Fraud harms 25.6 million people: Anyone you know?

The FTC is always working to know more about the types of fraud being committed and who spends money on them.  Periodically, we survey consumers and ask them to share details about their recent marketplace experiences and a bit about themselves.  Our most recent survey found that nearly 11% of U.S. adults — an estimated 25.6 million people — paid for fraudulent products and services in 2011.

There were an estimated 37.8 million incidents of fraud because some respondents, especially those who bought bogus work-at-home programs, made multiple purchases.  The survey report has rich details about the financial circumstances and demographics of consumers surveyed, including how they found and paid for fraudulent products, and how shopping and payment methods have changed since 2005.

Here are some highlights:

Of the 15 specific scams we asked about, the most-reported frauds involved weight loss products, prize promotions, unauthorized billing for buyer’s clubs or internet services, and work-at-home programs.

One third of respondents first learned of the fraudulent pitch online.  Buyers also got fraudulent information from print ads (19%), TV and radio (17%), and telemarketing calls (9%).

Four in ten buyers chose to pay online, 30% made payment by phone, 12% used the mail, and 11% went to a store.  The majority of consumers (56%) used a credit card to pay.  Another 15% wrote checks or used a debit card or number.  13% used wire transfers or money orders.

About 9% of non-Hispanic whites experienced at least one fraud.  Among Hispanics, 13% experienced at least one fraud.  Among African Americans, 17% did.  People between age 45 and 54 were more likely than others — from age 18 to 75+ — to spend money responding to a fraudulent claim.

Those respondents who had faced a serious negative life event — like divorce, death of a family member or close friend, serious injury or illness in the family, or job loss — in the two years prior to the survey experienced more fraud than people who hadn’t:  nearly four times as much debt-related fraud, three times as many fraudulent prize promotions, and twice as much fraud in general.

Why should these stats matter to your business?  First, it's likely a family member, friend, or customer of yours numbers among the 25.6 million people who paid for a fraudulent product or service in 2011.  Second, not to put too fine a point on it, but when fraudsters succeed, it's not just consumers who are harmed.  Honest businesses are hit in the wallet both in sales lost to scammers and in increased resistance among once-burned prospective customers.  That's why we hope you support anti-fraud efforts by law enforcers and in your own industry.