Table of Contents

• Con artists are ever ready to spring on the unaware
• Investment swindles: Deals that offer risk and no reward
• Home loan fraud is still costing people their homes
• Guest Columnist: Help shut down cyber-crooks
• Fraud bills go to Congress
• Lawyers charge Chrysler with 'lemon laundering' fraud
• Anti-fraud advice online
• Don't fall for this call
• CA's 30th anniversary party
• McEldowney honored by NCL

Con artists are ever ready to spring on the unaware

By Sarah Hinds

Tempted by an e-mail message that promises a "risk-free investment?" Ever wonder if chain letters really work? Paid for an item in an online auction but never received it?

Join the club. A word to the wise: investments are by their nature risky. Chain letters cost people money, and passing them on is not going to win you any friends. If you've been defrauded in an on-line auction, you're one of thousands. Scams are out there in full force, and even the most savvy consumer can get taken in.

Consumer Action News is focusing on fraud in this issue. You can't always avoid it, but the better educated you are about fraud, the better equipped you'll be to steer clear of it. We look at investment fraud, Internet fraud and home equity loan fraud.

Fraud takes many forms, old and new. Some scams, like pyramid schemes and chain letters, have been around for years but are taking in new victims via the Internet. Other scams, like online auction fraud, are relatively new but just as threatening to your pocket book. Here's a look at some of the most common types of fraud, along with brief tips on how to avoid them:

Home equity loan/mortgage fraud—this happens when a broker, contractor or even a friend or relative misrepresents the terms of a home equity loan or second mortgage in order to foreclose on the loan and steal the property. Such loans typically contain terms-such as very high monthly payments or high balloon payments due in a short time-that the borrower cannot meet. Your best defenses: Have all loan documents evaluated by an attorney, financial advisor or someone else you trust. Never sign loan papers unless you understand all the terms.

Identity theft—a rapidly growing fraud that occurs when thieves get their hands on important personal information, such as your Social Security number, and then obtain credit in your name. Your credit can be ruined and it often takes a lot of time, energy and money to patch up your credit history. Your best defenses: Check your credit reports every year. Tear up personal papers, receipts and junk mail. Enter your Social Security number or credit card number online only if your server is secure (look for a closed lock or key in the lower left corner).

Insurance fraud—victims are conned into buying worthless insurance policies or brokers pocket premiums instead of forwarding them to insurance companies. Your best defenses: Call your state licensing agency to make sure your agent is licensed. Shop around before buying a policy. Have someone you trust review the policy before you sign.

Investment fraud—luring investors with false claims about high returns. Your best defenses: Make sure any company you invest with is properly registered. Check brokers' licenses. Beware of investments advertised as "guaranteed" or "risk-free." Avoid deals that require you to recruit other participants (pyramid schemes).

Online fraud—any use of the Internet or e-mail to cheat people. Almost every old con has found its way to the Internet-credit repair packages, weight loss products, investment scams and chain letters. E-commerce has spawned new scams such as online auction fraud and unauthorized credit card charges for services like web hosting. Your best defenses: If it sounds too good to be true, avoid it. At online auction sites, pay by credit card and use an escrow service (it keeps the goods/money until you receive the goods/money). Delete e-mail pitches if you don't recognize the sender.

Telemarketing fraud—a telemarketer convinces you to buy a worthless product, persuades you to donate to a phony charity or obtains your bank account or credit card number for illegal purposes. Your best defenses: Don't buy anything from strangers who call you. Before you donate to a charity, call your state attorney general's office to make sure it's legitimate. Ask for information on the charity to be mailed to you.

Investment swindles: Deals that offer risk and no reward

By Linda Sherry

U.S. investors lose $1 billion dollars to fraud annually, according to the Federal Trade Commission (FTC).

Fraudulent investment promoters typically use aggressive marketing tools such as infomercials and pushy telemarketing come-ons. The Internet, a boon for individual investors with its low-priced trades and 24-hour access, has provided crooks with a new way to trap unsuspecting victims.

The sky's the limit when dishonest operators are pressing you to invest. Scams have come in the guise of "can't miss" investments in coins, gemstones, artworks, oil and gas leases, cell phone licenses, precious metals, commodities and futures, penny stocks, fabricated overseas bank notes and phony business and real estate opportunities.

