protected against fraudulent, deceitful, or grossly misleading information, advertising, labelling, or other practices, and to be given the facts he needs to make an informed choice.

The Right to Choose:

  • To be assured, wherever possible, access to a variety of products and services at competitive prices; and in those industries in which competition is not workable and Government regulation is substituted, an assurance of satisfactory quality and service at fair prices.

The Right to be Heard:

  • To be assured that consumer interests will receive full and sympathetic consideration in the formulation of Government policy, and fair and expeditious treatment in its administrative tribunals.

Forms of Consumer frauds


One of the common forms of consumer frauds is involvement of white collar crime in marketing. It involves the use of deceit or deception in marketing and even selling up of goods and services. This offence usually involves the deliberate use of false, deceptive, or misleading statements about the cost, quality, or effectiveness of a product or service. Consumer fraud offenders are drawn from all type of business and represent a continuum of size and complexity. There are almost seven main forms of consumer frauds (Miller, 2009):


Mislabelled Products and Misleading Advertising:

  • It is one of the useful strategies to sell products at cheap prices by putting inaccurate or misleading information on the label to make them seem better or more attractive than in reality. Misleading advertising is another way to influence the buying decisions of consumers. For e.g. food manufactures may falsely claim the benefits of their products on the basis of nutritional value.

Real-estate Fraud:

  • These frauds involve lying or being deceptive about the condition of real property, things such as land, house and building.

Free-prize Scams:

  • In this type of scams, people are told that have won a free valuable prize, but in order to collect the same, they are requested to send money or make a phone call e.g. Gift-cards given by various online shopping sites are an illegal way of grabbing consumer’s confidential information and the use it as an identity theft.

Bait-switch Advertising:

  • These frauds are popular in legitimate retail business. This advertising involves the some well-known products, such as a T.V or major appliances at a ridiculously low price. However, when consumers come to the store they are told that the item is solved out or temporarily out of stock. And, then the sellers claim and steer the customers to buy expensive products that are currently available.

Repair Frauds:

  • These typically involves big ticket items such as homes, automobiles or electrical appliances and the fraud involves either doing unnecessary repairs or doing substantial work and then charging the victim full and hiked price.

Charity Frauds:

  • These frauds appeal in relation with emotions. The victims think that they are donating the money or good for good purposes or with better intentions to help a worthy cause, but in reality, the money is allegedly kept by those who collected it. As per The Delhi High Court, 99 % of the existing NGOs are fraud and simply money-making devices, only one out of hundred serve the purpose they are set up for”(Nair, 2013). Reputed religious institution were found receiving foreign funds for charity but at the same time it was involved in money laundering practices also.

Fields in Which Consumer Frauds Are Committed


Online Fraud

  • The definition of this fraud is relatively simple. It’s any fraudulent activity that involves the use of postage mail. This means sending a letter to try and scam money or personal information from someone, stealing and opening someone else’s mail, or using chain letters to collect money or items.

Health Care Fraud

  • Health care/medical fraud happens when an individual, insurance provider, or medical office misuses insurance information for their own personal gain. This can impact you in a major way if a criminal gains access to your health insurance information and uses it on their own medical care.

Bank Account Frauds

  • One of the worst types of fraud to clean up is when a thief gets access to your bank account. This can happen pretty easily just by someone stealing out of your mailbox, getting a hold of your account information through an email scam, or in some extreme cases using malware to gain access to all of your personal information.

  • This type of fraud can completely drain your bank account if you don’t act quickly—and you might never get that money back. Be sure to monitor your account statements on a regular basis and keep an eye out for any transfers you didn’t authorize.

Stolen Tax Refund Fraud

  • During tax season, you’ll hear a lot about the importance of filing your taxes early. Why? Part of the reason is to avoid tax fraud! This type of fraud is known as stolen refund fraud, and it happens when someone else receives your refund by stealing your Social Security number and filing your taxes themselves. By the time you send in your real return, it’s rejected because you’ve “already filed.”

  • It sounds irrational, but this kind of identity theft happens more often than you’d think—actually, it’s one of the top scams each year.

Elder Fraud

  • While all of these types of fraud can happen to anyone, elderly people are targets for even more fraudulent activity specific to their age group. They’re generally known for being more trusting, good-natured and kind-hearted people, leaving them more susceptible and vulnerable to such consumer frauds or other frauds like phone scams or wire transfer fraud. Many scammers call offering lottery winnings, sweepstake prizes, or even health care services. These false promises help them gain access to financial and personal information.

Voting frauds

  • This makes a lot of headlines during elections, but what does it actually mean? A lot of things! Voter fraud is a broad term used to describe any kind of illegal tampering with the voting process—things like voting twice, voting under a false identity (like someone who has passed away), voting as a felon, and buying or selling votes.

Laws

Consumer Protection Bill


In 2019, Consumer Protection Bill replaced the Consumer Protection Act, 1986. It defined customer rights as under:

  • Protection against marketing goods and products which are harmful to life.

  • Information regarding quality, quantity, purity, standard and price of goods and services.

  • Access to different products and services at competitive costs.

  • Reimbursement against unfair and fraudulent trade practices.

Penalties for Misleading Advertisement

  • The Central Consumer Protection Authority (CCPA) can impose a penalty of up to Rs 10 lakhs and two-year imprisonment for misleading or false advertisement. The fine may be extended to Rs 50 lakhs and the imprisonment may extend to five years.

Right to File a Complaint from Anywhere

  • As per this new rule, consumers are allowed to file a complaint from anywhere be it home, office or anywhere else.

Right to Seek Compensation under Product Liability

  • In case any loss is caused to a consumer due to a defective product, the consumer can file a complaint against the manufacturer or the service provider and ask for compensation. The manufacturer or seller would be held liable if the product does not confirm to express the warranty.

Conclusion

  • The subject is vast as the criminal is innovative. 84,545 fraud cases - involving about Rs 1.85 lakh crore - were reported by commercial banks and select Financial Institutions during 2019-20.

  • The most common Consumer frauds are the Identity Theft, Mortgage Fraud, Bank Card Fraud, Deceptive Interest Rate Reduction, Robocalls (recorded messages), Fake Charities, Prize and Lottery Fraud, Debt Collection Fraud and COVID-19 Scams. Scammers are taking advantage of the current ongoing pandemic to con people into giving up their money as the Digital mode of Payments increase.

To be continued...


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REFERENCES


https://bfsi.economictimes.indiatimes.com/news/banking/about-84545-bank-fraud-cases-reported-during-2019-2020-says-rbi-in-reply-to-rti/77212770

Brightman, H. J. (2020). consumer-fraud.

Consumer, I. S. A. (1986). Unit 1 Who Is a Consumer.

Manmohan Rai. (2016). ISKCON front for money laundering_ Swami Swaroopanand Saraswati - The Economic Times.

Miller, J. M. (2009). 21st century criminology: A reference handbook. In 21st Century Criminology: A Reference Handbook. https://doi.org/10.4135/9781412971997

Nair, H. V. (2013). 99% NGOs are fraud, money-making devices_ HC - delhi - Hindustan Times.

Shrivasana, & Delhi, N. E. W. (2019). MINISTRY OF LAW AND JUSTICE ( Legislative Department ) THE CONSUMER PROTECTION ACT , 2019. 1(Dl), 1–40.

The Challenge of Health Care Fraud - The NHCAA. (2015). Retrieved from https://www.nhcaa.org/resources/health-care-anti-fraud-resources/the-challenge-of-health-care-fraud.aspx



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