[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
SAFEGUARDING AMERICAN CONSUMERS: FIGHTING FRAUD AND SCAMS DURING THE
PANDEMIC
=======================================================================
VIRTUAL HEARING
BEFORE THE
SUBCOMMITTEE ON CONSUMER PROTECTION AND COMMERCE
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
FEBRUARY 4, 2021
__________
Serial No. 117-3
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Published for the use of the Committee on Energy and Commerce
govinfo.gov/committee/house-energy
energycommerce.house.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
45-229 PDF WASHINGTON : 2021
COMMITTEE ON ENERGY AND COMMERCE
FRANK PALLONE, Jr., New Jersey
Chairman
BOBBY L. RUSH, Illinois CATHY McMORRIS RODGERS, Washington
ANNA G. ESHOO, California Ranking Member
DIANA DeGETTE, Colorado FRED UPTON, Michigan
MIKE DOYLE, Pennsylvania MICHAEL C. BURGESS, Texas
JAN SCHAKOWSKY, Illinois STEVE SCALISE, Louisiana
G. K. BUTTERFIELD, North Carolina ROBERT E. LATTA, Ohio
DORIS O. MATSUI, California BRETT GUTHRIE, Kentucky
KATHY CASTOR, Florida DAVID B. McKINLEY, West Virginia
JOHN P. SARBANES, Maryland ADAM KINZINGER, Illinois
JERRY McNERNEY, California H. MORGAN GRIFFITH, Virginia
PETER WELCH, Vermont GUS M. BILIRAKIS, Florida
PAUL TONKO, New York BILL JOHNSON, Ohio
YVETTE D. CLARKE, New York BILLY LONG, Missouri
KURT SCHRADER, Oregon LARRY BUCSHON, Indiana
TONY CARDENAS, California MARKWAYNE MULLIN, Oklahoma
RAUL RUIZ, California RICHARD HUDSON, North Carolina
SCOTT H. PETERS, California TIM WALBERG, Michigan
DEBBIE DINGELL, Michigan EARL L. ``BUDDY'' CARTER, Georgia
MARC A. VEASEY, Texas JEFF DUNCAN, South Carolina
ANN M. KUSTER, New Hampshire GARY J. PALMER, Alabama
ROBIN L. KELLY, Illinois, Vice NEAL P. DUNN, Florida
Chair JOHN R. CURTIS, Utah
NANETTE DIAZ BARRAGAN, California DEBBBIE LESKO, Arizona
A. DONALD McEACHIN, Virginia GREG PENCE, Indiana
LISA BLUNT ROCHESTER, Delaware DAN CRENSHAW, Texas
DARREN SOTO, Florida JOHN JOYCE, Pennsylvania
TOM O'HALLERAN, Arizona KELLY ARMSTRONG, North Dakota
KATHLEEN M. RICE, New York
ANGIE CRAIG, Minnesota
KIM SCHRIER, Washington
LORI TRAHAN, Massachusetts
LIZZIE FLETCHER, Texas
------
Professional Staff
JEFFREY C. CARROLL, Staff Director
TIFFANY GUARASCIO, Deputy Staff Director
NATE HODSON, Minority Staff Director
Subcommittee on Consumer Protection and Commerce
JAN SCHAKOWSKY, Illinois
Chair
BOBBY L. RUSH, Illinois GUS M. BILIRAKIS, Florida
KATHY CASTOR, Florida Ranking Member
LORI TRAHAN, Massachusetts FRED UPTON, Michigan
JERRY McNERNEY, California ROBERT E. LATTA, Ohio
YVETTE D. CLARKE, New York BRETT GUTHRIE, Kentucky
TONY CARDENAS, California LARRY BUCSHON, Indiana
DEBBIE DINGELL, Michigan NEAL P. DUNN, Florida
ROBIN L. KELLY, Illinois GREG PENCE, Indiana
DARREN SOTO, Florida DEBBIE LESKO, Arizona
KATHLEEN M. RICE, New York KELLY ARMSTRONG, North Dakota
ANGIE CRAIG, Minnesota CATHY McMORRIS RODGERS, Washington
LIZZIE FLETCHER, Texas (ex officio)
FRANK PALLONE, Jr., New Jersey (ex
officio)
C O N T E N T S
----------
Page
Hon. Jan Schakowsky, a Representative in Congress from the State
of Illinois, opening statement................................. 3
Prepared statement........................................... 4
Hon. Gus Bilirakis, a Representative in Congress from the State
of Florida, opening statement.................................. 5
Prepared statement........................................... 6
Hon. Frank Pallone, Jr., a Representative in Congress from the
State of New Jersey, opening statement......................... 8
Prepared statement........................................... 9
Hon. Cathy McMorris Rodgers, a Representative in Congress from
the State of Washington, opening statement..................... 10
Prepared statement........................................... 12
Witnesses
Bonnie L. Patten, Executive Director and Cofounder, Truth in
Advertising.................................................... 14
Prepared statement........................................... 16
Answers to submitted questions............................... 144
Traci Ponto, Crime Victim Advocate, Spokane Community Oriented
Policing Service............................................... 38
Prepared statement........................................... 40
Additional material submitted for the record................. 42
William E. Kovacic, Professor, George Washington University
School of Law.................................................. 65
Prepared statement........................................... 67
Submitted questions \1\...................................... 147
Jessica Rich, Distinguished Fellow, Institute of Technology Law
and Policy, Georgetown University Law Center................... 78
Prepared statement........................................... 80
Answers to submitted questions............................... 150
Submitted Material
Letter of February 4, 2021, from Jonathan Spalter, President and
Chief Executive Officer, USTelecom-The Broadband Association,
to Ms. Schakowsky and Mr. Bilirakis, submitted by Ms.
Schakowsky..................................................... 129
Letter of October 22, 2020, from Joseph J. Simons, Chairman,
Federal Trade Commission, et al., to Mr. Pallone, et al.,
submitted by Mr. Cardenas...................................... 131
Letter of February 4, 2021, from Dean S. Marks, Executive
Director and Legal Counsel, Coalition for Online
Accountability, to Ms. Shakowsky and Mr. Bilirakis, submitted
by Ms. Schakowsky.............................................. 136
Letter of July 30, 2020, from Joseph J. Simons, Chairman, Federal
Trade Commission, et al., to Mr. Latta, submitted by Mr. Latta. 142
----------
\1\ Mr. Kovacic did not answer submitted questions for the record by
the time of publication.
SAFEGUARDING AMERICAN CONSUMERS: FIGHTING FRAUD AND SCAMS DURING THE
PANDEMIC
----------
THURSDAY, FEBRUARY 4, 2021
House of Representatives,
Subcommittee on Consumer Protection and Commerce,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 12:00 p.m., via
Cisco Webex online video conferencing, Hon. Jan Schakowsky
(chair of the subcommittee) presiding.
Members present: Representatives Schakowsky, Rush, Castor,
Trahan, McNerney, Clarke, Cardenas, Dingell, Kelly, Soto, Rice,
Craig, Fletcher, Pallone (ex officio), Bilirakis (subcommittee
ranking member), Upton, Latta, Guthrie, Bucshon, Dunn, Pence,
Lesko, Armstrong, and Rodgers (ex officio).
Also present: Representatives Blunt Rochester and Carter.
Staff present: Jeffrey C. Carroll, Staff Director; Lisa
Goldman, Senior Counsel; Waverly Gordon, General Counsel;
Tiffany Guarascio, Deputy Staff Director; Perry Hamilton,
Deputy Chief Clerk; Alex Hoehn-Saric, Chief Counsel,
Communications and Consumer Protection; Ed Kaczmarski, Policy
Analyst; Zach Kahan, Deputy Director, Outreach and Member
Service; Mackenzie Kuhl, Press Assistant; Kaitlyn Peel, Digital
Director; Tim Robinson, Chief Counsel; Chloe Rodriguez, Deputy
Chief Clerk; Sydney Terry, Policy Coordinator; Anna Yu,
Professional Staff Member; Sarah Burke, Minority Deputy Staff
Director; William Clutterbuck, Minority Staff Assistant;
Theresa Gambo, Minority Financial and Office Administrator;
Nate Hodson, Minority Staff Director; Peter Kielty, Minority
General Counsel; Emily King, Minority Member Services Director;
Bijan Koohmaraie, Minority Chief Counsel; Tim Kurth, Minority
Chief Counsel, Consumer Protection and Commerce; Brannon Rains,
Minority Policy Analyst, Consumer Protection and Commerce,
Energy, Environment; Michael Taggart, Minority Policy Director;
and Everett Winnick, Minority Director of Information
Technology.
Ms. Schakowsky. Good afternoon, everyone. Welcome to the
Subcommittee on Consumer Protection and Commerce, and it will
now come to order.
Today I will be holding a hearing entitled ``Safeguarding
American Consumers: Fighting Scams and Fraud During the
Pandemic.'' And due to COVID-19 public health emergency,
today's hearing will be conducted entirely remotely. All
Members and witnesses will be participating via video
conference.
As part of our hearing, microphones will be set on mute for
the purpose of eliminating inadvertent background noise.
Members and witnesses will need to unmute your microphones each
time that you wish to speak. I will try and remind you.
Additionally, Members will need to be visible on screen in
order to be recognized.
Documents for the record can be sent to Ed Kaczmarski and--
at the email address that we have provided to staff. All
documents will be entered into the record at the conclusion of
the hearing.
Before I recognize myself for an opening statement, I want
to take a point of personal privilege, and recognize some of
the--all of the new Members to our subcommittee. And I--first
let me just recognize the Democrats.
We have Kathleen Rice from New York, Angie Craig from
Minnesota, Lizzie Fletcher from Texas, and Lori Trahan from
Massachusetts. So welcome to the Democratic new Members.
I will mention the new Members also on the Republican side,
and afterwards I am going to welcome the new ranking member,
Gus Bilirakis from Florida, who has been on this committee but
not on the subcommittee before. And I am so happy to have him.
But let me just mention the GOP Members.
We have Neal Dunn from Florida, Debbie Lesko from Arizona,
Greg Pence from Indiana, and Kelly Armstrong from North Dakota.
Welcome all. We are so--I am so happy. I hope you are now,
to be on this important subcommittee.
So I am going to see if Congressman Bilirakis, our ranking
member, has some words to say. Let me turn it over to you.
Oh, let me first just say we do have new staff--I really
messed up his name once--Ed Kaczmarski.
And I also just wanted to mention that we have a new Acting
Chair of the Federal Trade Commission. She has been on the
Commission before, but--Rebecca Kelly Slaughter.
So, Gus, Representative and Ranking Member Bilirakis?
Mr. Bilirakis. Yes, Chair.
Ms. Schakowsky. Go ahead.
Mr. Bilirakis. Yes, thank you very much. I appreciate it.
And I look forward to working with you for our constituents
and, well, the whole country. And this is a wonderful,
wonderful committee, the best committee in Congress. And I am
really looking forward to it.
I do have a prepared statement, but I am really looking
forward to working also with the Republican leader, Cathy
McMorris Rodgers, my great friend.
So, again, you recognized the new Members. I think we have
an all-star team here. These new--Dr. Dunn from Florida and, of
course, Mr. Pence, who we just spoke with, has some great ideas
from Indiana. And then Ms. Lesko, I admire her so much, she
does a great job for the team, and for her district as well,
from Arizona. And then Mr. Armstrong from North Dakota. So--and
again, all the Democratic--the new Members on the Democratic
side, as well. We are going to work and get things done for the
American people.
So with that, I will yield back, Madam Chair.
Ms. Schakowsky. Thank you. I just wanted to say I am
excited about Representative Bilirakis. He was voted in Florida
the most effective Member of Congress because of all the bills
that he actually got passed into law. So I am looking forward
to seeing that kind of performance in a bipartisan way here,
also, in the committee.
So at this point I will recognize myself for an opening
statement of 5 minutes.
OPENING STATEMENT OF HON. JAN SCHAKOWSKY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
So, again, good morning and welcome to our hearing on the
Federal Trade Commission and its response to COVID-19.
The Federal Trade Commission was established in 1914,
through an Act of Congress, and is inextricably linked to our
committee, and particularly to the work of our subcommittee.
And of course, you know that the Energy and Commerce
Committee is the oldest standing committee in Congress,
originally stood up to regulate interstate and international
commerce. And, like this committee, the Federal Trade
Commission was tasked with regulating interstate commerce. It
is the only agency with jurisdiction over both consumer
protection and competition issues.
Many critics, myself included, frankly, would argue that
the Federal Trade Commission has not lived up to its potential
over the last, well, 40 years. But yesterday the FTC announced
a remarkable settlement with Amazon over its systemic stealing
of delivery drivers' tips. Imagine.
This is an example of the sort of announcement I had hoped
that the new Acting Chairwoman would make, a sign that the
Federal Trade Commission would be taking on big cases that
serve as a true deterrent to illegal conduct by those who might
prey on American consumers.
But we must recognize that this settlement would not have
been possible without the threat of the Federal Trade
Commission using its section 13(b) authority. I will explain.
Under 13(b), the Federal Trade Commission can require
defrauders to provide restitution, money, to individuals who
have been defrauded. Unfortunately, this authority is under
assault right now at the Supreme Court, and the FTC may find
itself deprived of a critical tool.
Additionally, companies that defraud consumers make it hard
on honest businesses to be able to conduct their business and
to gain the trust of consumers. So I would hope that
organizations like the Chamber of Commerce would recognize that
rooting out bad actors and returning stolen funds to consumers
is important for them and for everyone.
Luckily, the Federal Trade Commission, in a bipartisan way,
has reaffirmed the authority of section 13(b). So all the
Commissioners are on board, but it should be--we should all be
on board.
Specifically, the COVID--specific to COVID-19, the Federal
Trade Commission has been very aggressive in investigating
fraud that originates online. The agency has sent hundreds of
takedown letters, but has not really gone after the major cause
of the problem, which is negligence by platforms.
These platforms are not unwitting co-conspirators, but
rather partners in profit. Platforms must demonstrate real
efforts toward keeping scammers off their sites, especially
now, of course, with consumers relying more on the Internet for
their shopping.
I would like to see the subcommittee pass what we--what I
have called the Informed Consumer Act, which would require
online platforms to verify the identity of their third-party
sellers. This would go a long way toward protecting Americans.
And I hope that this Congress--this subcommittee can pursue a
21st century consumer rights agenda, in a bipartisan way, and
make sure that consumer rights that exist in the physical world
also extend to the online world.
I am looking forward to the direction that the FTC Acting
Chair will take in protecting consumers and using all the
tools, including the franchise rule, the funeral home rule, and
pursue more when it comes to unfair practices, unfair cases.
[The prepared statement of Ms. Schakowsky follows:]
Prepared Statement of Hon. Jan Schakowsky
Good afternoon, and welcome to our hearing on the Federal
Trade Commission and its response to COVID-19. The Federal
Trade Commission was established in 1914, through an act of
Congress, and is inextricably linked with this committee, in
particular this subcommittee. The Energy and Commerce Committee
is the oldest standing committee in Congress, originally stood
up to regulate interstate and international commerce. Like this
committee, the Federal Trade Commission was tasked with
regulating interstate commerce. It is the only agency with
jurisdiction over both consumer protection and competition
issues.
Many critics, myself included, would argue that the Federal
Trade Commission has not lived up to its potential over the
last 40 years. But, yesterday, the FTC announced a remarkable
settlement with Amazon over its systematic stealing of its
delivery drivers' tips. This is exactly the sort of
announcement I had hoped the new Acting Chairwoman would make,
a signal that the FTC would be taking on big cases that serve
as a true deterrent for illegal conduct by those who might prey
on Americans. But we must recognize that this settlement would
not have been possible without the threat of the FTC using its
section 13B authority. I'll explain.
Under 13(b), the FTC can require defrauders to provide
restitution (money) to individuals who have been defrauded.
Unfortunately, this authority is under assault at the Supreme
Court, and the FTC may find itself deprived of a critical tool.
Additionally, companies that defraud consumers make it hard for
honest businesses to compete and gain the trust of consumers. I
would hope that organizations like the Chamber of Commerce
would recognize that rooting out bad actors and returning
stolen funds to consumers is important to everyone. Luckily,
reaffirming the FTC 13(b) authority is a bipartisan issue at
the Commission as it should be everywhere.
Specific to COVID-19, the FTC has been very aggressive in
investigating fraud that originates online. The agency has sent
hundreds of takedown letters but has not gone after a major
cause of the problem--negligence by platforms. These platforms
are not unwitting conspirators, but rather partners-in-profit.
Platforms must demonstrate real efforts towards keeping
scammers off the sites. Especially now when Americans are more
reliant than ever on e-commerce.
I would like to see our subcommittee pass the INFORM
Consumer Act, which would require online platforms to verify
the identity of third-party sellers. This would go a long way
toward protecting Americans. I hope this Congress, this
subcommittee can pursue a 21st Century Consumer Rights agenda,
in a bipartisan way, and make sure consumer rights that exist
in the physical world extend to the online world. And I am
looking forward to the direction the FTC Acting Chair will take
the Commission--using all the tools--including the franchise
rule, the funeral home rule, and pursuing more unfairness
cases.
Thank you to witnesses for joining us today. I now
recognize Mr. Bilirakis for 5 minutes.
Ms. Schakowsky. So I want to thank the witnesses who are
here for joining us today. I now will recognize Mr. Bilirakis
for 5 minutes.
OPENING STATEMENT OF HON. GUS BILIRAKIS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA
Mr. Bilirakis. Thank you, Madam Chair. And again, I want to
thank all the members of the committee. Welcome to the Consumer
Protection and Commerce Subcommittee hearing of the 117th
Congress.
I would like to congratulate again you, Madam Chair, for
another term leading this great subcommittee, where we promise
innovation, champion emerging technologies, and protecting
consumers. And I am greatly looking forward to working with
you.
And I want to thank also the Republican leader for giving
me--the E&C leader, for giving me the opportunity to serve on
the committee. I appreciate it so much. And to chair--I mean,
excuse me, to be the ranking member, or the lead Republican on
the CPC. So I--again, I want to thank Ms. Rodgers for giving me
the opportunity to lead as a Republican and congratulate her on
leading the committee on the Republican side, and I also look
forward to working with the full committee chair, who is a good
friend of mine, as well, Mr. Pallone.
I know Cathy is going to do a great job as our leader to
help the American people, as well.
Today we will explore steps we can take to advance our
fight against fraud and scams, which is so important to--again,
especially during this pandemic. Millions are forced to isolate
or remain in their homes, and bad actors continue to exploit
consumers' fears, their fear and confusion, some promising fake
reservations for the coronavirus vaccines--again, fake is the
word that I want to use--stimulus checks, fake loans for small
businesses struggling to stay afloat, and, of course, we want
to discuss the Super Bowl tickets. And we are hoping--I am
hoping that my Tampa Bay Buccaneers will prevail on Sunday.
Just earlier this year, in my district in Pasco County --I
represent Pasco, which is the Tampa Bay area, as well as
Pinellas and Hillsborough Counties--the health departments
discovered use of a fake Eventbrite website being used to
charge money for registrations for the COVID vaccine.
Inexcusable. This fake website was a complete scam, where, as
we know, vaccine registration is completely free.
We must continue to protect consumers from falling victim
to scams. And it is not only--it not only cripples individuals
financially, but can also cause serious mental health issues
and lead to suicide, again, particularly during this pandemic.
We made great progress on this subcommittee last year. We
enacted H.R. 6435, the Combating Pandemic Scams Act, led by
Representative Carter, along with Representatives Hudson,
Kuster, and Blunt Rochester. With the efforts of our friends at
the FTC, this law will focus the tools, give us the tools and
resources on vulnerable communities to better educate and
protect them from scams.