Newsy promotions

Fraud promoters often try to lend credence to their spiels by looking to the mainstream marketplace for newsworthy ideas on which to base their inducements. For example, if the price of oil rises, telemarketers will place thousands of calls to tell inexperienced investors that they can make guaranteed profits from the price increase.

Pyramid schemes trap trusting individuals who'd like to believe promoters' claims of huge profits in very short periods. The scam revolves around keeping early investors happy so that they'll spread the word and recruit others to pay large amounts of money to participate. At first, some investors make money, but it's just because the operator is using cash from new recruits to make promised interest payments and prevent victims from calling the police. Eventually the scheme collapses when the promoter runs off with the money.

Excuse to steal

Bogus investment opportunities come in many guises-but all are just an excuse to steal money from investors. Many people seem to lose all common sense when faced with "guaranteed, no-risk" returns of 25%, 50%, 100% or more. Scam artists work overtime finding ways to trick people out of their money. Teams of salespeople are hired to work in "boiler rooms," low-rent offices filled with salespeople who place hundreds of hard-driving calls per day, promising risk-free investment opportunities.

The Internet allows individuals or companies to communicate with a large audience without spending a lot of time, effort or money. Anyone can reach tens of thousands of people with a Web site, mass e-mails and anonymous messages on online bulletin boards and chat rooms.

People who responded to infomercials or ads or who have been victims of a previous scam end up on "sucker lists" with the names, addresses and phone numbers of people who have been successfully tricked or defrauded. These lists are bought and sold by scam artists who believe if you've been deceived once, you'll be even more vulnerable to their charms the next time.

If you're a Spanish speaker or a Chinese speaker, there are con artists who will approach you in your own language, knowing that you'll be likely to listen to them. Such "affinity fraud" succeeds because people often are willing to trust someone of the same background.

Operators often target older people, who are willing listeners. Surveys by AARP have shown that over half of telemarketing fraud victims are 50 or older. Often the desire for a better return on retirement savings makes older people a prime target.

Just say no

While law enforcement authorities are charged with prosecuting scammers and crooks, the sheer number of people on the con makes it impossible to protect everyone. Staying informed about current frauds and come-ons is a key protection. Everyone wants to make some easy money, but the best defense is your own skepticism. If a pitch sounds too good to be true, it probably is.

Here are just a few of the ever-evolving array of investment scams:

"Prime bank" instruments. Touted as a common form of negotiable instrument used by overseas banks, so-called prime bank notes actually don't exist. But they are often advertised as investments that will return 100%-1,000% on your original capital. Many perpetrators of this hoax claim to use forms required by the International Chamber of Commerce (ICC), an organization that has issued public warnings that no such investments exist. The purpose is to get you to send money to a foreign bank, where it is easily transferred to an unregulated off-shore account owned by the con artist.

In early April, Steven E. Thorn of Cleveland, Ohio, and Karen A. Estrada of Atascadero, California, were charged by the Securities and Exchange Commission (SEC) with raising approximately $64.5 million in a fraudulent prime bank scheme. A court order was issued barring them from soliciting investors. Thorn and Estrada told investors that the funds would be used as collateral for the purchase of prime bank instruments issued by select European financial institutions. The pair promised rates of return up to 100% per month. The SEC said that they misrepresented the existence of bank trading programs and made patently false profit guarantees. The SEC charged that the funds went to pay for Thorn's personal expenses.

Investment newsletters. Not all investment newsletters are created equal. Many offer seemingly unbiased information about companies or stocks, but really are being paid to recommend certain stocks. It's not illegal for companies to pay newsletters to recommend their stocks, but federal law requires that they disclose who paid them and the amount they received. Many crooked operators don't obey the law, standing to profit handsomely if they convince investors to buy or sell particular stocks. These baseless recommendations can drive up the price of the stock, allowing insiders to sell their holdings for a profit.

Online bulletin boards, automatic e-mail lists and newsgroups are popular with investors. Some writers believe they are sharing useful information, but others use the sites to pump up a company with bogus reports of buy-outs, inventive products or plum contracts. Users can hide their identity-they might really be company insiders, shareholders or for-profit promoters.

One such "pump and dump" case received widespread media coverage early this year, mainly because a 16-year-old boy was charged with the fraud. Last September the SEC took legal action against Jonathan G. Lebed of New Jersey, claiming that he bought large positions in nine low-priced stocks, hyped them on Internet financial message boards and sold his shares after the price rose. The SEC said that Lebed posted online messages under fictitious names. Lebed agreed to pay back $285,000 to settle SEC charges related to 11 trades. CBS "60 Minutes" reported that he got to keep half a million dollars of his ill-gotten stock gains.

