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FTC Says Most Reported Fraud Stems from Web

By Keith Regan
Feb 1, 2005 1:25 PM PT

In a reminder of a lingering threat to the growth of online commerce, a new report from the Federal Trade Commission (FTC) says identity theft -- such as phishing over the Internet -- continued to be the most prevalent form of consumer fraud reported to authorities last year.

FTC Says Most Reported Fraud Stems from Web

In fact, complaints stemming from online activity dominate the list of top consumer problems. For instance, auction fraud complaints ranked second, making up 16 percent of all FTC inquiries, with some 98,000 individual reports in 2004, ranging from incomplete sales to allegations of false advertising in auction listings.

With other forms of fraud factored in, including Web services or computer sales that were never completed, some 53 percent of all reported fraud complaints stemmed from the Web, the FTC said.

Surge in Phishing

However, identity theft, which has been fueled by a surge in phishing attacks and often involves complex international rings where personal data is sold and resold, seems to pose the most immediate threat to the continued success of e-commerce.

The FTC said awareness of the problem of identity theft and a streamlined process for reporting it might have helped drive the increase in reports.

In 2004, 39 percent of some 635,000 consumer fraud complaints stemmed from identity theft. It was the fifth straight year the problem generated the lions share of the complaints the FTC logged.

"These are real people who have lost real money and the FTC offers them a direct link to finding a solution," FTC Chairman Deborah Platt Majoras said.

In the long run, Majoras added, consumer complaints will help stem the tide of identity theft and other forms of fraud that are prevalent online because those reports are thoroughly investigated and often result in arrests or the breakup of fraud rings.

"By filing complaints, consumers are one click away from thousands of law enforcement partners who can help restore their good name, protect their financial security, and give the FTC the information we need to stop fraud," she said.

Web of Woes

FTC spokeswoman Claudia Farrell told the E-Commerce Times that exact numbers on investigations and arrests were not immediately available and might be difficult to compile, since hundreds of law enforcement agencies both in the U.S. and abroad are involved in following up on complaints generated to the FTC.

It's also not known exactly how many of the complaints stem from online activity versus real-world ID theft. For instance, a consumer might know that her credit card number has been pilfered, but might not know when or where it happened.

However, analysts say the rise of phishing, which evolved from a relative rarity to become one of the most common forms of spam e-mail in 2004, suggests that online identity theft is still increasing.

Consumer awareness is helping, Gartner analyst Avivah Litan told the E-Commerce Times, as consumers are becoming smarter about not becoming victims themselves.

Matter of Time

Still, Litan said if the problem is not curtailed, it will become an impediment to continued growth of e-commerce and the hopes for spreading commerce to mobile devices.

Law enforcement is, by nature, an after-the-fact response, one that often happens well after the original theft takes place, she noted.

Online merchants can address the situation by beefing up their own security. Litan noted that consumers say they're willing to endure more security measures, including those that go beyond typical password security, in order to ensure online transactions remain safe.

"If nothing is done, it's only a matter of time before these attacks start to erode confidence in online transactions," Litan added.

In addition to ID theft and auction woes, top sources of consumer complaints to the FTC last year included those relating to computer or Internet services, scams relating to foreign money exchanges, work-at-home business opportunities and fraudulent loan or credit protection schemes.


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What's your reaction to the Turkish Crime Family's claim that it can access hundreds of millions of iCloud accounts?
I'm very worried -- I take all cyberthreats seriously.
I'm feeling secure -- I changed my password and set up 2FA.
I'm angry -- companies need to be more responsible.
I'm not at all concerned -- I trust Apple.
I'm resigned -- I expect to be breached at some point.
I don't care much -- the world has bigger problems.