Unfortunately, scammers are continuing to find new ways to
exploit vulnerable Americans during COVID-19. With people
remaining locked in their homes, many head online for social
interaction, particularly our seniors. The bad guys know this
and take advantage of it. And the FTC has already found that
people are increasingly falling victim, unfortunately, to scams
through social media platforms. This must stop.
In just the first 6 months of 2020, scams originating from
social media tripled, resulting in 117 million in losses. With
more consumers tuning in to these platforms, scammers create
fake profiles offering connection, friendship, or economic
relief, only to steal information and hard-earned dollars.
These scams will often come by way of a friend, a friend
request, and direct messages or advertisements.
As the FTC continues to publish helpful information on best
practices, I urge big tech platforms--I urge them to--that they
should help your users remain vigilant against scams and fraud.
Bad actors will resort to any means to steal money and
information. We know that. They will create fake profiles,
calls from new phone numbers, and even try to mask their
identity as a friend or family member.
The best preventative measure is education, as you all
know, and entities across the country working in unison to
share educational materials. And we must have a duty to share
these materials with our constituents. If consumers know what
to look for, they will be better equipped to avoid these scams.
I commend the FTC for their tireless work fighting on
behalf of consumers. However, they cannot do it alone. There
must be greater collaboration--I am over my time, Madam Chair.
I am just--can I ask for another 20 seconds?
[No response.]
Mr. Bilirakis. If not, that is OK. We will discuss these
issues during the meeting, and I apologize for going over my
time.
And I will yield back----
Ms. Schakowsky. No, go ahead, go ahead, finish.
Mr. Bilirakis. Is that OK? All right, I am very--I will be
finished.
There must be greater collaboration and cooperation with
State and local law enforcement, as you know, collaboration and
cooperation for merchants, and platforms, and communities to
better educate consumers on best practices to avoid falling for
scams, and to increase efforts to hold bad actors accountable.
I want to thank all of our witnesses for being here today,
and I look forward to learning how to better strengthen
protections for Americans from scams and frauds. And this is a
great way to lead, Madam Chair. Thanks for having the agenda
and this particular meeting. It is so important. Thank you.
[The prepared statement of Mr. Bilirakis follows:]
Prepared Statement of Hon. Gus Bilirakis
Thank you Madame Chair. Good morning and welcome to our
first Consumer Protection and Commerce Subcommittee hearing of
the 117th Congress.
I would like to congratulate Chair Schakowsky for another
term leading this great subcommittee where we promote
innovation, champion emerging technologies, and protect
consumers, and I am greatly looking forward to working with
you.
I would also like to recognize the newest Republican
members of the subcommittee, Dr. Dunn from Florida, Mr. Pence
from Indiana, Ms. Lesko from Arizona, and Mr. Armstrong from
North Dakota.
You all bring unique and invaluable expertise and I am
eager to see the great work you all will accomplish.
Lastly, I would like to thank my friend, E&C Republican
Leader Rodgers, for giving me the opportunity to lead
Republicans on this subcommittee and congratulate her on
leading this great committee for our side of the aisle.
I know she is going to do great things as our leader to
help the American people.
Today we will explore steps we can take to advance our
fight against fraud and scams--which is so important during
this pandemic. Millions are forced to isolate and remain in
their homes and bad actors continue to exploit consumers' fear
and confusion--some promising fake reservations for coronavirus
vaccines, stimulus checks, loans for small businesses
struggling to stay afloat, and even Super Bowl tickets.
Just earlier this year in my district in Pasco and Pinellas
Counties in Florida, the health departments discovered use of a
fake Eventbrite website being used to charge money for
registrations for the COVID vaccine.
This fake website was a complete scam, for as we know
vaccine registration is completely free.
We must continue to protect consumers from falling victim
to scams, as it not only cripples individuals financially but
can also cause serious mental health issues and lead to
suicide.
We made great progress on this subcommittee last year.
We enacted H.R. 6435, the Combating Pandemic Scams Act, led
by Rep. Carter, along with Reps. Hudson, Kuster, and Blunt
Rochester.
With the efforts of our friends at the Federal Trade
Commission, this law will focus tools and resources on
vulnerable communities to better educate and protect them from
scams.
Unfortunately, scammers are continuing to find new ways to
exploit vulnerable Americans during COVID-19.
With people remaining locked in their homes, many head
online for social interaction.
The bad guys know this, and the FTC has already found that
people are increasingly falling victim to scams through social
media platforms.
In just the first 6 months of 2020, scams originating from
social media tripled, resulting in $117 million in losses.
With more consumers tuning in to these platforms, scammers
create fake profiles offering connection, friendship, or
economic relief only to steal information and hard-earned
dollars. These scams will often come by way of friend requests
and direct messages or advertisements.
As the FTC continues to publish helpful information on best
practices, I urge Big Tech platforms to do better--you should
help your users remain vigilant against scams and fraud.
Bad actors will resort to any means to steal money and
information--they will create fake profiles, calls from new
phone numbers, and even try to mask their identity as a friend
or family member.
The best preventative measure is education, and entities
across the country working in unison to share educational
materials. If consumers know what to look for, they will be
better equipped to avoid scams.
I commend the FTC for their tireless work fighting on
behalf of consumers.
However, they cannot do it alone.
There must be greater collaboration and cooperation with
State and local law enforcement, merchants and platforms, and
communities to better educate consumers on best practices to
avoid falling for scams and to increase efforts to hold bad
actors accountable.
I want to thank all of our witnesses for being here today
and I look forward to learning how to better strengthen
protections for Americans from scams and frauds.
I yield back.
Mr. Bilirakis. And again, I will yield back.
Ms. Schakowsky. When I listen to you, I can see that we are
really on the same page on so many things.
And now--the gentleman yielded back, and I now recognize
the chairman of the full committee, Mr. Pallone, for 5 minutes.
OPENING STATEMENT OF HON. FRANK PALLONE, Jr., A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Pallone. Thank you, Chairwoman Schakowsky. And it is
good to see our new ranking member, Gus Bilirakis, as well.
Good to see you both.
I wanted to--let me just say my concern, of course, we have
a situation now where we have safe and effective vaccines, and
we are trying to push them out. But, while these vaccines
provide real hope, there are new variants of the coronavirus,
you know, that are now spreading, that are highly
transmissible. And for consumers, these new strains are causing
a renewed panic--I am sure you are hearing about this from your
constituents--and another scramble for personal protective
equipment, intense demand for vaccine appointments.
But for scammers and fraudsters, this is exactly the kind
of fear and desperation that they seize and thrive on. So that
is why I think that this hearing is so important, not only to
deal with the scams and frauds that we have seen in the last 10
months but now, you know, even more opportunity for scams and
frauds because of the fear that a lot of people have with these
new variants.
And overall, the pandemic has just upended American life,
pushing so many aspects of consumer laws to the online realm.
And you get all these fly-by-night businesses that are just a
click away, and fraudsters that can assume different
identities. And there are con artists that really pose threats
to consumers' health, safety, and financial well-being.
And these sellers, these unscrupulous sellers on the
Internet, are sophisticated. They flood fees to drive traffic
to their suspect goods. They include counterfeit and
substandard personal protective equipment, sham testing kits,
bogus cures. But the products they are selling can endanger the
health, and their online stores may just be a front to scam
consumers. And the number of reports about scams originating on
social media has more than tripled in the past year.
And these scams, Madam Chair, have been particularly
harmful to older Americans and senior citizens. I know you have
been involved with the Senior Task Force for so many years,
Jan.
And this isolation--you know, a lot of these people are
isolated now, these seniors, and that has left them
particularly vulnerable to fraudsters. For example, online
puppy scams and romance scams have risen precipitously during
the pandemic.
And some of the worst fraudsters are the identity thieves
stealing stimulus checks and unemployment benefits from those
already struggling to pay their bills. To make matters worse,
these people are often targeted for fake employment scams,
deceptive income schemes, and unwise investment solicitations.
So I wanted to applaud both the chairwoman and Congressman
Bucshon for their bipartisan work in giving the Federal Trade
Commission new authority to seek civil penalties for COVID-19
scams. That was in the 2021 omnibus end-of-the-year package.
And that provision empowers the FTC to dole out real
consequences to bad actors. They reported losing more than 300
million--you know, consumers have lost more than 300 million in
just pandemic-related fraud.
Now, one of the concerns that I have, though, is that the
FTC's ability to make victims whole is under threat in the
Supreme Court. And it is--that is why it is critical that the
FTC step up its efforts to protect consumers. I know that Tony
Cardenas has a bill to deal with this power of restitution that
we feel is under threat, and he is going to talk about that.
But the former FTC chairman, Joseph Simons, I think,
insulated some of the worst that came out, some of these scams,
because of--and was very critical sometimes of the Trump
administration. But the agency really needs to show its teeth
now. And because--since the beginning of the pandemic the FTC
has issued numerous warning letters, but warning letters are
nothing, they are really just a slap on the wrist.
[The prepared statement of Mr. Pallone follows:]
Prepared Statement of Hon. Frank Pallone, Jr.
As our Nation continues to confront the unprecedented
public health and economic crisis resulting from the COVID-19
pandemic, we are now seeing the rollout of powerful tools to
help us contain the virus--safe and effective vaccines. While
these vaccines provide real hope, new variants of the
coronavirus are now spreading that are highly transmissible.
For consumers, these new strains are causing renewed panic, a
fresh scramble for personal protective equipment, and intense
demand for vaccine appointments. For scammers and fraudsters,
this is exactly the kind of fear and desperation they seize and
thrive on.
The COVID-19 pandemic has completely upended American life,
pushing so many aspects of consumers' lives to the online
realm, where fly-by-night businesses are just a click away and
fraudsters can easily assume different identities. These con
artists pose real threats to consumers' health, safety, and
financial well-being, to say nothing of the emotional trauma
and embarrassment.
Unscrupulous sellers are sophisticated on social media,
flooding feeds to drive traffic to their suspect goods,
including counterfeit and substandard personal protective
equipment, sham testing kits, and bogus cures. But the products
they are selling can endanger one's health and their online
stores may just be a front to scam consumers. The number of
reports about scams originating on social media has more than
tripled in the past year.
These scams have been particularly harmful to older
Americans and senior citizens, who have gone months with little
interpersonal contact and support. This isolation has left them
particularly vulnerable to fraudsters. For example, online
puppy scams and romance scams have risen precipitously during
the pandemic.
Some of the worst fraudsters are the identity thieves
stealing stimulus checks and unemployment benefits from those
already struggling to pay their bills and feed their family. To
make matters worse, these people are often also targeted for
fake employment scams, deceptive income schemes, and unwise
investment solicitations.
I want to applaud Chairwoman Schakowsky and Congressman
Bucshon for their bipartisan work in giving the Federal Trade
Commission (FTC) new authority to seek civil penalties for
COVID-19 scams and deceptive practices in the 2021 omnibus.
This provision will empower the FTC to dole out real
consequences to bad actors that prey on consumers during these
especially challenging times.
Since the beginning of the pandemic, consumers have
reported losing more than $300 million in just pandemic-related
fraud.
A core part of the FTC's consumer protection mission is
returning money to consumers that was unlawfully taken from
them. Last year, the FTC successfully returned more than $400
million back to consumers that had been lost to fraud.
But the FTC's ability to make victims whole is under threat
in the Supreme Court. With this looming threat, it is critical
that the FTC step up its efforts to protect consumers. Former
FTC Chairman Joseph Simons may have helped insulate the agency
from some of the worst that came out of the Trump
administration, but to effectively combat scammers, the agency
needs to show its teeth.
Since the beginning of the pandemic, the FTC has issued
numerous warning letters to companies allegedly selling
unapproved products that claim to treat or cure COVID-19. But
warning letters are nothing more than a slap on the wrist and
do nothing to help consumers who may have already been harmed.
Over the objections of Democratic Commissioners, the FTC also
settled case after case, failing to hold individual executives
accountable or seek sufficient monetary penalty. And the FTC
failed to initiate rulemakings that could help the Commission
efficiently pursue civil penalties.
I look forward to hearing from our expert witness panel on
what must be done to meaningfully combat scammers and protect
consumers.
Thank you, and I'd like to yield my remaining time to
Congressman Cardenas.
Mr. Pallone. So I want to hear from the panel. But before
that, I would like to yield the time remaining to Tony
Cardenas, who--I know he has some important legislation that I
mentioned.
Mr. Cardenas. Thank you, Mr. Chairman. The Federal Trade
Commission is the country's premier consumer protection agency,
and respected internationally, and is the leader in consumer
protection. For example, just in the last 5 years alone, they
returned $11 billion in refunds to victimized consumers.
Again, as the chairman mentioned, this authority to secure
monetary relief for consumer victims under section 13(b) of the
FTC Act currently hangs in the balance in the United States
Supreme Court. Should the court rule against the FTC, American
consumers will pay the price. As warned in a remarkable
bipartisan letter from all five FTC Commissioners to the
committee last October, and I quote, it says, ``It is
imperative that the Congress act quickly, so that the FTC can
continue to effectively protect American consumers.''
I would like to submit that letter for the record, Madam
Chair, and I plan to introduce legislation in response to the
bipartisan call to ensure the FTC's continued ability to return
consumers and victims their resources.
I welcome working with my Republican colleagues on this
issue. I note that Senator Wicker introduced legislation last
Congress to address 13(b), and I hope we can continue to work
in a bipartisan way on this.
Mr. Thank you very much. I yield back my time.
Mr. Pallone. And I yield back as well, Madam Chair.
Ms. Schakowsky. There we go. That will be submitted in the
record at the end of the hearing today.
Ms. Schakowsky. And let me now both congratulate and
recognize Congresswoman McMorris Rodgers, and--for now being
the ranking member on the full committee, and for her 5 minutes
on this subcommittee.
You are recognized.
OPENING STATEMENT OF HON. CATHY McMORRIS RODGERS, A
REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON
Mrs. Rodgers. Thank you very much, Madam Chair. A big
welcome to everyone to the first Consumer Protection and
Commerce Subcommittee of the 117th Congress.
Last Congress I had the pleasure of working very closely
with the chair, Chair Jan Schakowsky, as I was the subcommittee
Republican leader. And I am very proud that we were able to
accomplish some significant bipartisan priorities. We
reauthorized the U.S. Safe Web Act to ensure international
cooperation against scams and frauds, which has never been more
important.
We also got the American COMPETE Act signed into law. And I
really appreciate the help in getting this included in the end-
of-the-year package. This bill will play an important role in
widely deploying emerging technologies, many of which are also
being used right now to respond to the pandemic.
We also made great bipartisan strides on privacy
protections, and I hope that we can build on the bipartisan,
bicameral achievements from the end of last year and get a
Federal privacy law signed this year, as soon as possible.
I also want to congratulate my friend from Florida, Gus
Bilirakis, for taking on the leadership of this subcommittee
for the Republicans. I have every confidence he is going to do
a great job. He is someone that digs in and really does the
hard work of legislating to get results. And I am excited about
what we will be able to accomplish for the American people, and
how we will be able to help win the future.
These have been some difficult times, unprecedented times.
Millions of citizens remain trapped inside their homes with
little social interaction. In addition to worsening our
country's mental health and substance abuse crisis, this
isolation has created opportunities for bad actors to exploit
Americans' pain.
Last Congress this subcommittee helped combat these bad
actors and empower vulnerable communities to not become
victims. Buddy Carter's Combating Pandemic Scams Act was signed
into law at the end of last year, and I am glad that we are
continuing the good work of this subcommittee at the beginning
of this year.
As Mr. Bilirakis discussed, there are several scams to be
on the lookout for, and lies about COVID vaccines and attempts
to steal stimulus checks, as well as the good old gift card
scams that are on the rise.
I want to thank and welcome Traci Ponto. She is from
Spokane, Washington. She is with Spokane COPS., Community
Oriented Policing Services. And she is one of our witnesses
today. She is going to be sharing some of her insight on a
range of scams that she sees and her work to protect and serve
eastern Washington.
Education is the best prevention. And I know your
dedication to that, and your cooperation with law enforcement
is getting results for victims.
I also want to thank our allies at the Federal Trade
Commission. They are on the front lines, educating our
communities about the risks of COVID scams and holding bad
actors accountable. And, just as I said during our work on
privacy protections, we need a strong national standard and a
regulator who is empowered to enforce that standard.
The FTC has long relied on section 13(b) of the FTC Act to
obtain and enforce a range of remedies against certain illegal
conduct. But I understand that that authority is currently
being challenged in the courts. Specifically, the Third and
Seventh Circuits have ruled recently that the FTC cannot obtain
monetary relief under section 13(b). And the Third Circuit
decided that the FTC misused section 13(b) to address past
illegal conduct. While we await the Supreme Court's decision,
Congress has been asked by the FTC to amend the Act to clarify
this authority.
There is certainly a need to get financial restitution to
victims. However, I am concerned about the potential for the
FTC to abuse that authority and use it primarily to leverage
defendants into settlements. If the argument in favor of
increased FTC authority is that defendants are defending
themselves too often without it, it is simply not persuasive.
I want to be clear. I understand the importance of section
13(b) and the role that it can play in an agency's consumer
protection mission, especially in the bigger cases. But I also
understand the reality that the Democrats are in the control of
both chambers and may want to move before the Supreme Court
rules. If that is the case, we must use this time as an
opportunity to address other reforms to the Commission.
Again, I want to thank the witnesses for being here today.
This is a timely and important discussion, and I look forward
to hearing from all of you. Thank you.
[The prepared statement of Mrs. Rodgers follows:]
Prepared Statement of Hon. Cathy McMorris Rodgers
Good morning and welcome to the first Consumer Protection
and Commerce Subcommittee hearing of the 117th Congress.
Last Congress, I had the pleasure of working closely with
you, Chair Schakowsky, as this subcommittee's Republican
leader. We were able to achieve significant bipartisan
priorities.
For instance:
We reauthorized the U.S. SAFE WEB Act to ensure
international cooperation against scams and frauds, which has
never been more important.
We also got the American COMPETE Act signed into
law. I appreciated your help and Chairman Pallone's help in
getting it included in the year end package.
This bill will play an important role in widely deploying
emerging technologies, many of which are already being used to
respond to the pandemic.
We also made great bipartisan strides on privacy
protections. I hope we can build on the bipartisan, bicameral
achievements from the end of last year and get a Federal
privacy standard signed into law this Congress.
I want to congratulate my good friend from Florida, Gus
Bilirakis, for taking on the leadership of this subcommittee
for Republicans.
I am excited to see what you will accomplish for the
American people and how you will help us win the future.
COVID SCAMS
These are unprecedented times.
Millions of our citizens remain trapped inside their homes
with little social interaction.
In addition to worsening our country's mental health and
substance abuse crisis, this isolation has created
opportunities for bad actors to exploit American's pain.
Last Congress this subcommittee helped combat these bad
actors and empowered vulnerable communities to not become
victims.
Buddy Carter's Combating Pandemic Scams Act was signed into
law at the end of last year, and I am glad we are continuing
this good work through this hearing.
As Mr. Bilirakis discussed, there are several scams to be
on the lookout for from lies about COVID vaccines to attempts
to steal stimulus checks, as well as ``old-school''n gift cards
scams that are on the rise.
I want to thank you, Traci Ponto of Spokane COPS (Community
Oriented Policing Services), for sharing your insights on the
range of scams you are encountering, and for your work to
protect and serve Eastern Washingtonians.
Education is the best prevention, and I know your
dedication to that and your cooperation with law enforcement
gets results for victims.
FTC 13(b) AUTHORITY
I also want to thank our allies at the Federal Trade
Commission.