Up-to-the-minute "investment opportunities." Fraudulent promoters use technology and business headlines to give credence to sales pitches. In the mid-1990s, fraudulent telemarketers sold Federal Communications Commission (FCC) "paging licenses" for high prices, falsely claiming that paging companies would have to compensate investors in order to use the airwaves.

Both the Federal Trade Commission (FTC) and the SEC have brought many individual enforcement actions involving high-tech investments and launched a consumer education campaign to raise awareness of fraudulent sales of FCC licenses as investments.

E-commerce was beginning to be big news in 1997, when the FTC charged 27 individuals and companies with violations of the Telemarketing Sales Rule and the "FTC rule" requiring certain disclosures when making offerings for business opportunities. The funds were solicited to create "Home Net," an online company that they told investors would rival the Home Shopping Network. Instead, funds ended up in an off-shore account. In 1999, the FTC settled with 10 of the defendants, who agreed to collectively repay well over $10 million to defrauded investors.

Pyramid schemes. No matter what you call them-pyramid, Ponzi or chain referral schemes, they entice victims with promises of extremely high returns over a short period of time. These scam artists, like the old saying, "borrow from Peter to pay Paul." Sometimes it's a lucrative new business deal, other times it's a distributorship or franchise to market a particular product. The real profit is earned not by a business or product sales, but by the money coming in from investors. The crook takes the money and leaves the latest investors with nothing but worthless paper.

Such schemes are not new. In 18th century England they were called "bubbles" and raised money for wily business ventures of all sorts, including one that would "carry on an undertaking of great advantage; but nobody is to know what it is." As bubbles do, these schemes burst.

The namesake of the Ponzi scheme was Boston-based operator Carl Ponzi, who in the 1920s collected $9 million from more than 10,000 investors in just eight months as he paid out $7.8 million to initial investors. After serving a jail sentence, he began to sell swamp land in Florida, landing again in jail.

A new twist on a pyramid scheme known as a "gifting club" is sweeping the nation and taking a lot of people's savings with it. The fraud reels in victims-many of them women-by marketing the clubs as a way to help each other. Many of them promote themselves with names like Women's Empowerment Alliance or Women Helping Women. In the schemes, new club members give cash to "senior" members, drawn by the promise that they, too, will gain seniority and receive large cash gifts. Potential members are often encouraged to borrow the money they need to participate by taking out a bank loan or dipping into their retirement savings. In Texas in 1999, Houston police broke up a club called the Jubilation Celebration, seizing $652,000 and arresting 42 suspects. The group targeted religious people, claiming that if you gave $2,000 out of the "goodness of your heart" and then recruited new people, you were going to be rewarded with $16,000 in "gifts" from other members.

Affinity Scams. A pervasive con that includes many kinds of fraud, but is carried out by people who target others of similar backgrounds or who share a language, faith or skin color.

Chinese national Mak Ki Hung last year pled guilty to federal charges that he defrauded Southern Californian Chinese American investors out of millions. He solicited investors through ads in Chinese-language newspapers offering free investment seminars. He ran ads seeking financial advisor trainees, telling applicants that they needed to gain first-hand knowledge by investing their own money with him. Hung told authorities that he used investors' money to buy a home and a Porsche.

Due diligence

Do your homework before you invest-it's the most important thing you can do to protect yourself from fraud. If you have any doubt, don't part with your money.

Federal securities laws require many public companies to register with the SEC and file reports containing audited financial statements. Before you invest in a company, check to see whether it's registered with the SEC and read its reports.

All U.S. companies with more than 500 investors and $10 million in net assets, and all companies that list their securities on a major stock exchange must also file reports. You can find these reports for free on the SEC website (www.sec.gov) by searching the database known as EDGAR (Electronic Data Gathering, Analysis, and Retrieval system). If you can't find a company on EDGAR, call the SEC at (202) 942-8090 to find out if the company filed an "offering circular."

Check with your state securities regulator to see if it has information about the company. It can also tell you if the offering has been cleared for sale in your state. If a broker recommends the stock, ask the state office to check the Central Registration Depository (CRD) to see if there is any history of disciplinary actions against the broker. You can find your state securities department in the government pages of your phone directory or on the North American Securities Administrators Association web site (www.nasaa.org).

