So-called protection schemes bilk consumers out of millions
Tuesday, September 14th 1999, 12:00 am
By: News On 6
WASHINGTON (AP) -- Chris Weddle, a college student with just one
credit card, had received numerous calls from telemarketers
offering plans that would supposedly protect him from being held
liable for charges he did not make.
He resisted time and again, saying he did not need additional
safeguards beyond those guaranteed by federal law.
"Some of them would just keep pushing," said Weddle of Santa
Maria, Calif. "There were a couple of times where I just had to
hang up on them."
But one company didn't take "no" for an answer -- and
ironically, charged Weddle an unauthorized $240 on his credit card
bill for a plan to protect against unauthorized charges.
Federal regulators say credit card protection scams have become
big business for fraudulent operations who target people unaware of
the rights they already have.
The Federal Trade Commission was announcing cases against
several such companies today, who are accused of bilking consumers
out of $25 million by exploiting concerns about card theft, loss or
"These companies took advantage of students, seniors and others
scared into thinking they were vulnerable," said Jodie Bernstein,
director of the FTC's bureau of consumer protection.
Attorneys general in Illinois, Ohio, Arizona, Florida, West
Virginia and Wisconsin planned similar actions.
Credit card holders already are entitled to certain protections
without having to pay for them. Federal law caps at $50 the maximum
a credit card customer can be held liable for as a result of
unauthorized charges. Lenders often opt to waive this fee as well.
Visa, for example, has a "zero liability" policy for customers
who report fraudulent charges within two business days of
discovering them. Customers might realize their credit card is
missing right away or might not discover the fraudulent charges
until they notice them on their monthly bill.
In some instances, the telemarketers posed as representatives of
major credit card companies and would scare cardholders into
thinking that they should pay for additional protection because
criminals were stealing card numbers over the Internet, the FTC
Telemarketers also told consumers they could be held fully
liable for charges they did not consent to on their bills. In
another twist on the scam, telemarketers called credit cardholders
to warn them that the millennium bug could expose their card to
fraud that the offered protection plan would avoid.
According to regulators, telemarketers sometimes trick consumers
by reciting parts of their credit card number and asking for the
rest of the digits, claiming they need to verify the security of
the card. With the full number in hand, the companies could bill
directly to the credit card, with charges ranging from $200 to
$400. Some consumers, like Weddle, had not consented to any
services but were billed for them anyway.
Banks and credit card issuers say the red flags should go up for
cardholders if they are asked to provide their number.
"Consumers should never need to provide their account
information over the phone unless they initiated the call," said
Charlotte Birch of the American Bankers Association. If customers
have doubts about plans being touted as from their bank, she said,
they should call the bank directly and ask if the service is
sponsored by them.
Consumer advocates also warn credit cardholders against getting
trapped into paying an unneeded expense.
"Credit card protection is a racket," said Edmund Mierzwinski,
consumer program director for the U.S. Public Interest Research
Group. The programs "are overpriced and aggressively and
Cardholders could be using the money to pay down their
principle, he said.
The FTC said today it has filed complaints against the Arizona
corporations of Source One Publications Inc., Liberty Direct Inc.
and The Ascendix Group Inc. It also announced a settlement with
Credit Mart Financial Strategies Inc. of Montreal. Under the
consent agreement, Credit Mart will provide $100,000 in refunds to