They are on the frontlines educating our communities about
the risks of COVID scams and holding bad actors accountable.
And just as I have said during our work on privacy protections,
we need a strong national standard and a regulator who is
empowered to enforce that standard.
The FTC has long relied on Section 13(b) of the FTC Act to
obtain and enforce a range of remedies against certain illegal
conduct, but I understand that authority is currently being
challenged in the courts.
Specifically, the Third and Seventh Circuits have recently
ruled that the FTC cannot obtain monetary relief under Section
13(b), and the Third Circuit decided the FTC misused Section
13(b) to address past illegal conduct.
While we await the Supreme Court's decision, Congress has
been asked by the FTC to amend the act to clarify this
authority.
There is certainly a clear need to get financial
restitution to victims however, I am concerned about the
potential for the FTC to abuse that authority and use it
primarily to leverage defendants into settlements.
If the argument in favor of increased FTC authority is that
defendants are defending themselves too often without it, that
simply is not persuasive with me.
I want to be clear: I understand the importance of Section
13(b) and the role it can play in the agency's consumer
protection mission, especially its bigger cases.
I also understand the reality that Democrats are in control
of both chambers and may want to move before the Supreme Court
rules.
If that is the case, we must use this time as an
opportunity to address other reforms to the Commission.
Due process is a foundational principle for the protection
of Americans' legal rights, and it must be central to any
changes to existing law.
If we are to tackle 13(b) authorities, we should also take
a holistic look at the FTC's authorities and consider other
amendments.
We considered FTC process and transparency reforms in the
114th Congress, and that must be part of this legislative
effort.
CONCLUSION
I want to thank our witnesses again for being here today
for this timely and important discussion. I look forward to
hearing from you all.
Thank you. I yield back.
Ms. Schakowsky. I would like to introduce our witnesses for
today's hearing.
There is Bonnie Patten, the executive director of
TruthinAdvertising.org; the Honorable William E.--let me say it
right--Kovacic, who is global--let me get this right, OK--
global competition professor of law and policy, professor of
law and director of Competition Law Center at Georgetown
University Law School. We have Traci Ponto, spokesman--no.
Traci Ponto from Spokane COPS, crime victims advocate. You
heard our ranking member of our full committee talk about her,
from Spokane Community Oriented Policing Services. And Jessica
Rich, director--no, I am sorry, distinguished fellow at the--I
think maybe I could use my glasses here, let's see. No, not as
good. Jessica Rich--am I past her? No, Jessica--distinguished
fellow at the Institute of Technology Law and Policy at
Georgetown Law.
Those are our witnesses, and we want to thank our witnesses
for joining us today. We look forward to your testimony. And so
let's begin with Ms. Patten.
You are recognized now for 5 minutes.
STATEMENTS OF BONNIE L. PATTEN, EXECUTIVE DIRECTOR AND
COFOUNDER, TRUTH IN ADVERTISING; TRACI PONTO, CRIME VICTIM
ADVOCATE, SPOKANE COMMUNITY ORIENTED POLICING SERVICE; WILLIAM
E. KOVACIC, PROFESSOR, GEORGE WASHINGTON UNIVERSITY SCHOOL OF
LAW; AND JESSICA RICH, DISTINGUISHED FELLOW, INSTITUTE OF
TECHNOLOGY LAW AND POLICY, GEORGETOWN UNIVERSITY LAW CENTER
STATEMENT OF BONNIE L. PATTEN
Ms. Patten. Thank you, Chairman Schakowsky, Ranking Member
Bilirakis, and members of the subcommittee. On behalf of Truth
in Advertising, TINA.org, I am pleased to appear before you to
highlight fraudulent and deceptive marketing schemes that have
arisen during this unprecedented crisis, and to sound the alarm
that the worst may be yet to come if the FTC cannot claw back
ill-gotten gains from wrongdoers under section 13(b) of the FTC
Act.
My organization, TINA.org, is a nonpartisan, nonprofit
consumer advocacy organization whose mission is to combat
deceptive advertising and consumer fraud. We work with
businesses and government agencies on behalf of consumers to
effectively prevent and stop deception in our economy. There
can be no doubt that the ongoing pandemic has exacerbated the
ever-present dangers of deceptive and unfair acts and practices
in the marketplace.
TINA.org has heard from countless consumers, senior
citizens, military veterans, and struggling parents whose
experiences illustrate the fact that deceptive marketing is
putting the health, financial well-being, and safety of our
most susceptible populations at risk.
The list of deceptively marketed products and services
exploiting this pandemic is extensive: CBD products marketed to
military veterans as a coronavirus treatment; bleach,
advertised as a liquid cure-all; wellness centers targeting
first responders with IV vitamin drips to protect against
COVID-19; Amazon and eBay sellers falsely claiming that their
PPE is FDA approved; hand sanitizer marketed as protecting for
24 hours against COVID-19; alleged immunity-boosting
supplements targeting children; colloidal silver solutions
advertised as having the ability to kill the virus from within;
toothpaste and teeth-whitening products claiming to prevent
COVID-19; and sham wellness kits targeting seniors.
Unfortunately, the deception does not stop with outrageous
health claims; many are exploiting the economic desperation
wrought by this pandemic: multilevel marketing companies
claiming people can earn full-time pay working part time;
lending companies deceptively using the CARES Act to exploit
college students; investment scams claiming to have patented
COVID cures; and financial entities pretending to be SBA-
authorized lenders to lure in small businesses struggling to
keep their workers employed.
And to make matters worse, the agency primarily charged
with policing these deceptive acts, the FTC, is now at risk of
losing a mainstay of its enforcement authority: the ability to
make victims whole under section 13(b).
Because 13(b) does not specifically say anything about
equitable relief when a permanent injunction is issued, the
Supreme Court is now deciding the remedial scope, if any, of
13(b) in the case AMG v. FTC. AMG was a payday lending scheme
that extracted money from people in desperate circumstances. In
its appeal, the company does not dispute that it violated the
law. Instead, it argues that the $1.3 billion it stole should
be its to keep.
AMG asserts that it was never Congress's intention for the
FTC to return money to victims of fraud under 13(b). Quite to
the contrary, AMG argues that this legislative body fully
endorsed the notion that wrongdoers should pocket the money
they have illegally taken when it drafted 13(b). If the Supreme
Court rules in AMG's favor and this Congress does not act to
empower the FTC to seek restitution under 13(b), then the
deceptive practices I have enumerated will only multiply.
Allowing wrongdoers an absolute right to retain funds under
13(b) will make consumers and our economy more vulnerable to
harm, especially during these unprecedented times.
Thank you, and I look forward to answering your questions.
[The prepared statement of Ms. Patten follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Ms. Schakowsky. Thank you. Thank you for your testimony.
And next we will hear--and thank you so very much for that
really compelling, compelling testimony. And now let me call on
Ms. Ponto.
You are recognized now for 5 minutes.
STATEMENT OF TRACI PONTO
Ms. Ponto. Thank you. Good afternoon, Members of Congress.
Thank you for inviting me here today to talk to you about our
organization and what is happening in the world of scams and
frauds over this past 2020 season.
First, let me introduce myself. My name is Traci Ponto. I
am a retired Spokane police officer, after serving 25 years. I
now work full-time as a crime victim advocate for Spokane
Community Oriented Policing Services.
Spokane COPS is the nonprofit organization for the Spokane
Police Department. We have 5 staff members, 400 volunteers, and
9 COPS shops throughout our city. Our COPS shops serve as a
liaison between the police department and our communities and
provide a location for neighbors to come in and seek assistance
with their concerns. Our COPS shops provide programs such as
block watch, identity theft and fraud victim callbacks,
neighborhood observation patrols, and other programs that work
on getting neighbors engaged in their community, working
alongside law enforcement, and taking ownership and keeping
their communities safe.
Our organization focuses on crime prevention and working
with neighbors to help resolve quality-of-life issues. In a
time where our Nation is asking questions on how to get our law
enforcement and community working together, our focus is to
help educate the community and provide crime prevention tips to
help solve many of their concerns.
My current position as a crime victim advocate is to help
any and all victims of crime. Law enforcement is able to go
after the criminals, but who takes care of those that are
victimized? Many people feel unsafe after being victimized.
And, as an advocate, we are able to help restore some of that
sense of safety by providing a crime prevention through
environmental design survey, amongst other services.
When you are a victim of identity theft and fraud, you are
incredibly vulnerable to losing your money, which is what
supports your daily life. Our advocates' primary goals are to
respond to the emotional, psychological, and physical needs of
crime victims. We assist victims in stabilizing their lives
after victimization and help them understand and participate in
the criminal justice system. Our goal is to restore a measure
of security and safety for them.
In 2020 many victims found themselves losing their
employment or working from home. With quarantine and social
distancing, victims found themselves doing more of their
shopping online. Victim advocates saw an increase in identity
theft, fraud, and scams with this vulnerable population.
Phishing scams targeted victims by claiming they were trying to
process Amazon returns and needed more personal information.
Microsoft scams targeted victims using threats of subscriptions
expiring, which would disrupt people trying to work online from
home. Unemployment fraud, where databases were hacked, personal
information stolen, and fraudulent unemployment claims
surfaced. This alone affected thousands of people dependent on
supplementing their lost wages. This also created concern from
victims that were still employed, yet had claims open under
their names.
Now, as we prepare for tax season, we have seen an increase
from victims who are receiving paperwork showing unemployment
income they were not aware of. With the pandemic, victims that
are already feeling isolated and lonely are more vulnerable to
phone calls and social media messages that lead to scams.
Victims that have been targeted by scammers and have lost
money are often too ashamed to tell family members, and now
have an increased anxiety and fall into despair. Victims do not
know where to turn, and the magnitude of these crimes are
overwhelming and creating more mental-health-related issues.
COVID set a perfect storm by creating isolation and
depression that put people at a higher risk for scams and
allowed scammers many different opportunities to prey on this
vulnerable audience. As a crime victim advocate, our goal is to
provide assistance to our clients and walk them through a step-
by-step process of reporting the fraud, gathering evidence to
provide their financial institutions, and protect them from
further identity theft and fraud-type crimes.
Thank you for your time today.
[The prepared statement of Ms. Ponto follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Ms. Schakowsky. And thank you.
Professor Kovacic, it is yours for 5 minutes. You are
recognized.
STATEMENT OF WILLIAM E. KOVACIC
Mr. Kovacic. Thank you, Madam Chair. Thank you, Ranking
Member and members of the committee. I am very grateful for
having the opportunity to participate in these proceedings.
I am going to suggest a series of steps that you and your
colleagues can take to put the FTC in a better position to
address the formidable challenges that you have mentioned.
I acknowledge the wonderful work that I think the FTC has
done in a terrible time in which the challenges have
intensified, and they have had to move out of their building
and do everything remotely.
I speak from my experience at the FTC and my current work
as a non-executive director on the board of the United
Kingdom's Competition and Markets Authority. I don't speak on
behalf of the agency, but I speak with an awareness of what the
CMA, the FTC, and others have done in an extraordinary
circumstance when they have had the hardest challenges, and
have had to work in a remarkably difficult setting. I think
they performed admirably. I have some thoughts about what you
and your colleagues can do to put them in a position to do
still better.
Let me start by offering three suggestions that involve new
legislation and then to come up with three that involve your
role as an oversight body and as a forum for holding policy
discussions about what the FTC and others should do.
First, on the legislative side, I simply echo the priority
that all of you have given, that Bonnie Patten has just given,
as well, to repairing what is likely to be a hole in 13(b)
authority. My own view of the AMG case which Bonnie just
discussed is that the FTC will lose that case. The oral
argument was not favorable, from a wide variety of perspectives
within the Supreme Court.
I think priority number one is to be prepared as soon as
possible to repair the damage that an adverse decision would
do. If the Commission does not have the ability to disgorge
ill-gotten gains from misconduct, the deterrent effect of its
enforcement power is considerably weakened. That is priority
number one. You are aware of that.
Second, I would make major new investments in the
capability of the Federal Trade Commission. Let's remind
ourselves of what Congress has asked it to do. It is not only
the principal consumer protection agency in the country, it is
a major antitrust agency, and it is the principal U.S. data
protection agency. But we pay peanuts to carry out those
functions. We pay low salaries compared with even what other
Federal officials get. And we provide a very modest budget, not
even quite $350 million a year.
My suggestion: Raise the compensation of FTC employees, at
least to the level of the Consumer Financial Protection Bureau.
That salary scale is fully 20 percent higher. Why and in what
respect is financial services consumer protection more
important than the concerns we mentioned?
Second, and more dramatically, I would give the FTC a
billion dollars a year to do its job. I would monitor the
performance with that money, but my view is that we are
demanding Mercedes-like performance, but we want to pay for a
Chevy instead. And that doesn't happen in real life. I see a
real measure of the sincerity of the Nation and its elected
officials to deliver on this promise its willingness to fund
these activities appropriately. Otherwise, we are just kidding
ourselves about what we want to be done.
Related to that, major investments in upgrading the FTC
system built over a period of 20, 25 years to improve its
capacity to collect data on misconduct, and to apply it--a
major upgrade of the Sentinel System--and to mimic the
experience of the Competition and Markets Authority to build up
a data team. The Competition and Markets Authority has a team
of 40 technologists that now work on these issues.
A third legislative proposal is to eliminate gaps in the
FTC's jurisdiction by eliminating the exceptions for common
carriers, banking and financial services, and not-for-profit
organizations.
Finally, three thoughts about the use of oversight
authority.
One, as the ranking member mentioned, boost cooperation. I
suggest to you that taking money away with civil remedies is
not going to keep serious bad guys from doing what they do. The
only solution there is cooperation with criminal enforcement
authorities to take away their freedom. If we are not going to
do that, again, I think we are not really digging in to the
seriousness of the problem and addressing it.
Second, invite the FTC and its partners at the State and
local level to sit down with you and talk about what they
learned by way of doing innovative things to address the COVID
crisis and what gaps have to be filled. That should be an
ongoing collaboration between the committee and the public
enforcement agencies.
And last, to confront the future design of the FTC. Should
you adopt new privacy legislation, what do we want the FTC to
do in the future?
My thanks to the committee for the chance to be here.
[The prepared statement of Mr. Kovacic follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Ms. Schakowsky. Thank you so much for your testimony.
And last, but not least, Ms. Rich, you are recognized for 5
minutes for your testimony.
STATEMENT OF JESSICA RICH
Ms. Rich. Thank you, Chair Schakowsky, Ranking Member
Bilirakis, and members of this subcommittee. I am really
pleased to be here to discuss the challenges of fighting fraud
during the pandemic.
I am no longer at the FTC, but I spent most of my career
there, actually, 26 years, the last 4 of those years as its
Director of Consumer Protection. I care deeply about ensuring a
safe and fair marketplace for the American public.
One of the biggest challenges in consumer protection, as we
have all been talking about here today, is fighting fraud, a
pernicious problem that steals from consumers, often those
least able to afford it, undermines their trust, and distorts
the functioning of the marketplace.
In times of crisis, fraud can be especially relentless. Con
artists prey on distressed consumers, offering bogus health
cures, nonexistent financial aid, and many other scams, often
posing as a government agency or official. This happened with
Hurricane Katrina and the Great Recession, and it is happening
now.
Over the past year the FTC has received many consumer
complaints related to COVID-19 and has responded with consumer
alerts, warning letters to scammers, and law enforcement. As of
December, thanks to the leadership of this committee, the FTC
can now impose fines on the scams' perpetrators. However, the
FTC is facing serious challenges in its broader fight against
fraud, which is the focus of my testimony today.
In my written testimony I flagged four issues.
First is the FTC's authority to obtain restitution under
13(b) of the FTC Act. As everybody has discussed extensively
today, it is under risk. For over 40 years, the FTC has used
section 13(b) to return many billions of dollars to consumers
and small businesses victimized by fraud and deception. Until
recently, every circuit court to consider the issue held that
the FTC could do so.
Notably, 13(b) is the only provision in the law that has
enabled the FTC to seek in the same action both an injunction
against FTC Act violations and restitution for consumers. The
adverse rulings in the circuit courts have already undermined
the FTC's ability to obtain restitution in those circuits. An
adverse ruling in the Supreme Court would be devastating.
Section 13(b) is simply the most efficient and effective
tool that the FTC has to stop illegal conduct, prevent
defendants from profiting from it, and return money to
consumers. Without it, the FTC has to engage in either a
cumbersome two-step process with two separate back-to-back
lawsuits, or limit restitution to those situations where it is
enforcing a rule which is a subset of cases. These options will
severely hinder the FTC's ability to get money back to
consumers, and I hope that Congress will restore the authority
to do that, that the FTC has been using for over 40 years.
The second issue I flagged is the ability of the FTC and
others to hold accountable the entities that enable frauds to
thrive, including the platforms through which scammers
disseminate fraudulent information. At the FTC and elsewhere,
defendants of all types argue they are immune from liability
under section 230, often forcing protracted litigation to
resolve the issue. Although 230 reform is complex and beyond
the scope of this hearing, there may be other measures, like
last year's Inform Consumers Act, that could create much-needed
accountability short of wholesale 230 reform.
Third, fraud can have a disproportionate impact on certain
communities such as seniors, veterans, African Americans, and
Latinos. During my tenure at the FTC we created an ambitious
outreach and research initiative called Every Community, the
goal of which was to ensure that the FTC was reaching and
protecting the diverse communities victimized by fraud. The FTC
should scale up this program again now, including by collecting
more data with appropriate safeguards to enable a broader
examination of whether the FTC is reaching different
communities. Also, it should consider hiring experts on racial
equity and representation to assist with this effort.
Finally, the FTC needs stronger authority to protect
consumers' privacy, including the ability to seek penalties for
first-time violations. One lesson of the pandemic was that
Americans refused to use contact tracing apps, which could have
been helpful to track the disease, largely due to concerns that
the data wouldn't be protected from misuse. This subcommittee
has shown very strong support for privacy legislation in the
past, and I hope that will continue.
Thank you again for allowing me to be here today.
[The prepared statement of Ms. Rich follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Ms. Schakowsky. Well, thank you so much. The gentlewoman
yields back, and let me now--we have concluded the witnesses'
opening statements.
At this time we will move to Member questions. Each Member
will have 5 minutes to ask a question and get an answer of our
witnesses. And I will start by recognizing myself for 5
minutes.
So we certainly have talked a lot about 13(b) and the
importance of that. I want to thank Representative Cardenas for
your leadership on this, on addressing this issue. And I want
to say that I hope that every single member of this
subcommittee can agree that scammers should not get to keep the
money that they stole from consumers, which is essentially what
would happen if we were to get rid of 13(b).
So, Ms. Patten, I noticed that you filed an amicus brief
urging the Supreme Court to uphold the FTC's ability to seek
restitution. And as you may know, the attorney general from the
State of Illinois, Attorney General Kwame Raoul, has a
bipartisan coalition now of 30 State attorneys general who are
also filing an amicus brief in support. I wondered if there is
anything--I know you spoke about it, but if there is anything
else that you want to say that we should know and care about
when it comes to protecting this very important tool.
Ms. Patten. Yes, thank you, Chair. The amici brief from the
States and the District of Columbia made clear that States
absolutely need the FTC to have 13(b) authority. States do not
have nationwide jurisdiction over these scams. They can't go
into foreign countries easily. So if the FTC cannot claw back
ill-gotten gains through 13(b), then the States will be
required to shift resources over to trying to make victims
whole.
One of the things that I thought was so telling in the
amici brief was that they said between 2016 and 2019, the FTC
returned more than $10 billion to 9 million consumers in all 50
states, the District of Columbia, and Puerto Rico. And then, if
the FTC loses 13(b), you can be guaranteed that consumers in
every single State will be faced with more deceptive acts and
practices.