The National Association of Securities Dealers (NASD), a self-regulatory organization governing stockbrokers, may be able to give you a partial disciplinary history on a broker or firm. Call (800) 289-9999 or visit the NASD web site (www.nasd.com).

Tips for safer investing

• Be skeptical when you evaluate investments. Ask the SEC or your state securities regulator to help you determine if a broker or an investment opportunity is legitimate.
• Don't believe everything you read online. Never accept the opinion of one source when evaluating an investment. Conduct a general internet search using a search engine to see if anyone has posted complaints about the company or even about other promoters' claims that sound similar.
• Deal only with reputable investment firms. Check out your broker's license and background with the National Association of Securities Dealers and your state securities regulator.
• Check out business opportunities with your state's corporation licensing department and the Better Business Bureau (www.bbb.org).
• Resist high pressured sales. Don't listen to anyone who tells you to "buy now or lose your chance to profit."
• No investment is risk free-don't believe this line.
• If a salesman calls out of the blue with a great offer, say good-bye before he can even get started on his spiel.
• Avoid investments that defy logic by offering unrealistic returns. Few investments have predictable returns of more than 5%-7% per year.
• If it sounds too good to be true, it probably is...a scam.
• If you are a victim of investment fraud, file a complaint with the SEC. You can use the online complaint form (www.sec.gov), e-mail (.(JavaScript must be enabled to view this email address)), fax (202-942-9634) or the postal service (SEC Complaint Center, 450 Fifth Street, NW, Washington, D.C. 20549-0213).

Home loan fraud is still costing people their homes

By Sarah Hinds

A 65-year-old Bay Area widow receives notice that she is about to default on her mortgage. Soon after she is visited by a man who represents himself as a "foreclosure consultant" and convinces her to sign a loan contract in order to save her home. But the loan payments are much higher than she can afford, and before long she has accepted three more loans from the same lender. Unable to meet the payments, she defaults, the so-called consultant forecloses on her property, forces her out of her home and sells her possessions.

In San Francisco, a contractor going door-to-door persuades a 57-year-old woman to take a second mortgage on her home in order to repair some earthquake damage. He tells her that she will be able to get a federal grant that will help her pay back the $150,000 loan. However, the federal grant doesn't exist and the woman soon defaults on the loan and loses the house she has lived in for 22 years.

These are examples of home equity loan fraud, which occurs when lenders misrepresent the terms of a loan in order to trick people out of the ownership of their homes. Home equity loan fraud has been growing since the mid 1980s and despite recent federal disclosure rules, there's no indication that the crime is waning.

"Home equity fraud has been a fairly consistent theme since the early 1990s," said attorney Daniel J. Mulligan of the San Francisco firm Jenkins & Mulligan, who represents victims in many home equity loan fraud cases. Mulligan said that home equity loan frauds are presented in many ways, but all have one thing in common: "Somebody is lying to you."

Fraudulent lenders rely on different tricks to fool homeowners into agreeing to outrageous loans. Lenders often pressure homeowners into signing before they understand all the terms of the loan. Sometimes lenders convince victims to sign blank documents which are later filled in with interest rates and fees that are higher than the homeowner agreed to orally. Such tricks have landed homeowners with annual percentage rates (APRs) as high as 30% on some loans-this when the market rate was between 8.5% and 11.5%.

Sometimes homeowners get stuck with a huge "balloon payment"-a very large payment due at the end of the loan-because the low monthly payments they were sold on only cover interest, not the principal of the loan. When the life of the loan is over, the homeowner is forced to pay the entire principal-usually tens of thousands of dollars.

The perpetrators of home equity loan fraud often prey on people in financial trouble or those facing foreclosure. They surface after natural disasters such as fires or earthquakes, when homeowners need home repairs. Sometimes victims are tricked into consolidating other debt into a high-rate home equity loan.

Relatives or friends may take advantage of homeowners by convincing them to take out a home equity loan. Although they promise to pay back the loan, somehow they never do and the property ends up in foreclosure.

Who are the victims?

Predominantly, the victims of home equity loan fraud are senior citizens, who make prime targets because they often own their homes free and clear. This means they have more value (equity) to borrow against. Many seniors need extra cash, since they often do not have a large monthly income.

Crooks also target people in low-income neighborhoods, who may be strapped for cash but own their homes, and in minority and immigrant communities, where people may agree to a loan presented by someone from their own ethnic or language group.

