Phone and telemarketing fraud is a criminal activity involving a scheme through telephone communications. The criminal communicates via telephone contact to fraudulently divest money or property of the victim. The criminal generally relies on two strategies:
- Deceitfully promising goods or services for money; or
- Falsely exaggerating the value of goods or services provided.
The criminal may obtain the victim’s identity or credit card information to engage in unauthorized transactions. In many instances, the criminal uses some type of false statements and misrepresentation to deceive victims of phone and telemarketing fraud. Because many victims include the elderly, poor, and non-English speakers, the victims are especially vulnerable to scam artists who present themselves as legitimate telemarketers. It is estimated that Americans lose about $40 billion a year via phone and telemarketing fraud per year, affecting roughly one out of six Americans.
There are many categories of phone and telemarketing fraud, including advance fee scams, pyramid schemes, overpayment schemes, charities, loan offers, credit card sales, prize offers, and sweepstakes. The advance fee scam is a fraud where the scammer promises the victim a huge sum of money with a relatively smaller initial investment. However, if the victim places the initial investment money in hopes of receiving the promised sum, the criminal never returns the promised amount. Another example of a phone and telemarketing fraud is the pyramid scheme. The pyramid scheme is similar to the advanced fee scam, but the pyramid scheme involves a chain of investments by different people. Within the pyramid scheme, only the initial investments of the first few people retain the majority of the returns, while the bottom-of-the-scheme victims usually receive no returns. There are also overpayment schemes, where the criminal sends a fake check to the victim. The criminal hides behind an actually existing business name, telling them that they have refunded the overpayment of an online purchase. Then, the criminal requests the extra payment from the victim, which the criminal promises to return via a check. Even if the victim wires the requested amount, the criminal will not send the promised check.
To successfully recover for fraud, the victim must show four elements:
- The criminal has made a false statement or misrepresentation.
- The criminal intended to defraud the victim with a false statement or misrepresentation.
- The victim has relied on the false statement or misrepresentation of the criminal.
- The victim has sustained a material injury due to the reliance on the false statement or misrepresentation of the criminal.
Laws against fraud lay out criminal charges and penalties for those who engage in phone and telemarketing fraud under consumer protection. At the federal level, the criminals who engage in any type of phone and telemarketing fraud can be prosecuted under 18 U.S.C. §§ 2325-2327.
See: Computer and internet fraud; Credit card fraud; White-collar crime
Additional Resources:
- U.S. Department of Justice
- Federal Bureau of Investigation
- Financial Crimes Enforcement Network
- National White Collar Crime Center
[Last updated in February of 2024 by the Wex Definitions Team]