Ms. Schakowsky. Thank you. I wanted to ask Ms. Rich--I am
sorry--Mr. Kovacic. Here is a really important question: Is
there any point in waiting to see how the Supreme Court rules
on the question of 13(b), or should the authority under that--
should we deal with it before the Supreme Court?
Mr. Kovacic. My own intuition would be to wait until the
decision comes up. There is the possibility--comes out. There
is the possibility that the Court will say, contrary to my
prediction, the FTC is doing a great job, that is just what
Congress wanted, full speed ahead.
I would be faintly concerned that, if there were a measure
introduced and adopted before that, the argument could be made,
or the impression given that, oh, my God, Congress didn't think
that it had--that the Commission has the authority. So it has
got to put in a supporting mechanism right now.
I guess my inclination would be--but you are--you
understand the legislative process better than I do, how long
it takes and how it goes. My inclination would be to drop that
bill as fast as possible, or even now to be ready if there is
an adverse decision. But I hope I am wrong. Maybe the Supreme
Court says, ``God bless the FTC, full speed ahead.''
Ms. Schakowsky. So let me ask Ms. Rich or anyone else who
wants to weigh in on this. Go ahead.
Ms. Rich. I would love to just state a contrary view, which
is that I understand that the FTC already cannot pursue
restitution under 13(b) in two circuits. And in other circuits
now defendants are saying, ``Oh''--dragging their feet,
delaying, saying, ``You don't have the authority.'' And these
are defendants that have wrongly taken money from consumers.
And so the FTC is limited now, and I would encourage
Congress to take action now, because it is already a problem.
And I, too, have been following the arguments in the Supreme
Court, and I am not optimistic. But regardless, it is already a
problem.
Ms. Schakowsky. So, although I am out of time, I am just
going to ask Ms. Patten what--yes or no, should we move now, or
wait for the Supreme Court?
Ms. Patten. I think you should absolutely move now to
protect 320 U.S. consumers and honest and fair businesses. They
deserve that protection now.
Ms. Schakowsky. Thank you. Well, this is a very important
decision for us to consider as a subcommittee and as a full
committee. So we will get to it.
And now I will recognize the ranking member of the
committee, Mr. Bilirakis, for 5 minutes----
Mr. Bilirakis. Thank you, Chair----
Ms. Schakowsky [continuing]. For questions.
Mr. Bilirakis. Thank you very much, Chair. I appreciate it.
I thank the panel for their testimony today, very informative.
Recently, constituents in my district have been targeted by
scammers promising COVID-19 vaccinations. I mentioned that in
my opening comment. Fake Eventbrite websites masking themselves
as health departments, requiring residents to pay fees for
appointments to receive the vaccination. This was reported in
my local paper, the Tampa Bay Times, recently.
I am glad to hear steps have been taken to remedy this
particular situation, but more needs to be done to protect the
vulnerable individuals trying to receive the vaccinations. I
think most people would agree with that.
Ms. Ponto, how can we better educate individuals on
vaccination scams?
And then, should local health departments around the
country work with community organizers and law enforcement
agencies?
If yes, what should they collaborate on?
I know you mentioned this. I believe you mentioned--you
touched on this. Can you elaborate a little more?
Ms. Ponto. Thank you. We have not actually seen a lot of
scams in regards to vaccinations and PPEs and other things in
our community. Because we are so well based and have our shops,
we actually filter a lot of what is happening out there into
our shops, and thus into our COPS program.
We do have a health district that is down around our police
station, and they are pretty good at educating folks about what
is going on and staying up on that population. What I am
concerned about is definitely our elderly, who are sitting at
home and isolated and scared and might be more susceptible to
that social media or those phone calls and fall prey to this.
Education, again, is the way to go. And for us, it is
getting it out there, making our phone calls to our community
members. Our neighborhood councils are also very successful at
getting out the information, and then getting our city council
involved, as well, to get it out. And that is on our level--
citywide. Thank you.
Mr. Bilirakis. Working with law enforcement, do you
recommend that, as well?
Ms. Ponto. I always recommend working with law enforcement,
and law enforcement is my background, so I--any way that we can
pull them in and work with them and not have them do our work
for us is a win-win in my books.
So what does that look like? Not exactly sure, but we are
community-oriented policing, and so we kind of are setting in
the Nation--we have other cities that come to see our programs,
and why it works so well for our city. Volunteers in the
community is where it is at, and we get to work alongside with
our law enforcement.
Mr. Bilirakis. Very good. Thank you.
Ms. Ponto. Thank you.
Mr. Bilirakis. Ms. Rich, in your testimony you mentioned
the findings of Every Community, an FTC program you worked on,
which highlighted that the underserved communities impacted by
scams are not reporting them as often as they should. Can you
explain why it is important that every scam should be reported?
And then I have a question for Ms. Ponto.
Why should every scam be reported?
Ms. Rich. The FTC really does rely on--it relies on many
sources for targeting its law enforcement, but one of the
sources is consumer complaints that it receives, and also
information it receives from its partner about the complaints
they are seeing on the ground.
So if the inputs for--if the agency isn't getting
information about the scams that are really hurting consumers,
it can't target its enforcement well. And if certain
communities aren't comfortable reporting to the FTC or don't
know to report to the FTC, the FTC may not be protecting those
communities. And research that we did when I was still at the
FTC suggests that was the case in some instances.
And so it is very, very important that the FTC do more work
to ensure that it is reaching every community that needs its
protection, whether through--by itself or through trusted
partners, so that it can target its protection efforts
effectively.
Mr. Bilirakis. I would thank you, Madam Chair. I am going
to go ahead and yield back, because my time has expired. But I
will submit questions for the record. Thank you.
Ms. Schakowsky. I now recognize the chair of the full
committee, Mr. Pallone, for 5 minutes.
Mr. Pallone. Thank you, Chairwoman Schakowsky. I wanted to
ask some questions.
I wanted to use New Jersey, if I could, as an example,
because we have had a very aggressive State attorney general
who has been trying to go against consumer protection
violations. But even so, since the beginning of the pandemic,
we--New Jersey has lost nearly $9 million in--individuals--in
fraud, despite this aggressive enforcement by the attorney
general. And that includes--he sent out, like, 1,800 cease-and-
desist letters, and at least a dozen enforcement actions.
And, of course, I am proud of the fact that we did a
bipartisan initiative at--in the end-of-the-year package to
include, you know, this provision that gives the FTC new
authority to seek civil penalties for scams and deceptive
practices related to COVID. That, I believe, was Jan and Dr.
Bucshon's initiative. And the FTC has issued more than 500
warning letters to sellers of unapproved or misbranded products
related to COVID.
So let me just ask quickly, because there is not a lot of
time, obviously. Ms. Patten, are warning letters enough to
protect consumers from fraud and scams?
Ms. Patten. Unfortunately not. I think the one common theme
with every scam we are going to talk about today is that they
are perpetrated for financial gain. And unless the money is
taken out of the pockets of wrongdoers, it will always be in
their interest to continue. So a warning letter, regardless of
where it comes from, is just not going to deter criminals.
Mr. Pallone. Well, thank you. So let me ask Ms. Rich, how
could the FTC use the new authority from the COVID-19 Consumer
Protection Act to fight fraud and scams more effectively?
If you could, quickly. And I hate to say, ``quickly,''
but----
Ms. Rich. The new law covers a huge amount of scams. It is
very broad as to COVID scams. So, if a company engages in any
of that activity, it can--the FTC can pursue civil penalties.
So, just as Ms. Patten just said, it is very important for
deterrence to make it painful for fraudsters to rip off
consumers. And so the civil penalty authority----
Mr. Pallone. All right. Well, let me ask this. You know, I
mentioned today about the Supreme Court and the threat to the
FTC's 13(b) authority, you know, restitution. And Tony has a
bill to deal with that.
But now that the FTC has this authority to fine companies
that have committed fraud and scams related to the pandemic
under this new law, why is it still important to ensure that
the FTC's 13(b) authority is preserved? Why is that still
important, Ms. Rich?
Ms. Rich. The COVID scams are terrible, but they are one of
many frauds that the FTC has to fight all year long, in and out
of a pandemic. So, in many of those cases, the FTC doesn't have
civil penalty authority, and its redress authority is under
threat. So it is a much broader problem that goes beyond the
COVID scams that are occurring here. And so it still needs to
be fixed.
Mr. Pallone. All right. And then, just quickly, on social
media for Ms. Patten or Ms. Rich. We know that, you know, the
scams on social media have tripled this year, mostly with
online shopping. And earlier this week, Jan, myself, Anna
Eshoo, Mike Doyle sent a letter to Facebook, Twitter, and
Google regarding their handling of COVID vaccine
misinformation, and how it has escalated on their platforms.
And obviously, I am concerned about that.
So, Ms. Patten, can you talk more about why it is so easy
for consumers to be duped by the ads they see on social media?
And then I could ask both of you what are some things that
FTC could be doing to help prevent those types of social media
scams in the time left.
I will start with Ms. Patten.
Ms. Patten. Thank you. Social media is incredibly effective
at persuading consumers to believe what they are seeing,
because they are following people they believe in or they want
to emulate. So it is one of the most effective tools scammers
have to be able to get to consumers, because there is honest
and trustworthy belief by consumers.
Mr. Pallone. So what do you suggest, between you and Ms.
Rich, about the things the FTC could do to help prevent these
scams on social media? Just briefly, if you could.
Ms. Patten. I will defer to Ms. Rich.
Ms. Rich. Well, obviously, the FTC should keep doing
warning letters and take action wherever possible using its new
authority.
But there is a huge role for education here and for the FTC
working with the groups that consumers trust to get the word
out. People trust information that comes from their community
groups, their church, et cetera, their local groups. So the FTC
really has to be aggressive about education. I don't know
whether the FTC is amplifying its own messages on social media.
If not, it should be doing that. And, of course, the FTC should
be pressing the platform strongly to take their own action.
But as you know, 230 is a problem in terms of the FTC
actually taking action against the platforms.
Mr. Pallone. Thank you. Thank you, Jan.
Ms. Schakowsky. Thank you. Now I recognize the ranking
member of the full committee, Mrs. Rodgers, for 5 minutes.
Mrs. Rodgers. Thank you, Madam Chair. And before I move to
questioning, I just want to emphasize the importance of section
13(b) and the role that it plays and has played and will
continue to play in the FTC's consumer protection mission, and
especially with the bigger cases.
I think we also need to recognize, as these cases are
moving up to the Supreme Court and we are anticipating a
decision, as we move forward, due process is a fundamental
principle for the protection of Americans' legal rights, and it
must be central to any changes to existing law.
If we are to tackle 13(b) authorities, we should also take
a holistic view, I believe, of FTC's authorities, and consider
other amendments.
We considered FTC process and transparency reforms in the
114th Congress. And I would just recommend them to you, Madam
Chair and the other members of this committee, that as we are
moving forward looking at FTC roles and responsibilities, that
what was put together then be a part of this legislative
effort.
With that I would like to start with Ms. Ponto from
Spokane, Washington, and just thank you for your excellent
testimony today. I thought it was really helpful to be able to
hear from somebody who is on the front lines really trying to
help so many in our community that are being impacted by
various scams.
You know, we are talking a lot about the FTC and its
statute and authorities, but I also think it is also important
just for us to better understand, you know, why people are
falling for these scams and why they are vulnerable now and how
we can improve education to prevent scams and facilitate
cooperation among the Federal, State, and local agencies.
So, in that vein, Ms. Ponto, I just wanted you to speak to
the type of scams that you are seeing for the most part,
whether they are directly tied to COVID, or if other things are
also on your radar screen, perhaps a cure scam or a treatment
scam. Or are consumers just more vulnerable in general because
they are shut in, and are more likely to be tricked by scammers
calling their home phone during COVID?
Ms. Ponto. Thank you. Absolutely. With the isolation, and
people being locked up in quarantine, that is the number-one
complaint that I am seeing coming through our office, is that
they are lonely. And these scammers are targeting folks.
I had an elderly lady who bought an iPad, and somehow she
got a scammer telling her that he sees 29 hacks on her iPad,
and, you know, she is in her 70s and she is thinking, OK, this
gentleman is nice, sounds nice, he is going to help me fix
this. Broken English accent, you know, but she didn't see those
flags.
And basically, long story short, he had her in the car,
tripping around to Fred Myers and Target, pulling gift cards,
putting 500 to $1,000 on gift cards, walking her through the
process of going through different checks stands, giving him
cash. The store manager came up, recognized that she may have
been a victim of fraud. She lied to him. She goes, ``Crazy, I
knew that he was telling me--and I still lied to him.''
The scammer stayed on the phone with her while she did all
of this, while she drove to the stores, picked up the gift
cards, went through the different check stands, went back out
to her car, scratched off the numbers, and read the numbers to
him. He called her 12 times a day when she wouldn't pick up the
phone. He claimed that he got control of her Nest camera, and
was able to look into the house because he was concerned for
her.
And so, when you are talking about these kinds of things,
whether some of this happened or not, it absolutely is scary.
The way that it came about was that her daughter was flying up
here for the holidays, and the credit card was declined. And as
soon as she saw--and Mom didn't tell her daughter, because she
was embarrassed. These are stories that we are seeing over and
over and over again.
The newest thing now with Washington State auditors, with
this big, massive breach that is just coming about, worries me
that I am going to have tons of victims in my office that were
victims with the Employment Security Department breach we saw
this spring.
So we need help. I have got detectives who are having
difficult times pulling information for victims, even though
the FTC says that, you know, these businesses shall provide
this information. It is taking months to get it. And so we need
better, thorough, more timely help from the Federal Trade
Commission in these areas. Thank you.
Mrs. Rodgers. Thank you. Thanks for what you are doing on
the front lines, and joining us today. I yield back.
Ms. Schakowsky. Those are amazing, amazing stories. Now I
am happy to call on my dear friend and fellow Illinoisan and
longtime member of this committee, Congressman Bobby Rush.
[Pause.]
Ms. Schakowsky. Bob, can you unmute?
[Pause.]
Ms. Schakowsky. Bobby Rush, unmute.
Mr. Rush. Thank you, Madam Chair. And I am your friend, and
we have been friends for decades now. And I certainly enjoy
your friendship.
Ms. Rich, the COVID-19 pandemic has exposed the healthcare
disparities in our Nation. And parallel to these, to this
pandemic, is what I call a consumer protection pandemic that is
more longstanding, and that has existed for many multiple
decades in our Nation.
In your testimony you mention that the rulings on 13(b) by
the Third and Seventh Circuits--and I quote--``have already
undermined the FTC's ability to obtain restitution for
consumers.'' My district is in the heart of the Seventh
Circuit.
And I would ask you if you would please drill down for us
and to describe how these rulings have undermined the FTC's
ability to obtain restitution and how has this impacted
communities, consumers?
Ms. Rich. Well, I am not at the FTC now, so I don't have
the details of the cases and--that have been stopped or changed
because of the rulings.
But when the circuit court says that you can't get
restitution through 13(b), until that is reversed, whether by a
miracle at the Supreme Court or by Congress acting, the FTC
cannot bring a 13(b) action and in one action both get
injunctive relief against law violations--often fraud--and
restitution at the same time.
Instead, it has to bring--get--instead it would have to sue
that company. And if it wants to get restitution in an
administrative action, that takes years at the Commission. And
then, when that is done and there is an order, go to court in
the Seventh Circuit in your district and seek redress then. In
cases where the FTC has used this tool, it is taking years and
years. And the money--there is no guarantee the money will be
there at the end of it, allowing defendants to keep the money.
The other alternative is that if, there is a rule on the
books that the FTC can enforce, then you can go to the Seventh
Circuit and seek restitution in the same action where it is
stopping the conduct. But many cases the FTC brings don't
involve rule violations. And so that is a problem, as well.
And so you are putting your finger on the very heart of the
problem.
Mr. Rush. Thank you.
Ms. Patten, can you please discuss what reforms you think
are needed to section 230?
And specifically, why should the Congress exclude
commercial speech from the protections section 230 currently
affords?
Ms. Patten. Thank you. I don't think that deceptive and
false speech that is commercial in nature--and I want to stress
commercial speech--should be protected. That is the kind of
speech that is being used to take advantage of susceptible and
vulnerable populations, especially during this pandemic, to
steal money from them, steal their identities.
And it does more than just economically impact these
people. It really goes to, as we have talked about, people's
mental health care and the like. And so I just don't think that
there should be a law protecting that kind of illegal speech.
Mr. Rush. Thank you.
Madam Chair, I yield back.
Ms. Schakowsky. And now--thank you for your questions and
answers--and let me now call on everybody's friend and a one-
time chairman of this committee, Congressman Upton, for 5
minutes.
Mr. Upton. Well, thank you, Madam Chair. And it is a very
important hearing, and I really appreciate the listening in and
participating with all of my colleagues. This is so important,
because so often this really does prey on the most vulnerable,
those that are our least prepared to deal with something like
this.
And, you know, we have seen it on other issues. You know,
traditionally the, you know, ``I have been kidnapped, please
send money to pay my hotel bill'' and, you know, it goes to
Nigeria and it disappears. But this is even worse, because all
of us know about COVID and all of us want a resolve to this
issue so that we can get our life back to normal again. And
these folks who are preying--with an e-y versus a-y--are so
dangerous to our society.
Let me just say a couple of things from Michigan's
perspective. We know that there have been already contacting
our offices, our State offices, more than--almost 4,600 cases
of fraud have already been identified; another almost 2,600
scams; identity theft, almost 1,300; do not call, 331; 5--
almost $6 million total, with an average of $250 per
individual. And the percentage of reports indicating the loss,
44 percent. So a real issue.
I guess my first question is to Mr. Kovacic.
What is your understanding as it relates to section 13(b)
and section 19? Are they mutually exclusive? What are your
thoughts on that issue?
Mr. Kovacic. There are complementary mechanisms, but
Jessica has underscored the superior quality of section 13(b).
It provides, by far, a more effective way of getting the kind
of immediate relief, getting a temporary restraining order
right away. Freezing assets, making it possible to preserve the
possibility for recovery.
The Commission does have other tools. But, in the context
we are describing, especially with the urgency that you have
just set out, 13(b) is the best mechanism the Commission has to
get immediate, effective relief.
But part of what I find disheartening about our
conversation is notice how often we have heard the word
``crime'' and ``criminals'' mentioned here. My concern is that,
if there is not an effective collaborative mechanism between
the civil enforcement side and criminal enforcement officials,
if that is not a priority, what we have really said is that the
worst that will happen to you is you will have to give the
money back. And I think the only way to have the real deterrent
message here is to take away the freedom of the criminals we
have been talking about.
But 13(b), for getting the civil recovery in place, by far
superior to the other tools the FTC has.
Mr. Upton. Well, thank you.
Ms. Ponto, you know, in your previous service in law
enforcement before joining the Spokane COPS, how can law
enforcement be better equipped to go after scammers?
I know social media is used. I look at my relationship with
my law enforcement folks, and they are often the ones that are
going knocking on the doors, trying to help individuals who
might have been victims of scams. But how did you work and
enlist social media to try and bring about the knowledge and
education to folks as relates to potential scams in your
previous role?
Ms. Ponto. Thank you. Backing up just a little bit, with
our department I think it is important to know that, you know,
fraud is not necessarily a glamorous crime. Most of our crimes
that we investigated that took higher priority are the crimes
against persons. And, you know, identity theft and fraud is a
property crime.