Perpetrators of home equity loan fraud reach their victims in a number of ways. Lenders frequently send out direct mailings, often to a particular ZIP code, or target potential victims via the phone. Many lenders target people in dire straits. "Fraudulent lenders will go to the public record to find names of people who owe back taxes, are defaulting on their mortgages or filing bankruptcy," said Mulligan.

Lenders may partner with a contractor, who goes door-to-door and tells people they should have work done on their houses. When homeowners tell the contractor they don't have the money, the contractor suggests a certain lender who can offer them a deal. Sadly, such deals usually end up costing the victims their homes.

In contrast with the loan application process at a major bank, which usually involves a lot of time, energy and paperwork, fraudulent lenders make it very easy to secure a loan. "These lenders will come to your home with all the paperwork filled out, and all you have to do is sign," said Mulligan. By making the loan easy to get, tricky lenders tempt homeowners who might not be able to obtain a loan from a legitimate lender because of poor credit or low income. "Any loan that's easy should be questioned," warned Mulligan.

Victims' recourse

Unfortunately it is often difficult to build a solid case against a fraudulent lender, said Mulligan. "It's hard to prove to a jury that the lender lied when your signature is right there on a stack of documents."

However, homeowners do have legal protections. Disclosures called for by the federal Home Ownership and Equity Protection Act protect people from high-rate, high-fee loans. Loans are so defined if the APR is 10% higher than Treasury bills of the same duration and if you are required to pay more than 8% of the total loan amount up front.

On home equity loans and second mortgages, the lender must give you notice of all costs and your right to cancel the loan. Lenders cannot make direct payments to home repair contractors and cannot require balloon payments due in fewer than five years. If your lender violates any of these restrictions, you have the right to cancel the loan without penalty or foreclosure, even if you find out about the violations after the loan has been signed.

The federal Truth in Lending Act gives borrowers three days to cancel a home equity loan after signing, for any reason. Mulligan allowed that many homeowners do not take advantage of the cooling off period because they are already in dire financial straits and feel that they have no other option.

But Mulligan said this protection can be a lifesaver: "Those three days are the time to get the loan contract reviewed by a trustworthy source."

You can avoid home loan fraud

• Be wary of lenders who come to your door or call you on the phone.
• Do not sign any document that you haven't read or that you don't understand.
• Never sign any document that includes blank spaces. Check all the pages.
• Don't let anyone pressure you into signing anything you don't want to---a reputable lender will give you time to think it over.
• Consult with an attorney or financial advisor before signing a home equity loan. There are free or low-cost legal services available in most communities, especially to seniors and people with low incomes.
• If you have signed something that you are suspicious of, contact an attorney immediately. Local and state bar associations can refer you to an attorney.
• If you need home repairs but are short on cash, look into assistance programs that help with repairs or offer low-cost home repair loans.

Guest Columnist: Help shut down cyber-crooks

By Susan Grant
Director
National Fraud Information Center / Internet Fraud Watch
National Consumers League

What's the biggest scam on the Internet? That depends on how you look at it. In terms of volume, the most frequent complaints to the National Consumers League's program are about online auction transactions in which the "winning" bidders sent their money to the sellers and never received anything in return, or what they got wasn't what they were promised.

Last year, online auction problems accounted for 78% of the complaints made to our Internet Fraud Watch program. That's down from 87% in 1999, but it's still a significant area of concern.

The other categories in the top 10 Internet frauds in 2000 were:

• General merchandise sales (not auctions)-non-delivery or misrepresentation of goods.
• Internet access services-failure to provide or misrepresentation of services.
• Work-at-home schemes-empty promises of big earnings doing work at home.
• Advance fee loans-false promises of personal or business loans with upfront fee required.
• Computer equipment/software (not auctions)-non-delivery or misrepresentation of goods.
• Nigerian money offers-foreign crooks promise riches in exchange for fees and access to peoples' bank accounts.
• Internet Information/adult services-undisclosed or misrepresented telephone or credit card charges for services.
• Credit card offers-false promises of credit cards with upfront fees required.
• Travel/vacations-promises of free or cheap trips that never materialize.

Based on the amount of money victims lose, Nigerian money offers are the worst Internet frauds. The average loss to those scams is $3,000, compared to $427 over all Internet fraud categories. Another category with high losses is travel, with an average of $1,464. The average loss in online auction fraud is $326.