It also has multiple layers to it. And I know, as a patrol
officer, you know, we would hand off to go to domestic
violences and big assaults, and you had somebody that was at a
Safeway with identity theft. You know, it was like, oh, my God,
I am not even sure if I know how to do this. There are so many
layers to identity theft and fraud that, when we would take the
report, then we would pass it off to the detectives to do the
investigations.
Well, about 10 years ago our fraud unit was dissolved. We
needed more detectives in different areas of Spokane. And so
they kind of farmed out the fraud cases to those detectives
that were already carrying a large caseload. And so I think
that is detrimental in itself, because we don't have folks that
are doing that specifically.
And I see my time is just about up, so--thank you.
Mr. Upton. Well, thank you.
Ms. Schakowsky. Thank you, and now I recognize Mr. Cardenas
for 5 minutes of questions.
[No response.]
Ms. Schakowsky. Did I skip someone? Oh, you know what?
Sorry, I am so sorry. Yes, it was a couple of people. Wow. OK,
Mr.--oh, no.
Ms. Castor, you are next. Sorry.
Ms. Castor. Great. Thanks, Chairwoman Schakowsky. This is a
very important hearing.
And let me start by congratulating my good friend and
neighbor, Gus Bilirakis. ``Ranking Member Bilirakis'' has a
great ring to it. And I know Representative Soto would agree
that, when the Tampa Bay Buccaneers win the Super Bowl this
Sunday, it will not be a scam. It may be hard to believe. It
may be a miracle. But no scam at issue here.
But this is a really good place for the subcommittee to
start, because we are talking about the fundamental authorities
of the Federal Trade Commission and whether or not the FTC is
really working at its full capacity for our neighbors. And
unfortunately, in many cases it is not. And it couldn't be more
obvious than during this pandemic, when folks are desperate and
they don't know who to trust from day to day.
And, as our witnesses have pointed out, it is just these--
the scams are widespread. Unfortunately, the scam artists are
all too creative these days. And back home in Tampa I have
heard from my neighbors about fake COVID cures, and phony
clinical studies, and even the puppy and romance scams. And
unfortunately, the FTC has been ineffective because they are
required to send these toothless warning letters to lawbreaking
companies. And that is just not going to cut it anymore, in my
opinion.
So, Ms. Rich, you have been at this for many years. In your
testimony you point out that the FTC lacks the authority to
impose that first-offense civil penalty. Explain to us how this
is harmful to the FTC efforts to go after deceptive companies.
And do you think now it is emboldening companies to proceed
with these deceptive practices?
Ms. Rich. Some of my copanelists and many of the
Representatives have--the Members have said it is very
important to have appropriate remedies to deter wrongdoing and
also to, where possible, return money to consumers.
The FTC's first choice of remedy is always to return money
to consumers, not penalties. But you can't always return money
to consumers. And, as we have been discussing, that authority
is under threat. And one of the reasons you can't always return
money to consumers is you can't find the consumers, there is
not enough to implement a meaningful redress program, et
cetera.
So, in some instances, civil penalty authority is better
than redress authority and--for example, in many of these types
of scams where it is against a small, fly-by-night company. So
the FTC needs all of these monetary remedies in order to
provide meaningful deterrents. And it lacks them in, you know,
across a lot of its programs.
Ms. Castor. And, Ms. Patten, do you agree?
Ms. Patten. Absolutely. I think we can look at the Amazon
case that we have mentioned earlier. To think that this giant
company that makes billions of dollars every year had to steal
$60 million of tips from its drivers, and all the FTC could do
in that case was get the money back, they couldn't penalize
Amazon. And I just think that is crazy, it is outrageous. And I
think that Amazon absolutely deserves a penalty.
Ms. Castor. Well, I think it is clear that, especially with
the evolution of the online platforms, these scam artists are
just--the scams have accelerated, the online platforms have
facilitated it, and I think this committee will have an
obligation to modernize the FTC and address the first-offense
civil penalties and the ability to use and reinforce section
13(b) going forward. So I will look forward to working with all
of my colleagues here to do just that.
And thanks, and I yield back.
Ms. Schakowsky. Thank you. And now I recognize Mr. Latta
for 5 minutes of questions.
Mr. Latta. Well, I thank the chair, and also for our
witnesses today who are appearing for us virtually.
Before I begin with my questions, I would like to briefly
touch on how important access to the WHOIS information is to
this discussion. In short, WHOIS information is like the public
lands records for the Internet. It tells us who is responsible
for doing a domain name or an IP address. This data can be
incredibly helpful for Federal agencies and law enforcement
when investigating crimes, and even consumer scams.
Unfortunately, due to an overly broad interpretation of the
European Union's General Data Protection Regulation, the GDPR,
WHOIS information is no longer made widely available for public
access.
Last year I sent a letter to the Federal Trade Commission
asking how they use WHOIS to stop consumer fraud related to
COVID-19. The FTC made it clear in their response that, since
the implementation of GDPR, they can no longer quickly and
easily obtain the information they need to combat fraud. This
has been particularly harmful during the COVID-19 pandemic as
the FTC works to monitor the marketplace for unsubstantiated
health claims, robocall scams, and other deceptive practices.
To effectively combat consumer scams, we need to develop a
solution that allows our Federal agencies to access WHOIS. I
appreciate that the Internet Corporation for Assignment of
Names and Numbers, ICANN, recognizes the importance of WHOIS
and is working to find a pathway that provides this data for
legitimate, lawful needs. But it is taking far too long to make
this information accessible.
As we discuss COVID-19 scams today, I ask my colleagues on
this committee to consider how helpful WHOIS information would
be to stop criminal schemes and to work with me to fix this
issue.
I ask the chair unanimous consent to enter into the record
the written response I received from the FTC on July the 30th
of 2020.
[No response.]
Mr. Latta. Getting to the questions, through the course of
the pandemic scammers have preyed upon Americans' concerns
about the COVID-19 virus. We have seen this through phone
calls, social media posts, phishing schemes, and counterfeit
products. Senior citizens, especially those in Ohio, were hit
hard by these scams. And in just a short period of time, 578
scams targeted individuals 60 and older.
Most recently in my district, county health departments
have been warning citizens of scammers pretending to be health
department officials. These bad actors are telling residents
about coronavirus test results, contact tracing, and vaccine
scheduling and asking for personal information such as credit
card numbers and Social Security numbers.
So, Ms. Ponto, if I could start my first question with you,
again, while we know that the FTC is taking action against many
scammers who are using the pandemic to defraud consumers, how
are law enforcement agencies taking action at the local level?
And how can we better--again, I know you brought it up a
couple of times, but how can we better educate our consumers,
especially our seniors, to identify these potential scams?
Ms. Ponto. Thank you. Before COVID we were able to do a lot
of our tablings. We had town hall meetings. Now we do
everything by Zoom, much like what we are doing here today. We
are still getting that information out in those forums. We
divvy that information out to our neighborhood council, to our
city councils who have their own social media platforms.
Our COPS program is very good. Again, we are all situated
in the different neighborhoods. And a lot of that comes
filtered through our COPS shops. We have pamphlets, we do the
brochures. And we are able to talk to people on the phone. We
have all kinds of elderly folks who give us a call to confirm
that the, you know, ``The police organization is giving us a
call, and they want money for their emergency fund. Is this a
scam, or do I give them money?'' You know, and we are able to
talk them through these things.
We will continue to educate in these different platforms
the best that we can. But really, the COPS shop is a great
alternative for being right there in the neighborhood and
serving that liaison between the police department and the
community.
Mr. Latta. Also your testimony, you talk about the
unemployment scams and that a lot of people don't realize their
information is being used for fraudulent unemployment claims
until much later. Are there systems in place to help these
individuals to sort of protect their information and recover
from this theft?
Ms. Ponto. At this time I do not believe so, but I am not
confident on that.
Mr. Latta. OK. Well, thank you very much.
And Madam Chair, my time is expired, and I yield back.
Ms. Schakowsky. I thank the gentleman. And next we have
Congressman McNerney for 5 minutes of questions.
Mr. McNerney. Well, I thank the chair for holding this
hearing, and the ranking member. Good luck with the Buccaneers
this Sunday, Gus, but I don't think you are going to win it.
Say, I want to thank the witnesses. Your testimony has been
very stark and effective, and it will motivate us, I think,
into action. So it is a very good hearing in that regard.
As already noted here, we have seen a sharp increase during
the pandemic in scammers targeting unemployment benefits. And
in recent years we have also seen numerous data breaches where
consumers' personal information was stolen.
Ms. Rich, how do you--how do these pervasive data breaches
increase the risks that consumers' information can be used to
target the consumers later on, like going out to their
unemployment benefits?
Ms. Rich. The data breaches are very harmful. The whole
purpose of a data breach, it is usually to steal consumers'
information so it can be used to rip them off at later times.
If they don't get financial information enough to directly
defraud consumers, they can use the information they obtain for
phishing. You know, they know something about the consumer, so
they can then send them emails that look authentic, come from
some place the consumer is expecting to get an email, and then
get more information from them. So data breaches are very
harmful, and that is an area where I am hopeful Congress will
act to give the FTC more authority to take action.
Mr. McNerney. Good, that is a great segue to my next
question to you, Ms. Rich. What additional tools and resources
does the Federal Trade Commission need to help stop these
breaches from happening in the first place?
Ms. Rich. A special law authorizing the FTC, in particular,
not just to address breaches but to address the underlying core
security that causes these breaches. And it would be very
important to give the FTC first civil penalties for first
violations as part of this law, which has been discussed it
lacks. And as Professor Kovacic discussed, to fill in some of
the gaps in jurisdiction that the FTC has--for example, common
carriers, telecom companies, and nonprofits. So that is an area
that Congress can really make a difference.
Mr. McNerney. Well, thank you. I am also concerned that,
once consumers fall victim to identity theft, they aren't
getting the help they need to clean up their data and prevent
the same thing from happening repeatedly to them. Ms. Rich, do
you think more cooperation is needed from all stakeholders
involved in helping consumers in such cases, including consumer
reporting agencies?
Ms. Rich. Yes, it is a real problem, as Ms. Ponto
discussed. I think she talked about local police not
necessarily taking the action they need to on--to follow up on
identity theft schemes. So it involves the credit reporting
agencies, it involves the FTC referring complaints, and it
involves local law enforcement. And they all really need to
step up.
Mr. McNerney. Thank you. Well, my district includes the
city of Stockton, California. It is perhaps the most racially
and ethnically diverse city in the country. So it also has a
large low-income population. Many folks are just struggling to
put food on the table and pay their bills.
Ms. Rich, do you think more outreach needs to be done to
help consumers who fall victim to identity theft in communities
like Stockton?
And what could the FTC be doing to help, to be more
helpful?
Ms. Rich. The FTC's strategy has been to try to partner
with trusted sources of information in various--but I don't
know how successful it has been in your community. I don't know
whether FTC has been able to invest the resources it needs to
really reach out and partner with those communities. But that
is the strategy I know it has tried to use, and it even
encourages local enforcement to rebrand FTC materials so that
they can be trusted materials. So that is a very important
thing the FTC needs to continue to do.
Mr. McNerney. Well, my last comment is about price gouging.
Many of my constituents have raised concerns about price
gouging during the pandemic. I am sure everyone on the dais has
had the same issue. I think it is important that we pass strong
Federal legislation like H.R. 675 to protect consumers against
these practices.
Thank you, and I yield back.
Ms. Schakowsky. The gentleman yields back, and now I call
on Mr. Guthrie.
Mr. Guthrie. Thank you. Thank you, Madam Chair, I really
appreciate you and Republican Leader Bilirakis for holding this
hearing, and thank all the witnesses for their testimony.
Since the COVID-19 pandemic began nearly a year ago,
deceptive marketing, counterfeit products, and scammers
targeting America's most vulnerable have been on the rise.
In order to help protect Americans and stop this trend, I
introduced my bill, the Safeguarding Therapeutics Act, working
with our former colleague, Eliot Engel. I hope he is doing
well. It was signed into law last month. This legislation gives
the FDA the authority to seize and destroy counterfeit medical
devices and products such as counterfeit vaccines and other
combination devices that could harm patients. So proud that
that was work signed before--last session.
So my question, starting with Ms. Patten, in your testimony
you mentioned multiple misleading health products, such as
unapproved treatments and cures for the coronavirus that are
continually advertised to susceptible populations around--
across the country. So my question is, how is that
truthinadvertising.org--how does it successfully work with
businesses and government agencies to combat fraudulent
marketing schemes, to protect these consumers from these
harmful products, and what resources are available to help
consumers identify these products?
Ms. Patten. Thank you. So one of our goals is to always get
information to consumers as quickly as possible. So we
immediately put things on our website, TINA.org, and on social
media platforms to try and educate consumers about
inappropriate health products.
Moreover, when we do find a company that is violating the
law, FTC law, we will immediately contact the company and ask
them to stop it. Sometimes we find that we are educating the
uneducated and that they just don't know better. And, in other
instances, where we are either ignored or we feel that they
have not done a good job, we will not hesitate to go to State
and Federal agencies to try and stop the inappropriate health
claims from being marketed.
Mr. Guthrie. OK, thanks. And does TINA have--TINA.org have
the resources to help these consumers?
Ms. Patten. We try and do as much as we can. We are a small
organization. But we have thousands of posts on our website, a
lot of them dealing with the wellness industry and
inappropriate health claims. And we try and guide consumers to
where they can get help at the local, State, and Federal level
when appropriate.
Mr. Guthrie. OK, thank you very much. And now I will switch
to Ms. Ponto.
Can you explain how your organization assists victims of
scams?
And do you direct victims to file complaints with the FTC
or any law enforcement agencies?
And if so, can you walk us through the process once a
report is filed?
Ms. Ponto. Yes, absolutely. Thank you. So we end up
getting--well, we have been in a proactive, active manner. We
have this vehicle, prowling victim callbacks, where we get
these daily reports from the police department that talk about
victims who have been prowled, maybe their purse was stolen,
maybe credit cards were stolen. Our COPS shops do these
callbacks, and so we are very proactive.
We reach out to the folks and find out, ``Do you have any
personal identification in there at all that would lead to
identity theft?'' If they do, we have been following this
recovery plan very well. This is a wonderful source of
information for us.
One thing that I did notice, though, is some of these
larger banks and corporations, when they are talking to--the
victims usually go to their bank first to say, ``Hey, I am a
victim of fraud'' to see what they need to do next--the banks
have been pretty good about starting that fraud alert. And that
is what we would say, is let's go and get a fraud alert started
for you.
The larger banks are not--I am not hearing anyone that says
from the larger banks are telling them to go to the FTC and
file a report. And that is really odd to me. We do. I ask
them--you know, this might be a new phone number that they
don't have, or at least update the phone number that is most
currently used. But we got to get it in there, because, just
like report writing, if it is not down in a report, it didn't
happen.
And so we need all of these to go through the FTC, just so
that you have that information, and that you can get it out
there to other----
Mr. Guthrie. Great. Thank you to both of you. My time is
about----
Ms. Ponto [continuing]. Social Security numbers, we point
them in that direction there, and start really following this
bible right here, as far as helping our victims.
So thank you for this, this is a beautiful piece of work. I
have it framed in my office.
Mr. Guthrie. Well, thank you. My time is expired. I
appreciate your answers, and I yield back.
Ms. Schakowsky. I thank the gentleman, and now I recognize
Mr. Cardenas for his 5 minutes.
Mr. Cardenas. Thank you very much, and thank you, Traci,
for expressing how you put your heart and soul into your work
and for framing that document.
It is very concerning to me that we hear these stories over
and over, and during the worst pandemic we have seen in over
100 years. It appears that over hundreds of millions of dollars
have been stolen from Americans, and it is very important for
us to understand that this is not a nebulous thing. This is
going on every day and affecting the most vulnerable people in
our community.
For example, grandparents being told that their Social
Security payments will be withheld if they don't make an urgent
payment. They are your neighbor who is struggling to get
consistent work because of the pandemic, and they have lost
their job, and they fall into this fraudulent investment
coaching scam.
For years, the FTC has sent a strong message to people who
would prey on consumers to make money off of people illegally.
And the message is simply this: You will face consequences, and
you will be held accountable, and you will pay. Now, more than
ever, it is critical that we ensure that the FTC has the tools
it needs to continue doing its job and protecting American
consumers.
Jessica--I am sorry, Ms. Rich, during the past year
consumers reported losing more than $300 million to fraudulent
activities related to the pandemic. In general, how often is
the FTC able to recover money lost to fraud and scams?
Ms. Rich. I don't know that I could put a particular number
on it, but whenever the FTC takes actions its goal is to get
money back for consumers. That is the top priority, which is
why this, the 13(b) threat, is so urgent and why I am sure
everybody at the FTC watching this hearing right now is very
thankful to you for taking the leadership to try to solve that
issue.
But that is the top goal. Frequently the money is gone, and
that will be more and more the case if this authority goes
away.
Mr. Cardenas. Thank you. Yes, 13(b) is critical, and I hope
that we can legislatively put that right once and for all.
Is it fair to say that bad actors who are taking advantage
of people with these schemes related to the pandemic would be
emboldened should the FTC lose its power to return the money
back to the American people when they have been scammed?
Ms. Rich. They already are. And, as I mentioned, the FTC
can't pursue this relief in two circuits already, and others
are watching that and saying, ``Oh, look, the Supreme Court may
take this authority away, let's delay'' or ``Let's not pay.''
And, as we also discussed, the FTC lacks civil penalty
authority in many cases. And so, between the two of those, it
is going to embolden fraudsters a lot.
Mr. Cardenas. Thank you.
Bill, Mr. Kovacic, as a former small business owner myself,
I know that it is even--it is hard to run a business, even in
the best of times. The overwhelming majority of small business
owners are honest Americans who want to do things the right
way. How are small businesses who are playing by the rules
harmed when they have to compete in a marketplace with actors
who break the rules and who are not brought to justice?
Why is section 13(b) so important to the FTC's work to make
sure that we have a fair playing field out there?
Mr. Kovacic. I think, as we are all painfully aware, the
businesses you are talking about already are suffering a
horrible period of distress, and there is a good question about
how many of them will survive this process.
In your own district, how many small businesses that were
fully operational 12 months ago will be operational 12 months
hence? And my guess is the denominator is a lot bigger than the
numerator there.
You add to that the additional concern that, you know, I
play by the rules, I pay my employees fairly, I give my
customers a fair deal. I think one of the most damaging things
is that, when you have the bad guys--and again, these are
cynical, bad guys--it gives the sense that the whole
neighborhood of commerce is corrupt. It creates a sense of
doubt about the legitimacy of other transactions. That is, if I
am the hardworking small businessman that you describe, how do
I persuade people that I am clean?
So one taint of this process is that it raises questions
about the legitimacy of the entire market system. But the other
is that it--again, it damages the individuals in the short term
in that it diverts trade away from people who are playing by
the rules. So it is--in addition to this horrible scourge that
small businesses face, now you see a diversion of trade away,
you see a loss of confidence, and you see the possibility that
people just don't trust the market.
Mr. Cardenas. Thank you, Mr. Kovacic. My time has expired.
And we are a country of laws. And the FTC needs to be able
to do its part. And hopefully we, as Congress, will restore
that, clearly.
Thank you so much, I yield back the balance of my time.
Thank you, Madam Chair.
Ms. Schakowsky. Thank you. Thank you. And now I want to
welcome Mr. Bucshon for his time and just say we were able to
pass at least a first step, the COVID-19 Consumer Protection
Act. But, obviously, we have learned today we have to do much
more. So, Mr. Bucshon, it is yours.
Mr. Bucshon. Thank you, Chair Schakowsky, for holding this
very important hearing. And it is--I think sometimes you have
hearings in Congress that don't get a lot of media attention. I
hope this one does, because the level of scams that are out
there has probably grown exponentially during COVID-19,
shamefully, unfortunately. So this is an important hearing.
I was proud to work alongside you, Chair Schakowsky, to
help introduce and include the COVID-19 Consumer Protection Act
in the end-of-the-year funding bill to put real teeth behind
the FTC's enforcement efforts in combating COVID-19 scams by
allowing them to seek civil penalties for first-time offenders
throughout the duration of the pandemic. But as you mentioned,
this is the tip of the iceberg of the work that we need to do.
But I also believe that promoting education and awareness
of these scams is critical in reducing harm to Americans. A lot
of people, particularly seniors, just aren't well aware of
these scams. My mother is 80, and I can tell you that she calls
me all the time and says, ``Hey, I got this call'' or ``I got
this email.''
And I am like, ``Mother, that is a scam.'' So this is real,
and it hits home for everyone.
I also know, as a surgeon, that using appropriate and
approved medical equipment is critical in achieving positive
outcomes during the pandemic for both patients and healthcare
providers. So I am going to focus a little bit on that.
Ms. Ponto, have warnings of fraudulent personal protective
equipment obtained in scams been part of the Spokane COPS
community outreach when promoting the proper usage of various
personal protective equipment?
Ms. Ponto. Thank you. To be honest with you, we are not
seeing a large number of fraudulent vaccinations, or remedies,
or personal protective devices. We are not seeing that really
in the Spokane area too much.
Mr. Bucshon. Well, that is good to hear, because across the
country, you know, this has been a pretty substantial problem,
where products that are supposed to be protective are not. Or,
as you mentioned, now we are seeing fraudulent vaccines and
other things as it relates to COVID-19.
As you mentioned earlier in this hearing, falling victim to
a scam also causes serious mental health concerns, and victims
may be too embarrassed to admit they were scammed. And I know
that is true. They won't even admit it to family members. As I
mentioned, my mother, she was a victim of a scam. And
fortunately, it wasn't that significant. But she--I didn't know
about it until I went to her house, and I am like--and I won't
get in detail, but I am like, ``Well, how did--where did you
get this thing?''
``Well, somebody called me.'' So I know that. And, you
know, she was embarrassed, and also it causes mental health
concerns.
Can you speak to some of the issues you have seen and how
we can best address providing support in this area for victims?
Ms. Ponto. You know, we really need to be stepping up as
communities and taking care of our elderly population. You
know, a lot of the folks, you know, especially in their 70s,
80s, they don't have WiFi, they don't have laptops, they don't
have smartphones. And so they really are feeling the isolation.
They might get something in the mail. And, you know, these
folks have good hearts, they want to send money to these
different agencies to help, you know, support whatever mission
they are on. And so it is more difficult.
And I almost think that it falls heavily on family members
being educated and having those hard conversations with their
mothers and their fathers. We don't want to disrespect our
mothers and fathers, you know. We want to have them keep their
independence. We do not want them to feel foolish and those
things. So it really is important that our adult children
really do that follow-up and get that information to their
mothers and fathers.
Churches--churches is another great forum because a lot of
this population do go to their local churches, town halls,
senior community centers, places like that, places that they go
and frequent, assisted living centers. So those are areas that
would benefit from brochures and education.
Mr. Bucshon. Ms. Patten, do you have any comments on that,
or anyone else on the panel want to comment on this--the PPE
situation, where the fraudulent--stuff related specifically to
COVID, and what you are seeing and what we can do.
Ms. Patten. Yes, TINA.org has received numerous complaints
from consumers that have ordered PPE on the Internet and failed
to get it.
We have also seen many advertisers putting the FDA logo or
saying that they are FDA approved, when obviously that is not
the case, on Amazon and eBay. So it has been a huge issue.
Mr. Bucshon. OK, well, I am out of time, so I will yield
back. Thank you, Chair Schakowsky.
Ms. Schakowsky. Thank you. I think Congresswoman Dingell is
not back yet. I am going to move on, then, to my Illinois
sister, Congresswoman Robin Kelly, for 5 minutes.
Ms. Kelly. Thank you so much, Madam Chair, and welcome to
the ranking member. As much as I love Kathy Castor, I say ABB,
Anybody But Brady, on Sunday. But anyway, thank you to the
witnesses.
The coronavirus pandemic has been ripe territory for
scammers, as we all know. Criminals have taken advantage and
have profited from confusion and hardship. Seniors, in
particular, have been targeted during this pandemic.
Ms. Patten, many seniors struggle with technology and lack
of digital literacy skills. Due to the coronavirus pandemic,
many are now having to rely on the Internet more than ever,
including for booking COVID-19 vaccine appointments. In some
States vaccine appointments need to be booked online, leaving
those who can't navigate the Internet at risk of falling prey
to fake vaccine appointment websites.
Have you seen seniors targeted during the pandemic?
And what did they keep in mind to guard against falling
victim to a scam?
Ms. Patten. Absolutely. I mean, I don't think it is a
coincidence that one of the largest scams that seniors fall
victim to is tech support scams, right, on the computer,
because they do struggle. So it has been a huge issue. And, you
know, it is hard to stop.
I think that seniors also are primarily scammed using the
telephone. And while there is an ability for local, State, and
Federal agencies to find scams on the Internet or in print, it
is much harder when the scam is perpetrated over the telephone.
So it is a huge issue, and I know one that is being examined by
agencies at every governmental level.
Ms. Kelly. Thank you. Ms. Rich. When you were the bureau
director, you created the Every Community program to ensure the
FTC was reaching a diverse set of communities. What were the
major--and what were the obstacles you ran----
[Audio malfunction.]
Ms. Rich. Well, it was an incredibly important program, and
we had ambitious plans for it. It was not only outreach to
different communities, but research to see how successful we
were doing in reaching out to different communities, and
enforcement to make sure that--enforcement in the areas where
we saw problems.
And one of the challenges we have--in the data that we did
collect at the time, it turned out that certain populations,
specifically African-American and Latino populations, were
disproportionately targeted by fraud but were underreporting
fraud, that weren't reporting fraud in as great numbers to the
FTC, showing that the FTC was not capturing the complaints it
needed, and had a lot more work to do.
I am--I don't know exactly what the agency has been doing
since I left. I know in their outreach that they do a lot to
reach out to different communities. But I think this program
really needs to be scaled up now with additional research, with
more resources devoted to this, to making sure that all these
communities are represented and with everybody at the agency
working on this goal.
Ms. Kelly. And how do you think the FTC should prioritize
its resources toward combating scams?
I mean, you know, there are so many different ones targeted
toward consumers.
Ms. Rich. I would say, based on past experience--I don't
have access to the details now--that the fraud program is at
least 50 percent of what the FTC does, between its headquarters
and regional offices. And, given the pervasiveness of scams, I
think that is appropriate that it be such a large program. And
it should continue to invest those kind of resources.
Ms. Kelly. Thank you so much.
I want to let my colleagues know that I have reintroduced
the bipartisan Protecting Seniors from Emergency Scams Act, and
I hope my colleagues will join me as cosponsoring this very
important legislation to protect seniors.
So thank you so much, and I yield back, Madam Chair.
Ms. Schakowsky. Is Mr. Dunn here?
[No response.]
Ms. Schakowsky. No? Give me a signal if you are. Otherwise,
I am going to move on to Representative Lesko for 5 minutes.
[No response.]
Ms. Schakowsky. Representative Lesko, are you here?
Dunn, are you here?
OK, you are recognized. You are recognized for 5 minutes.
[No response.]
Ms. Schakowsky. Unmute, unmute.
[No response.]
Mr. Dunn. Is that to me, or to Representative Lesko?
Ms. Schakowsky. No, it is--no, if you are there, Mr. Dunn,
and that is you----
Mr. Dunn. Oh, OK, I am sorry. I thought you----
Ms. Schakowsky. You got recognized. OK.
Mr. Dunn. I apologize. Thank you, Madam Chair. I am
grateful that we are here today discussing this important topic
of fighting back against the scams and frauds during the COVID-
19.
What is new is the fraud now carries a new risk, not just a
financial toll but an increased potential for damage to their
health and well-being, as well. For that reason, this is more
important than ever.
I am particularly concerned with scams targeted towards
veterans, seniors, and those living in rural communities like
the ones I represent in Florida's 2nd congressional district.
To date we have seen a commendable effort by our local
partners, who are raising awareness and preventing these scams.
Ms. Patten, during the COVID-19 pandemic we have seen a lot
of groups impacted. Specifically, though, I am concerned right
in this question about our military veterans. And can you speak
toward the work that TINA.org is doing with groups to represent
those communities?
Ms. Patten. Right. Well, TINA.org provides a platform for
consumers to come to complain to us about issues. And we have
received multiple complaints from military veterans that have
been finding products, especially wellness products,
supplements that are claiming to either prevent, cure, or
mitigate the symptoms of COVID-19.
And I should note that one of the issues we are finding is
that the supplements and the products, they are not new. What
is new is the marketing. There is--they pivoted. So before,
they were targeting military veterans with these same products,
saying they could cure, prevent, or treat PTSD. And now they
are COVID cures and----
Mr. Dunn. What remedies do the military--are you directing
our veterans, the military, towards particular remedies?
Ms. Patten. Right. So on TINA.org we have listed State,
Federal, and local agencies that they can complain to and share
their issues with.
Mr. Dunn. Thanks so very much.
Ms. Ponto, our local law enforcement has been a very
valuable resource in terms of education on scams, especially
for frauds that originate outside our region. What helpful
tools can Congress provide--you or whoever--in order to help
local law enforcement on scams that originate remotely?
Ms. Ponto. You know, one of the things, when I was talking
to a detective about fraud investigations, is that she is
having a difficult time getting this information for
investigations. And it would be helpful if, when the time
comes, Federal Trade Commission could step up or step in and
help get that information to our law enforcement so they can
look at getting convictions, and maybe, you know, put somebody
in jail over this.
They are very good, too, about getting the education out
there. Most of the education for identity theft and fraud
really does come from our COPS shops. We get a lot of
referrals, and we are able to walk them through this process of
reporting plus provide them with brochures and just firsthand
knowledge. I think they like talking to a live person, versus
having something in their hand at times and reading something
online. So we provide that.
Mr. Dunn. So I thank you, I thank you specifically for
bringing in the role of the shops, who have been very helpful,
honestly, in our community on that, as well.
Ms. Patten, once again, the pandemic certainly has created
isolation for so many people that used to get their advice and
kind of guidance from their friends and their workplaces,
community events, churches, et cetera. Could you walk us
through some of the details of how your organization reaches
the people in more rural communities in our current situation
of isolation?
Ms. Patten. Right. So I think it is important that you have
to reach consumers where they are, and where they are now is
social media. So TINA.org is very active on Facebook. We
actually take out ads to warn consumers about scams and schemes
that are on Facebook or on the Internet. And we also are very
active on Twitter to try and educate consumers, and get the
word out as much as possible.
Mr. Dunn. Thank you for that comment. I see my time has
expired.
I too see a face of the social media out there in the rural
communities.
Thank you, Madam Chair. I yield back.
Ms. Schakowsky. Thank you. I am--you may have noticed, the
witnesses, that we are in and out. That is because votes are
happening.
Is Mr. Pallone here to--I am--OK, Frank, I am going to
announce the next person. I think Debbie Dingell is not back.
So, Congressman Soto, you are next.
And Frank, I am going to go vote.
Mr. Pallone. OK.
Ms. Schakowsky. Thank you.
Mr. Soto. Thank you, Madam Chair. We all understand that
American families are in crisis. They are losing loved ones,
losing their jobs and small businesses, facing home insecurity
and food insecurity. So it is understandable that they are
desperate for solutions to these problems that they face, which
makes them more vulnerable to scams. COVID-19 scams kick people
while they are down. And we must put an end to this scamster
carnival barkery that runs rampant throughout the United
States.
According to the Florida attorney general office, we have
seen several rampant themes of scams. Common COVID scams in
Florida include unsubstantiated disinfectant claims; treatment,
vaccine, and cure false claims; sham at-home testing kits;
Federal stimulus scams; fraudulent products; charity scams;
unsolicited calls, texts, and emails; and phone solicitations.
The latest scams in Florida, as of this January, are
vaccination scams, suspicious texts or emails claiming to have
info about the vaccine in exchange for personal information.
This is disgraceful.
So the question becomes, how can we protect consumers
without penalties, without restitution for victims? This would
render the FTC a toothless tiger feared by no one, and leaving
scammed consumers defenseless. It is clear we have to act on
13(b) to ensure that the FTC can continue to obtain restitution
for victims.
Ms. Patten, we recently passed in December the COVID-19
Consumer Protection Act. My question to you is, is this being
sufficiently used already by the FTC?
Do you anticipate gaps in this law, realizing it just was
passed?
Ms. Patten. To my knowledge, the FTC has not yet used that
act, but that is the only information I know, that there is no
public--on their website.
It does have gaps. It does--you cannot target work-from-
home scams using this, because it is really focused primarily
on government benefit scams and healthcare scams.
But what I would say is that, while it is absolutely
critical to have an act like this at this time during the
pandemic, I would warn you that it doesn't provide for coverage
for the next disaster, for the next earthquake, for the next
fire, what have you. There aren't--unfortunately, will always
be a segment of our population that is in a devastating event.
And so I think that legislation is necessary that covers all
such events, and not just focused on the pandemic.
Mr. Soto. Thank you, Ms. Patten. And I hope the FTC is on
notice we want them to start utilizing this act, and we are
certainly paying attention, and thank you for your comments on
additional ways we could fill these gaps.
Mr. Kovacic, you have called upon, in your initial
statement, a billion dollars for the FTC budget. If we were
able to secure these funds, what important items do you think
the funding should be used for to protect consumers?
Mr. Kovacic. I think we can go through the list of items
that have been mentioned.
One is a major expansion of law enforcement. That is, bring
more cases, bring more visible cases.
Second, much deeper collaboration, as I have mentioned
before, with criminal enforcement authorities to build the
criminal cases. I think we would have a much greater raising of
public awareness, certainly among wrongdoers, who are
geographically mobile, they are technologically proficient,
they understand gaps in the law, and they have been building
experience, going from one scam to another. So bring visible
criminal prosecutions, and spend money on that.
I would spend money on the outreach effort that we have
been referring to, to build better networks with a collection
of government and nongovernment institutions to develop the
capacity to analyze complaints in real time, and target
attention on vulnerable communities.
I would spend the money to learn more about how commerce
and fraud take place in historically disadvantaged communities.
I would spend the money on doing the better public
education that we have been speaking with (sic).
I would spend the money on building better networks with
public and nongovernment organizations, civic organizations.
I would spend the money on the capital investment to build
up the technological capacity to analyze and build databases
and use them effectively.
That would be my short list of what to do. And I would
think ahead about the moment when we are going to have new
privacy legislation. The FTC is being asked to bring big cases
against big tech companies across the board. None of this is
cheap to do. This is how I would use my billion dollars.
And, of course, were I in your position, I would say, ``I
am going to come back regularly to see what the return is to
this kind of effort.'' But notice how many times you have been
saying in the past 2 hours plus: ``We are going to do more.
More outreach, more education, more cases, more, more, more.''
It costs.
Mr. Soto. Thank you, Mr. Kovacic. My time has expired.
Mr. Pallone [presiding]. OK, I thank you, Mr. Soto. We now
go to the gentleman from Indiana, Mr. Pence, recognized for 5
minutes.
[No response.]
Mr. Pallone. Greg, you have got to unmute, I think.
[No response.]
Mr. Pallone. Mr. Pence?
Mr. Pence. All right, I apologize. I always----
Mr. Pallone. Oh, that is all right.
Mr. Pence [continuing]. Everybody when they do that.
Mr. Pallone. Start the clock.
Mr. Pence. Sorry about that.
Chair Schakowsky and Ranking Member Bilirakis, thanks for
calling this meeting today. Thank you to the witnesses. It has
been very interesting listening to you today. Thanks for coming
here to engage on the topic of COVID frauds and scams, which we
have heard a lot about and we have all experienced a lot about.
From fake stimulus checks to phony pet adoption sites,
scammers are seizing the opportunities during the pandemic to
prey on vulnerable Americans. Like Congressman Bucshon, my
mother and stepfather have had the same problems. Thank God
they call us and ask us first. Not everybody has that
opportunity or that luxury.
Unfortunately, many Hoosiers are not immune from these
scams. Over the past year alone, Indiana has reported almost
4,400 scams to the FTC, accounting for an estimated loss of
$1.9 million.
Many of the fraud schemes have shadowed the evolution of
the COVID-19 response. In April, hospitals in my district
raised the issue many times of nontraditional medical suppliers
engaging in deceptive price gouging of scarce PPEs, as much as
$50 sometimes for some of that equipment.
Then, with the passage of the CARES Act, scammers took
advantage of critical relief intended for individuals and
families. Now we are seeing fraudulent claims around vaccine
distribution all over the country. But recently, the Indiana
Governor highlighted how pandemic unemployment relief programs
in the State have become a target of fraudsters and scammers.
Similar to the situation you highlighted in your testimony,
Ms. Ponto, criminals are gathering personal information from
websites and social media to apply for benefits in their
victims' names. I think we talked about the IRS dollars showing
up on some people's returns. The State uncovered a fake website
scam that closely mimicked the Indiana Department of Workforce
Development webpage to trick individuals into giving up their
information for unemployment. Not only does this result in a
loss of resources for the State, it is creating significant
delays in the ongoing verification process for Hoosiers out of
work and seeking that assistance as quickly as they can get it.
Ms. Ponto, have you seen this type of scam increase?
And how would you recommend we stay ahead of the curve to
prepare for these schemes so that Hoosier relief programs are
not obstructed or delayed?
Ms. Ponto. Thank you. I did. This spring, when it first
came about, I got hit hard with companies--I mean universities
and companies, not individuals--that got hacked over this
unemployment security department scam. And I don't know what
the question is. That should have been very secure, in my
opinion. The Department of Corrections was struck. That is a
huge entity.
So I am not sure what the answer is. I just know that we
all have a role to play, and we have got to all work together
to figure that out.
One of the things I did find interesting was one of the
detectives I talked to said that she has a daughter who is a
minor that has Social Security disability. And within a week,
the detective herself actually started receiving AARP paperwork
applications, because they thought that the Social Security
disability was from her, not this minor. So somewhere along the
lines we have got this sale of personal information that is
going back and forth. And that probably needs to stop too
because of what all is in that information that is going
elsewhere and out there.
So I don't know what the answer is, as far as the
unemployment benefits. I fear with this newest hack that is
just coming about with the auditor's office, that this is just
the tip of the iceberg. They are getting so smart, and they
work all day on doing this. So I don't know what the answer is.
Mr. Pence. Thank you for what you do, Ms. Ponto.
I yield back.
Mr. Pallone. I thank the gentleman. Next--Mrs. Dingell is
not here, so we will go to the gentlewoman from New York, Ms.
Rice.
Kathleen?
Ms. Rice. Thank you, Mr. Chairman. At the epicenter of the
initial coronavirus outbreak in the U.S., State and local
officials in my State of New York and in my district on Long
Island were also the first to deal with the issue of price
gouging.
So at the start of the pandemic, a pharmacy in my district,
for instance, was selling N95 masks for $5 each from open boxes
of 20. And then, in another part of town, we had hand sanitizer
going for all different amounts for tiny sizes, ounce sizes
of--you know, up to $10 for a 4-ounce bottle at--and this was
all within, you know, three different locations within a 10-
minute drive apart from each other.