The biggest losers in Internet fraud are people in their 20s, 30s and 40s, who represent 77% of all victims reported to the Internet Fraud Watch last year. In the top 10 frauds, the category with the youngest victims is advance fee loans (32% were under age 30); most older victims are found in bogus credit card offers (28% age 60 or older).

Many consumers still aren't comfortable paying online, and some sellers are not equipped to take payments electronically, so in many scams reported to the Internet Fraud Watch, the purchases are completed offline with money orders (the method of payment in 43% of the cases last year) or checks (30%) to the sellers. But credit card payment is growing, from 5% in 1999 to 11% in 2000. Withdrawals from consumers' banks (they gave account numbers to the crooks) represent only 2% of payments overall last year.

The most common way that consumers are solicited for Internet scams is through Web sites (82% of the cases last year). E-mails are used frequently to solicit victims (12%) and more crooks lurk in newsgroups (4% in 2000 compared to less than 1% in 1999).

Most of these cyber-crooks are located in California (17% last year), New York (10%) and Florida (9%), but they can be found in every state and in other countries (6% reported last year were foreign).

The Internet is a great place to shop because it's always open and you can locate even obscure items easily. Online auctions have become immensely popular because people can find what they're looking for, sometimes at bargain prices. It's also easy to communicate on the Internet with far-flung people who may have similar interests. You can avoid fraud by following some common-sense precautions:

Know whom you're dealing with.
Check unfamiliar sellers' track records with state and local consumer agencies, the Better Business Bureau and feedback forums on some Web sites. Be wary of tips from friendly folks in newsgroups-they may have ulterior motives for suggesting that you do business with a particular company. Make sure you have a physical address for the seller, which will be helpful if there is a problem later.

Don't believe unrealistic claims.
Promises of easy profits for little work, big returns on investments with little risk, guarantees of loans or credit cards even if you have bad credit as long as you pay a fee upfront, and incredibly cheap or free products or services are usually false.

Pay the safest way.
If you pay by check or money order, by the time you discover there is a problem, your money is gone. Use a credit card because you have the legal right to dispute the charges for non-delivery or misrepresentation. You can also dispute the charges if someone uses your account number without your authorization.

Another option is to use an escrow service, which takes your payment and forwards it to the seller when you confirm that you've gotten what you were expecting within the agreed-upon time.

Be wary of giving anyone your bank account numbers-that's like handing over the keys to a locked box with your valuables inside.

It's easy to report suspected Internet fraud by calling the Internet Fraud Watch at (800) 876-7060 or via the online complaint form on www.fraud.org. We will transmit that information to the correct law enforcement agencies. There's no guarantee that you'll get your money back---that's why it's so important to be careful going into any deal. But at the very least, you can help to shut down the cyber-crooks.

Fraud bills go to Congress

During this session of Congress many bills have been proposed which, if passed, would help consumers and law enforcement agencies combat fraud. Several of them are described below. If you want to support any of these bills, write to your Congressional representative and senators. To reach your lawmakers, go to the House and Senate web sites (www.house.gov and www.senate.gov). House bills bear the initials H.R., Senate bills, an S.

To learn more about these bills, go to the Library of Congress's web site named for Thomas Jefferson (thomas.loc.gov).

The bills in this article are mentioned for informational purposes only, and are not meant to imply any endorsement by Consumer Action.

Privacy rights and identity theft

• The Online Privacy Protection Act of 2001 (H.R. 89), sponsored by Rep. Rodney Frelinghuysen (R-NJ), would require the Federal Trade Commission to create rules protecting personal information collected online, including a way for consumers to limit disclosure of their personal information.
• The Social Security Online Privacy Protection Act (H.R. 91), also by Frelinghuysen, would prohibit web sites from disclosing a person's Social Security number to a third party without the individual's written consent.
• The Identity Theft Prevention Act of 2001 (H.R. 220), introduced by Rep. Ron Paul (R-TX), calls for new regulations restricting the use of Social Security numbers. Under this bill, Social Security numbers would only be used for purposes relating to Social Security Administration or tax-related business-it would be illegal for other government agencies or private companies to ask for the number. This bill resulted from an identity theft case in Paul's district in which a woman's identity was stolen by her insurance agent.
• The Social Security Number Privacy Act of 2001 (S. 324), sponsored by Sen. Richard Shelby (R-AL), would increase protections for Social Security numbers by making it illegal for financial institutions to buy and sell them.