Nassau County, which my district sits in, made a little bit
of history when Federal prosecutors brought the first case in
the Nation under the Defense Protection Act against the owner
of a warehouse store who was hoarding more than 4 tons of
personal protective equipment and marking up items by as much
as 1,328 percent.
So Ms. Rich, if I could start with you, in my district we
were able to overcome these challenges because we had strong
local leadership, and we mobilized our Department of Consumer
Affairs. Can you just talk a little bit about how the FTC has
or hasn't responded to price gouging complaints during the
pandemic?
Ms. Rich. Yes. So I am not an expert on price gouging,
because it is typically handled on the competition side of
things, rather than consumer protection. But I understand that,
when the FTC looks at this issue, it looks at it through its
unfairness authority, which requires a detailed cost benefit
analysis of price changes, of the reasons behind it, of the
effect on consumers and competition.
Its unfairness authority is not a nimble way to respond to
a fast-moving problem. A better way, which would be more
similar to what happens with the States, would be for Congress
to decide to set forth legislation establishing standards for
price gouging but similar to what happens in the States, where
they define it either by a percentage or fluctuations that
happen within a certain period of time compared to the prices,
you know, 5 days ago or whatever.
Clearer standards would allow for much more nimble
enforcement than unfairness. And then the FTC could enforce
those standards in the way that you want.
Ms. Rice. So do you think it is one of the--that is one of
those issues that should be handled at the local level?
Ms. Rich. Thirty-four States have legislation. You were
just talking about how effectively it was done at the local
level. But there may be companies that operate nationwide,
which would make it appropriate for the FTC to handle something
like that.
Ms. Rice. Well, certainly, you know, with the increase in
various e-commerce platforms, it has made it harder for local
officials to go after price gougers who are on the other side
of the country or on the other side of the planet. So I guess
that is a specific role for the FTC to play.
You know, so I think it is really important, you know, if
you talk about section 13(b), and what I am hearing from every
single witness here today is that Congress needs to act
forthwith. So I just want to maybe have, you know, Ms. Rich or
Mr. Kovacic, anyone who has an opinion about this--so it is one
thing in terms of what the Supreme Court is going to rule on,
in terms of recouping stolen money. But maybe talk a little bit
more about what additional penalties--I think it was Mr.
Kovacic who was talking about the lack of--I mean, if you look
at what happened with the, you know, stealing the tips from
taxi--or delivery drivers, I mean, that is just absurd that,
you know, you call--we call it a victory, just because we got
the money back and we are going to distribute it to the
victims.
But--so maybe just talk a little bit more about what
Congress should look at, in terms of additional penalties,
other than just recouping--allowing the FTC fraud jurisdiction
to recoup lost money.
Ms. Rich. Yes, the penalties are a very important area too.
And certain--you know, most--many agencies, like the CFPB and
many State AGs offices, have the capacity to impose penalties
in a way the FTC doesn't, even though the FTC has this enormous
jurisdiction and mission to deter this behavior. So the--I
think Congress should consider giving FTC penalties across the
board, but at the very least in certain key areas like privacy.
Like, you know, the gig economy was another--was an area
that we just talked about with what just happened with Amazon.
And that was something that the acting chair is supporting in
certain areas of fraud where they can't get penalties at this
point. That would be very important, as well.
Mr. Pallone. Thank you.
Ms. Rice. Thank you, Mr. Chairman. I yield back.
Mr. Pallone. Next we go to--I thought I saw Mr. Armstrong.
Is he there? Oh, yes. The gentleman from North Dakota, Mr.
Armstrong, recognized for 5 minutes.
Mr. Armstrong. Thank you. Mr. Cardenas referenced a 13(b)
proposal by Senator Wicker. I believe that that was part of the
Senator's privacy proposal, so I think we would all be pleased
to see it move as part of a broader effort.
Given that, I would just like to ask our two FTC veterans
on the panel this: If we are going to address 13(b) and
consider first-offense penalties for privacy violations and
rulemaking authority, does it--it doesn't make sense for
individual States to add conflicting rules and allow private
rights of action, correct?
[No response.]
Mr. Armstrong. It is easier in person, you can just do it,
but--yes, please.
Ms. Rich. Preemption and private right of action are some
of the key issues that are subject to the debate. If State
laws--if there is any discussion of preempting State laws, at
the very least the States should be able to enforce the law,
any law that gets passed at the Federal level.
Mr. Kovacic. First, I applaud the sense of urgency with
which you and your colleagues, Congressman, are approaching the
development of a comprehensive, nationwide privacy policy. At
the moment, our national privacy policy is being set in
California and Brussels, and we don't have one at the national
level. So I think it certainly deserves your attention.
My intuition on private rights is that I would perhaps
begin by creating the robust public enforcement framework,
which is the collaboration between the Federal and State
authorities. I would see how that works for a while, and I
would take stock of that in 5 years, and decide what kind of
private enforcement I want to develop. Maybe you develop
private enforcement that is a follow-on to the State and
Federal enforcement. But I think you have a great deal of room
to maneuver and to shape the program in a way that reflects the
competing interests that have been brought to bear in the
fruitful debate you are having about private rights.
On the preemption, I would like to preserve, in general, a
framework that promotes coherence at the national level.
Because the States, in a number of instances, have had very
useful additions to the framework, by way of experimentation I
would like to preserve some capacity on their part to perhaps
go beyond provisions of the national coverage and to experiment
with new techniques that could be adopted and brought into the
Federal scheme.
I confess I don't have an excellent administrative
mechanism to do that, and I hesitate a bit because I see the
benefits of the broad coherence. But I also see benefits that
States have brought to the process by being able to do things
that the Federal system has not done at the moment. So I would
like a mechanism that incorporates both of those elements and
policymaking.
Mr. Armstrong. Well, I appreciate that. As a former chair
of a State senate judiciary committee, I can tell you two
things: we like to have State authority, and I don't--with all
due respect to my good friend, Congresswoman Castor, North
Dakota politics and California politics are pretty
significantly just distinct and different. But we sure seem to
get a lot of uniform laws that are based out of California.
So just as we go through this, I want to just point out a
couple of things, and one, I am excited to be on this
committee. No offense to all of my colleagues on Judiciary and
Oversight, but we have made it well into 2 hours and nobody is
yelling at each other yet. So that is--it is very different.
And two, I just--just so--as we are doing in the actual
COVID thing, according to the FTC, North Dakota has had over
270 COVID-related scams. And we are actually really lucky. We
have a great attorney general who has been on top of these
things, and also--and has started warning our consumers about
it as early as last April.
But I just want to be clear real quick that product
liability is actually almost always primarily a State law
function, and it is a principle that manufacturers, sellers--
strict liability and defective consumer products. I do think we
have to have a broader--I am glad people were asking questions
about section 230 and how it applies as people--as online
retailers become part of the entire distribution chain, and the
distinction between an online retailer and that.
And then I would also just say we have to be careful in
anything we do that doesn't further entrench the big guys and
decrease competition.
And with that, I will yield back.
Mr. Pallone. I thank the gentleman. And now we are going to
move to the gentlewoman from Minnesota, Ms. Craig.
You are recognized for 5 minutes.
Ms. Craig. Thank you so much, Chairman. Thanks for
yielding, and thanks for having me on this committee and on
this subcommittee. I am super excited to be here.
I want to expand on the conversation in my question to you
and highlight the work on COVID-19 that I began in the last
Congress on scams related to COVID-19 with my fellow Minnesota
Congressman, Pete Stauber. Together we introduced a bill called
the Stop Coronavirus Scams Act of 2020, which would double the
applicable forfeiture penalty, criminal fine, and term of
imprisonment for anyone who provides misleading or inaccurate
caller information in an attempt to defraud, cause harm, or
wrongfully obtain anything of value by using false information
related to COVID-19.
While this bill primarily deals with the FCC's existing
authorities under the Communications Act, I wanted to bring it
up in the context of the comment you made about fraud not
occurring in a bubble and how it relates to other entities,
individuals, and systems to function, including the platforms
and conduits through which scam artists disseminate fraudulent
information.
You note in your testimony that among the warning letters
that the FTC sent regarding COVID-19 scams were letters to
Voice Over Internet Protocol providers and other companies,
warning them that routing and transmitting illegal robocalls
related to COVID-19 is against the law. In one of those joint
letters sent by the FTC and FCC, the agencies noted that these
unwanted robocalls included messages alleging that recipients
have been charged almost $400 for tech support services but may
receive a refund by responding to the robocall. They also
included robocalls falsely claiming to come from the United
States Social Security Administration threatening cutoff of SSA
benefits.
Clearly, these activities have the potential to inflict
harm on consumers. Given the severity of the ongoing crisis, do
you feel these bad actors would be less willing to engage in
fraudulent activities if the fines and penalties were increased
for covered communications related to COVID-19?
And are there any other actions, including legislative fix
to 13(b), that Congress should be contemplating in this area?
Ms. Rich. I think that strong fines and penalties--I
haven't reviewed your act, but it sounds like there are
criminal penalties. It would be very important to deter these,
you know, terrible acts.
But I also think the responsibility of platforms is very,
very important. And 230, of course, is a very complex
undertaking and beyond the--230 reform--and beyond the subject
matter of this hearing.
But I do think that this subcommittee could be thinking of
other responsibilities to impose on these platforms and large
hosts of other content, short of 230 reform, along the lines of
the Informed Consumers Act that would actually spell out
duties, as opposed to imposing--just imposing strict liability
and have everybody wonder what it is they are supposed to do.
It would impose specific duties on the platforms to screen out
some of this content.
Ms. Craig. Ms. Rich, I really appreciate you and all of the
panelists being here today.
And Mr. Chairman, with that, I yield back.
Mr. Pallone. Thank you. So now we go to the gentlewoman
from Arizona, Mrs. Lesko, for 5 minutes.
Mrs. Lesko. Thank you very much, Mr. Chairman. It is an
honor to be a new member of this committee. And I thank all of
the witnesses for their testimony.
Earlier on in the testimony, Ms. Ponto, you had said you
need--you would suggest we need more help from the FTC. And so
can you give examples of where you needed help from the FTC and
it was possibly a little bit lacking?
Like, could you give us concrete examples of how you could
get more help from the FTC? What specifically?
Ms. Ponto. Thank you. So I reached out to detectives at the
Spokane Police Department, just to find out more about the
fraud that they were seeing, because they are the ones who are
going to put the bad guys in jail. And my opinion, that is what
we need to be doing.
What she gave me, an example, was--is that there was a
particular case where we had an elderly victim, and she lived
in an assisted living center. Her adult son was her power of
attorney, and he was in charge of all of her finances. One of
the caregivers at the assisted living center started stealing
credit cards from multiple residents.
And so, in an effort for the adult son, the power of
attorney, to go and get the evidence from his elderly mom's
accounts, he had all of his documentation, he had his
paperwork, and he went to the first credit card company. They
declined to help him or give him the information he needed. So
then he went to the bank, and they helped him get information
on her accounts. But if his name was not on a credit card, then
he did not get that information.
He then went to the detective and signed all the paperwork,
all the authorization forms, showed the power of attorney. She
ended up having to write three different search warrants,
because she kept coming up with roadblocks. At the first
business they claimed that they had contracted out to someone
else, so really you need to do a search warrant at the second
place. So she goes to the second place. They played a game of,
well, you know what? This is not really our business address,
this one is. So she ended up writing three warrants by the time
it was said and done.
Two months it took for her to get the account information.
Two months. And in that time that she got that paperwork--she
only got a third of it, she didn't even get everything that she
needed to possibly bring charges against this caregiver.
What--she wanted to specifically address that, under the
Fair Credit Reporting Act, businesses are required to provide
this information. And the FTC wants to hear if we are not
getting that kind of cooperation. But the problem is that she
did not feel like there was any teeth from the FTC, that maybe
it was a, you know, a threat, or ``get it done,'' but there was
nothing that caused them to make sure that she got all the
information that she needed. And so it really would have been
quite helpful if they would have stepped in at that stage and
be able to help get our detectives the information they need
from these different financial institutions or credit card
places, so they can bring charges to these folks, put them in
jail.
Mrs. Lesko. Well, thank you very much, Ms. Ponto.
And maybe that--maybe I will go to Ms. Rich next, then,
since you used to work at the FTC, and see if you have any
comments about what Ms. Ponto said.
I mean, one of the other witnesses said the pay is lower at
the FTC and found that as a problem. Do you need more staff
there?
Why are these things falling through the cracks, in your
opinion?
Ms. Rich. I don't know why that, you know, particular issue
fell through the cracks.
I also don't--to be honest, I don't recall whether this
particular provision of the FCRA is enforceable and has teeth.
I can assure you that the FTC is watching this hearing today
and is taking this very seriously, what Ms. Ponto was talking
about, because working with partners on identity theft is
hugely important.
The FTC desperately does need more resources. They are paid
less than other agencies, but I don't think that stops the
commitment to work diligently to help consumers. So many people
there are already working for much less than they would in
other places they could be working. But the number of staff--I
mean, sure, give them what they deserve to be paid, but the
issue is more the strain on the number of staff.
You think about--you on this subcommittee know more than
anyone the broad mission of the agency and what it is tasked to
do and how it is very small compared to other agencies, but its
mission is huge.
Mrs. Lesko. Thank you, Madam Chairman, and I yield back.
Ms. Schakowsky [presiding]. Great, and I am back. And so
let me catch up. Has Congresswoman Trahan--have you asked your
questions yet, or is it your turn?
Ms. Trahan. I think it is my turn. Thank you.
Ms. Schakowsky. OK, you have 5 minutes.
Ms. Trahan. Thank you, Chairwoman Schakowsky and Ranking
Member Bilirakis.
And for the record, as New England sits on the sidelines
watching the Super Bowl this year, I for one will happily take
the GOAT back. So, go Bucs.
Hey, so first, thanks to all the witnesses for testifying
today on behalf of the many victims of fraud who have been
cheated with phony letters about COVID treatments and cures. I
really appreciate you hanging for the duration.
Ms. Rich, I want to focus my question on what more the FTC
can be doing to protect consumers and deter bad behavior by
fraudsters. And, like my colleague from Minnesota, I was
compelled by your observation that ``fraud does not happen in a
bubble, it relies on other systems to function.''
And this very point was raised by Consumer Reports with the
FTC last summer in comments about the need for clearer guidance
on online reviews and endorsements. And they wrote, ``Social
media sorting algorithms tend to prioritize posts that receive
more engagement from users with higher followers, providing
further incentives for marketers to use deceptive tactics to
augment those numbers.'' I am convinced that they have put
their finger on the heart of this issue and the broader
challenge of social media misinformation and disinformation,
the faulty incentive structures involved in these algorithms.
Now, recognizing that you are no longer with Consumer
Reports, I would like to ask your thoughts on how we can better
rein in these practices used by scammers to make products look
more popular than they are. How else can the FTC update the
endorsement guides to keep pace with these manipulation
strategies in the online marketplace and social media?
Ms. Rich. Well, I am no longer with the FTC or with
Consumer Reports. But I was in both places, so I am very
sympathetic to everything that you are talking about.
Deceptive endorsements are a horrible problem. The FTC has
comprehensive guides, and it--for a lot of enforcement,
actually. But this is pervasive, and the enforcement hasn't
been able to make at all a dent in this problem. And, of
course, because of the rapid development on social media, it
just--it changes its format all the time. And while the
deceptive--the endorsement guides have specific examples, when
the FTC only updates its rules and guides, like, every 10
years, it is just not enough to keep pace. So I am very
sympathetic to all those points that have been made by Consumer
Reports and you.
This may be an area where more teeth are needed because of
the pervasiveness of this problem. Maybe a rulemaking. And I
think this is something that Commissioner Chopra raised when
the comments went out, that--and I know Consumer Reports also
mentioned maybe there need to be more bright lines here. And if
there was a rule enacted, then there could be civil penalties
for it.
So, of course, the best way to get this done would be for
Congress to authorize rulemaking, and the Commission to pass a
rule, because otherwise it is going to use its cumbersome
Magnuson Moss procedures. But I really do think there needs to
be more--more teeth in what the FTC can do in this area because
it can't make a dent.
Ms. Trahan. Great. That is super helpful.
Ms. Patten, following up with Ms. Rich's comments, I would
love to hear your thoughts as well. I mean, you went straight
after section 230 in your testimony, but you also noted that
narrower approaches are on the table, like Senator Baldwin's
COOL Online Act. With respect to the specific issue of
endorsement guides, do you see room for improvement at the FTC
as well?
Ms. Patten. Absolutely. I mean, I think, you know, we can't
ask the FTC to do more, unless they have more resources
available to them. And, of course, you know, we have seen a
change in, you know, endorsements from influencers. It started
out with clothing and private jets, but now, you know, we are
getting into serious issues when it comes to treatments and
preventions for COVID.
So, obviously, that is an area where the FTC is incredibly
concerned, but they don't have the resources. I mean, if you
look at Instagram alone and you search the hashtag COVID-19,
you are going to come up with more than 20 million hits. No
human can go through that. So they need the technology and
resources to really address this issue.
And I absolutely agree that updated endorsement guides are
needed, and that penalty authority for first-time offenders on
social media influencers would be incredibly helpful.
Ms. Trahan. Thank you. I will try to squeeze in my last
one, but if I get cut off, that is fine.
You know, Mr. Kovacic, I was intrigued by your
recommendation that the FTC borrow some of the lessons from
UK's Competition and Markets Authority, particularly its
establishment of a data unit. As one of our panel's insider
experts on the FTC, can you expand upon your reasoning that the
FTC should adopt something similar?
And if I have out of--if I am out of time, I am happy to
submit that question for the record.
Mr. Kovacic. Notice that just a moment ago, Congresswoman,
you were referring to algorithms and the ability to understand
what goes on inside these systems.
Part of the rationale for the UK development of a data
unit--which has 40 people, mostly technologists, not lawyers
and economists, but real technologists--is, one, to understand
what is going on inside those processes; two, to do searches,
intelligence searches that allow you to figure out what is in
that mass of 20 million hits, what is going on there; and to
distill some lessons about what is taking place in the
marketplace.
During COVID this group was doing almost real-time
assessments with respect to complaints, patterns in complaints,
identifying within a couple of days where the hotspots were
with wrongdoers, repeated indications you could focus
attention. And now they have a major program that they have
just launched to use their new study in algorithms on both the
competition and consumer side to get a better idea of how firms
use algorithms to target individual vulnerable consumers and to
prey upon them. And----
Ms. Schakowsky. OK, I am going to have to--we are over a
minute over, and I am going to have to cut you----
Ms. Trahan. My first subcommittee meeting, and I went over.
I apologize. Thank you so much to the witnesses.
Ms. Schakowsky. And, you know, you can put something in
writing or reach out to him personally. And I understand that
Debbie Dingell is there.
Congresswoman Dingell, are you there?
Mrs. Dingell. I am, thank you.
Ms. Schakowsky. OK, it is your turn for 5 minutes.
Mrs. Dingell. Thank you. Sorry, I was over voting. And
thank you for holding this hearing today. It is a very
important one, and we have learned a lot, listening to every--
all of the questions on both sides of the aisle.
You know, this pandemic has made us more isolated than
ever, which leaves people, as we have all been talking about,
turning to the internet, social media, and other resources in
search of community. They just want to talk to somebody, help
and comfort.
And many of the scams that my colleagues have been talking
about today, and the witnesses highlighted, prey on people's
loneliness and fear during this unprecedented time and can
originate and do originate and proliferate on these platforms.
Scams have affected--we have heard the stories from some of
you--struggling families, people then embarrassed to tell
somebody something happened, individuals seeking employment
during the crisis, and seniors who are just plain scared and
desperate, trying to protect themselves and those around them
from the virus.
It is unconscionable that, during this unprecedented time,
individuals and families cannot be certain of what is real and
what is not real of the products and services that--the victims
of these scams cannot receive the compensation they deserve.
And just for the record, I have started--I have got a file
that thick of ones that I have gotten. In some days I don't
even know. You know, I will get a ``Hey, your Yahoo! Mail is
about to be cut off. Give us this to''--or the Amazon, it is--
and I have hearings like this, and you teach me, and it is
pretty scary.
So FTC guidelines and authorities need to meet the demands
of evolving technology and tactics and reflect our continuing
priority of protecting consumers. So that is what we have been
talking about.
So let's start by discussing social media consumption
habits and its impact on consumers' vulnerability to frauds and
scams. Last August there was a new report that discriminatory
ads are still appearing on Facebook, even after the landmark
settlement in 2019 that Facebook violated Federal
antidiscrimination laws. It appears that advertisers are able
to use Facebook's platform to microtarget populations based on
their identities of age and race.
Ms. Rich and/or Ms. Patten, could tools that Facebook
provides to microtarget ads be used by scammers to target and
exploit vulnerable populations, exasperating these harms?
And what steps are social media companies and the FTC
taking to prevent such abuses?
Ms. Rich. Well, the settlement you discussed between
Facebook and the civil rights groups was Landmar, and it gave
the civil rights groups--it prohibited advertising that would
enable discriminatory ads on Facebook. And Facebook, in
implementing its response to the settlement, announced changes
to its platforms that would cut off certain demographic
information to advertisers.
It also--the settlement gave the civil rights groups
certain rights to access and test the platforms to see if they
were going to--working now better and complying with the
settlement. And one question I have is whether this--how
effective that is. You know, the civil rights groups don't have
subpoena authority. They don't have law enforcement authority.
And so it doesn't compare to a Federal investigation.
So one thing I wondered when I was thinking about this is
whether there should be a role given to the FTC here to look at
this type of violation. The privacy bills from last year, both
from this subcommittee and on the Senate side, Cantwell and
Wicker, did give a role to the FTC in examining the use of
algorithms and discrimination based on those algorithms. So I
wonder if that should be revisited to give the FTC a role to
help the civil rights groups to supplement what the civil
rights groups are doing to try to solve this problem.
Mrs. Dingell. Well, I would like to follow up after this
with more--to see if there is something we should pursue. And
that--with the chair, we would look at.
Ms. Patten, since I only have 23 seconds, did you want to
add anything? And I will do the rest of my questions for the
record. Ms. Patten, any comments?
Ms. Patten. No, I think Ms. Rich did a wonderful job of
covering it. Thank you.
Mrs. Dingell. Thank you. Madam Chair, with 7 seconds left,
I have never been known to talk for a short period of time. I
yield back.
Ms. Schakowsky. Well, thank you. I want to be sure--is
Congresswoman Fletcher still here?
Mrs. Fletcher. Yes, Madam Chair.
Ms. Schakowsky. OK, then you are recognized for 5 minutes.
Mrs. Fletcher. Terrific. Well, thank you so much,
Chairwoman Schakowsky and Ranking Member Bilirakis, for
organizing today's hearing. I appreciate the opportunity to
hear from these witnesses about protecting consumers from fraud
during this health and economic crisis. I appreciate the
insights and share so many of the information, the perspectives
that many of my colleagues have shared about the damage that
this fraud is creating in their own communities, and my
community in Houston is no different. But I want to get to a
couple of questions, just right off the bat.
Ms. Patten, in your testimony you mentioned that there was
a need for the civil penalty fund to compensate consumers who
have been monetarily harmed. And can you expand on the
potential for this type of fund, and how it would interact with
settlements from individual cases?
How can we ensure that this type of fund will be well-
funded enough to provide meaningful compensation?
Ms. Patten. Yes, thank you. So, as it currently stands,
when the FTC is able to use its penalty authority--for example,
in the Facebook example, where it violated an order and they
got billions of dollars, that money went into the general
treasury.
I would propose that what is absolutely needed is if that
money was put into a fund that could reimburse victims of fraud
and scams. So often the FTC, using 13(b) authority, comes upon
a defendant that doesn't have the resources to reimburse
victims. And so, if it had a fund, it could use that money to
make victims whole that have been, you know, scammed from their
money.
Mrs. Fletcher. Thank you. That is helpful.
And following up on that question, I think, Ms. Rich, you
also mentioned Chairwoman Schakowsky's leadership in allowing
the FTC to impose fines on perpetrators related to COVID-19
fraud for the duration of the public health crisis. Other than
this issue of 13(b), is there additional short-term legislative
action needed to address the COVID fraud effectively?
Ms. Rich. Oh, COVID fraud, specifically?
Mrs. Fletcher. Sorry, yes.
Ms. Rich. No, that is OK. I think--I am not sure about
the--as Ms. Patten noted, there are gaps in the December
legislation, but I--other than 13(b), I really am focused on
the broader picture, too, of civil penalties more broadly.
I would agree with Ms. Patten that a civil penalty fund
would be enormously helpful, and it is something that the CFPB
already has, so there is a model there that another consumer
agency is already using. That also would help during this--
certainly would help during this period, as well as afterwards.
Mrs. Fletcher. And I apologize. As Chairwoman Schakowsky
noted, we have run back and forth to vote, so you may have
answered this already and I may have missed it. And, if so, I
apologize. But in putting together that fund, and in terms of
there is a model at the CFPB, how would you imagine would be
sort of the most effective way, if we were to design this kind
of program, for that to be administered?
Ms. Rich. The CFPB model allows you to take money that is
obtained in a civil penalty case and use it to distribute
redress to consumers in another case involving civil penalties.
Now, I don't know why it is designed that way--maybe because to
allow too much crossover between redress and civil penalty
cases violates something. But the more flexibility that the FTC
could have in using the money from these funds to compensate
consumers, the better.
Mrs. Fletcher. And is there any other--if this committee
were to draft legislation to address this challenge, is there
any other information or power you think the FTC would need to
be granted legislatively to make this possible?
Ms. Rich. I think you could enact it, and give--and it
would happen in the same way that the Dodd-Frank Act gave this
power to the CFPB.
Mrs. Fletcher. OK. Well, thank you very much, Ms. Rich, for
that.
I have only got 22 seconds, but if I can go to Mr. Kovacic
very quickly, given your experience with the United Kingdom's
Competition Markets Authority, can you speak a little bit to
the ability of the FTC to protect and fairly compensate
Americans from international scams and fraud?
And since I am running out of time, perhaps I will ask you
that question for the record and get a written response from
you following the hearing.
Mr. Kovacic. That is great. Short answer: The SAFE WEB
renewal is a very important part of that infrastructure. So
thank you for doing that.
Mrs. Fletcher. Thank you.
Mr. Kovacic. I am happy to answer your questions too.
Mrs. Fletcher. Thank you. And Madam Chairwoman, I yield
back.
Ms. Schakowsky. Thank you.
So I see that Congresswoman Clarke is still here, and I
want to thank you for that. And you are recognized for 5
minutes.
Ms. Clarke. Let me thank you, Madam Chair, and let me also
thank my classmate, the new ranking member for the
subcommittee, Mr. Bilirakis, for holding this very important
and timely hearing on scams and fraud.
During the public health and economic crisis, we must
ensure that consumers are not taken advantage of by malicious
actors--not only taken advantage of, but severely harmed. It is
deeply troubling to me that, throughout the COVID-19 pandemic,
there have been ongoing reports of coronavirus-related scams
across the Nation. These fraudulent acts range from price
gouging on essential products to scams that take advantage of
struggling small businesses. This simply cannot continue.
During this time of crisis, we must band together to stop these
efforts to defraud the American people.
I am particularly concerned about the disproportionate
impact of these scams on vulnerable communities, communities
who have already been struggling with the combined impacts of
COVID-19 and economic crisis, and the deep systemic inequities
that are pervasive in our civil society. According to the FTC's
own research, folks who are Black and Latino are more likely
than their White peers to be victims of fraud. And yet that
suggests that there is also a serious underreporting of fraud
from these very same communities.
As my colleague Congresswoman Kelly mentioned earlier, the
FTC launched its Every Community initiative to address
underlying disparities of fraud. The FTC also released a report
in 2016 that set forth a comprehensive framework to
specifically tackle fraud in Black and Latino communities.
So, Ms. Rich, one of the report's recommendations was to
bolster fraud prevention strategies in Black and Latino
communities through targeted education and awareness campaigns.
What steps do you think the FTC could take to better implement
these fraud prevention strategies in minority communities?
Ms. Rich. Well, you are right that we had a very
comprehensive plan. And I think the pandemic, if not other
things, seriously impaired the ability to do that, because one
part of the plan was meeting and connecting with different
communities. And sometimes you really have to do that face to
face.
And so much of this is developing trusted relationships
with different community organizations. And then they, in turn,
can interact with their communities to encourage more
information about fraud, and they can relay that back to the
FTC. So I really do think it is time, even before the--even
while we are still in a pandemic, we have got the videos, we
have got all sorts of channels we can use to really ramp that
initiative up.
And it costs money, because it involves materials. It
should involve more research because of those findings that you
just referenced. That was about the Black and Latino
communities. It was a small set of findings. There is a lot
more research that needs to be done to figure out more
effective ways to reach out into these communities. So----
Ms. Clarke. I look forward to further discussing this.
Ms. Rich. Yes.
Ms. Clarke. And looking at ways that we can be nimble and
creative in penetrating those communities that are most
vulnerable. I would like to also add Native lands to that as
well.
Ms. Rich. Yes.
Ms. Clarke. The FTC's 2016 report also highlighted law
enforcement actions that can be taken to address these
disparities, including bringing more cases against entities
that intentionally target or disproportionately impact
vulnerable communities, Black and Latino. Can you briefly
provide some examples of how scammers target minority
communities?
Ms. Rich. Yes. Well, you know, one thing that is certain is
that scams do target everybody. But, especially during this
pandemic, when we are seeing that minority communities and
people of color are being harder hit by COVID-19, we are seeing
a corresponding exponential growth in scams targeting people
that are suffering the most, economically and health-wise. And
unfortunately, that means that many people of color and in
minority communities are taking the brunt of a lot of the scams
and schemes that are targeting these populations.
Ms. Clarke. Well, thank you.
And Madam Chair, I appreciate the time. I have additional
questions that I would like to submit and get responses for.
But this is an area that is very--it is very important that
we drill down and come up with strategies for combating. With
that, Madam Chair, I yield back, and I thank our witnesses for
their expert testimony today. Thank you.
Ms. Schakowsky. Thank you. There are two people that have
waived on to the committee. I am going to first call on my
buddy, Buddy Carter, for 5 minutes.
The floor is yours.
Mr. Carter. Thank you, Madam Chair, for allowing me to
waive on. And let me add also that this is my favorite
subcommittee that I am no longer on. So I appreciate it very
much.
Ms. Ponto, I wanted to ask you. I passed legislation--
bipartisan legislation, by the way--that was signed into law in
January. It is called Combating Pandemic Scams Act. And it
really instructs Health and Human Services, as well, to work
with the Postal Service as well as with the FTC to come up with
a user-friendly website so that people can go to it and read
about these type of scams, and also to actually enter into the
website their experiences with scams, so that they can become
better educated as to what is going on here.
Obviously, with your experience in your area, you have seen
a lot of scams and other issues that have come up like this.
And I was just going to ask you, could you tell us or share
with me very quickly what are some of the most egregious scams
that you have noticed?
And how have they been--have they been internet-based, have
they been phone-based, or what?
Ms. Ponto. Thank you for that question. One of the--this is
my first year. I just retired last year and took this position.
So I am still kind of learning this whole game with identity
theft and fraud.
But I had a gentleman come in. He was a truck driver. And
he had come in, he had purchased a security camera system
online. He had gotten the equipment. It didn't work. It took
him a couple of months, but he ended up with somebody reaching
out to him and trying to walk him through the service of
getting it fixed.
When they were not able to get it fixed, they said that he
qualified for a refund in the amount of $400. They put $4,400
into his account. He actually got online, looked at his bank
account. So he had to have shared routing numbers for them to
make this refund. There it is, $4,400, kind of a generic name.
He prints it out.
And then, of course, that is when it starts. You know,
``Oops, we accidentally sent you too much money. So you keep,
you know, X dollar amount, and we would like you to go and get
the rest of the refund in gift cards. We suggest you going to
Fred Meyer's and Target.'' And again, it is these gift card
scams that we are seeing, and we are not understanding where--
how do reasonable people think this sounds right? Why are we
missing the flags?
And so that is what he did. And he ended up losing X amount
of dollars, because it was his own money that he was, you know,
putting into these gift cards, scratching off the numbers, and
giving it to the gentleman right over the phone, and done. This
guy was calling him easily a dozen times a day.
You see a lot of these scams coming in. And it is very
alarming, because there is an online portion to that.
He showed me his bank account. When he went to the bank,
the bank told him that money had never been in there in the
first place. And yet here we are, looking at his bank account,
and there it is.
Mr. Carter. Right.
Ms. Ponto. So there is a sophistication level that we are
not understanding. But common sense, people. This doesn't look
right, these are so many red flags, and so how do we----
Mr. Carter. Right.
Ms. Ponto [continuing]. Get that out to our folks?
Mr. Carter. And really, this was the reason for my--and for
the--and the impetus, if you will, behind the legislation was
to educate people as to these type of scams and to help them
understand and learn from this. Not only that, but have them
have the opportunity to share.
Now, it was primarily aimed at scams during the pandemic,
which we have seen: advertised ineffective PPE, we have seen
advertised false cures and false preventions for the virus.
That is primarily what was aimed at.
Just wondering if you--what do you think is the best line
of defense?
What do you--Ms. Ponto, can you share with me very quickly
what--how can we help people the most?
Ms. Ponto. I truly believe in the service that we provide,
this Community Oriented Policing Services. Like I said, we have
nine COPS shops throughout our city of Spokane. They are in the
neighborhoods. The neighbors, when they don't get the response
that they are looking for from the police, or the police are
unable to help them, they come to us because we are within
blocks of them walking, and we are a fantastic first line to
help them. And then we can actually walk them through the
process of identity theft reporting. And I think that is a huge
tool that other cities really need to take a look at.
Mr. Carter. Good. Well, thank you very much for your help
and for your testimony--for all of the witnesses.
And again, it is the Combating Pandemic Scams Act, and it
is a good piece of legislation. It is good law now that
hopefully will help people, to educate people, and help them to
share their experiences.
And again, Madam Chair, thank you for allowing me to waive
on, and I yield back.
Ms. Schakowsky. Thank you. Well, I miss you, Representative
Carter, on the committee. And I also really miss Congresswoman
Rochester on the subcommittee.
And I yield to you 5 minutes, and welcome both of you any
time to waive on.
Ms. Blunt Rochester. Thank you so much, Chairwoman
Schakowsky, for allowing me to waive on to this vital
subcommittee, and especially for your vision for the 21 Century
Consumer Rights Agenda, a powerful, powerful vision.
And I too want to congratulate Ranking Member Bilirakis for
his new appointment.
And thank you to the witnesses for testifying. As we all
know, we are in the middle of the worst public health crisis in
a century and a crippling recession. The last thing my
constituents should be worried about is fraud and scams. Sadly,
the stories we heard at our last hearing have, unfortunately,
not stopped.
Thankfully, at the end of the last Congress, we took
action, and I was proud to colead the Combating Pandemic Scams
Act and proud to support the COVID-19 Consumer Protection Act.
I will soon reintroduce my bill, the Fraud and Scams Reduction
Act, which will continue to make important reforms to empower
the FTC and key stakeholders. We need to take action to address
the prevalence of scamming in the U.S. And in that regard I
would like to begin my questions with Ms. Rich, and I would
like to follow up on Ms. Kelly's questions earlier.
In your testimony, you identified the importance of
reaching every community. Yet you mentioned a lack of
demographic data in the FTC's current complaint database. From
your experience, what kind of demographic data does the FTC
currently collect, and what kind of data should they be able to
collect that you believe is not being collected?
Ms. Rich. Thank you. This is a very important issue. Well,
I haven't been there for 4 years, and I know they are doing a
lot with data. You can go to the website and now see all sorts
of breakdowns, including by State and locality, et cetera.
But when I was there, we did not collect the kind of
demographic data that you need to figure out whether scams--or
how scams are saturating different communities. And the
findings that had been cited in this committee that scams--that
people in African-American and Latino communities complained,
but they are disproportionately victimized by fraud, was that--
that analysis was done through work-arounds using general fraud
data and census data. And it was painstaking, and it was very
time consuming. But much more of that work is needed.
And so, you know, it is very sensitive to collect
demographic data, so--and maybe the FTC has, you know, been
giving this some thought since then. So I really encourage you
to engage directly with the FTC to figure out how they can get
this done, because we cannot--they cannot figure out what is
going on on the ground without it. So it is very important.
Ms. Blunt Rochester. Yes, I think one of the followup
questions that we will have is about what authorities they
would need to successfully expand this program.
My next question is following up on Ms. Trahan's line of
questioning as well. We were in--pretty similar questions
regarding--this is to Mr. Kovacic.
In your testimony, you suggested that the FTC could benefit
from better data analytics. Can you give us some examples of
the trends that the UK watchdog identified that we would not be
identified--that you would not have identified without the
better data tools that--and would have taken too long to
identify?
Mr. Kovacic. Yes, they were able to spot trends and
patterns in episodes of misconduct and complaints within 2 or 3
days instead of taking a month to sort through information.
They were able to process, at least week by week, a very
accurate profile of where the complaints were coming from, who
the firms were so that, when you started your combination of
warnings, lawsuits, and other publicity--publicity going out to
consumers saying, ``Here are the problems.'' That is, ``Last
week we saw this problem. It is happening right now. Watch out
for this problem.'' They were able to compress that kind of
analysis, outreach, enforcement, education into a couple of
days, instead of it taking maybe a month.
And on your question, Congresswoman, about doing the
research, you can use--you can start to use this kind of
capability as a platform to work with researchers who do this
kind of analysis--academic institutions, intellectual hubs--to
build a better understanding of how commerce and misconduct
take place in disadvantaged communities. And you can build this
capability to use those tools to get a better idea of what is
going on. That is a useful partnership between the public
agencies and academia.
Ms. Blunt Rochester. Thank you. We would like to follow up
with you on the lessons learned by the UK that Congress can
learn, as well as the FTC.
Thank you so much, Chairwoman, and I yield back.
Mr. Kovacic. Thank you.
Ms. Schakowsky. Well, thank you. I really appreciate the
incredible testimony, and the Q and especially the A, the
answers that we got. I think it is obvious, I hope, to all the
witnesses that this is one of the most popular hearings that I
have been at, and I think one of the most revealing, in terms
of the suggestions that we got. That is always so important.
So thank you. Thank you for what you have done. And I am
sure you are going to get some followup questions, and I hope
that you will--and expect that you will--answer them promptly.
And without objection, I want to add into the record
letters from--for the record, a letter from USTelecom, a letter
from the FTC, a letter from the Coalition of Online
Accountability, and a letter from the FTC to Representative
Latta.
And without objection, so ordered,
[The information appears at the conclusion of the hearing.]
Ms. Schakowsky. I remind Members that, pursuant to
committee rules, they have 10 business days to submit
additional questions to the record to be answered by the
witnesses who have appeared. And, as I said before, I ask each
witness to respond promptly to any question that they may
receive.
And, at this time, with enormous gratitude, the
subcommittee is adjourned. Thank you.
[Whereupon, at 3:15 p.m., the subcommittee was adjourned.]
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