Telemarketing

• The Telemarketing Victims Protection Act (H.R. 232), sponsored by Rep. Peter King (R-NY), would require telemarketers to notify consumers that they have the right to be placed on a do-not-call list. (Currently, consumers can ask to be placed on a do-not-call list, but the company is not required to tell them about their rights.) Also, telemarketers would not be allowed to place calls at the dinner hour (between 5 and 7 p.m.) and would not be allowed to block their identities from caller ID services. (Current law allows telemarketers to call any time between 8 a.m. and 9 p.m. on any day.)
• The Know Your Caller Act of 2001 (H.R. 90), sponsored by Frelinghuysen, also seeks to make it illegal for telemarketers to block their numbers from caller ID services.

Spam

• The Unsolicited Commercial Electronic Mail Act of 2001 (H.R. 718), sponsored by Rep. Heather Wilson (R-NM), would make it illegal to send out mass marketing e-mails (spam) from a false or inaccurate domain name.
• Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2001 (S. 630), proposed by Sen. Conrad Burns (R-MT), would also prohibit senders of spam from disguising the address they are sending mail from.

Other frauds

• The Predatory Lending Consumer Protection Act of 2001 (H.R. 1051): sponsored by Rep. John LaFalce (D-NY) would help protect consumers against unfair (predatory) lending practices. It would also strengthen the legal remedies available to victims. The bill would require that there be new disclosures in home equity loan documents to inform the borrower if the interest rate and fees are abnormally high and that borrowers could lose their home if they fail to make all payments as promised. Lenders also would be required to tell applicants that lower cost loans may be vailable.
• The Immigration Services Consumer Protection Act of 2001 (H.R. 654), introduced by Rep. Luis Gutierrez (D-IL), would require immigration and citizenship consultants to be licensed. Many consumers have been defrauded by phony consultants who take their clients' money and give them inaccurate advice or no advice at all.
• The Financial Services Antifraud Network Act of 2001 (H.R. 1408), sponsored by Rep. Mike Rogers (R-MI), seeks to streamline law enforcement efforts and detection of fraud in the financial services industry by coordinating a system to share information among state, federal and international regulators.

- Compiled by Sarah Hinds

Lawyers charge Chrysler with 'lemon laundering' fraud

By Linda Sherry

A North Carolina court case centering on the resale of a defective Dodge minivan has forced the Chrysler Corporation to release documents revealing that it paid $1.3 billion from 1993-2000 to buy back more than 50,000 "lemons"---defective automobiles.

According to the documents, Chrysler recovers as much as 70% of the buyback price by auctioning most of the vehicles to Chrysler dealers who resell them to the public. They are supposed to be sold with full disclosure, but among the documents lawyers found unsigned disclosure forms that were supposed to have alerted new owners about the repair history of specific cars.

Attorneys for the plaintiffs charge that Chrysler-now DaimlerChrysler -engages in "lemon laundering" by reselling defective cars without disclosing their repair history. Many state laws require manufacturers to buy back defective vehicles that cannot be repaired despite persistent attempts, and many require that the car's title reveal that it's a lemon buy back. However, many cars are shipped across state lines and the title disclosure is deliberately erased.

Consumer Action has joined other consumer advocates in asking the Federal Trade Commission to recommend that Congress create a publicly accessable database containing the history of all lemon buy backs, including vehicle identification numbers (VINs) and warranty records.

Attorney Douglas Abrams represents Peter and Frances Pleskach of Raleigh, NC, who unknowingly bought a recycled lemon. Abrams, a partner in Twiggs, Abrams, Strickland and Rabenau of Raleigh, said the documents came to light because a Chrysler lawyer appearing as a witness in the case kept referring to a notebook containing the files during a trial.

At a hearing in January, Abrams objected to the Wake County Superior Court that Chrysler had violated three previous court orders to produce other documents, including those detailing every vehicle repurchased in the state and signed disclosure statements. He charged that since the case was filed in 1999, the company had repeatedly refused to produce documents as the court had ordered. Since December 2000, the company has accumulated more than $325,000 in sanctions for its failure to do so. In January, Judge Narley Cashwell handed Daimler-Chrysler a summary judgment, barring it from mounting a defense. Chrysler spokesman Jay Cooney told the News & Observer, a Raleigh newspaper, that the company will appeal.

In mid March, the North Carolina Court of Appeals lifted a temporary seal that it had placed on the documents in February.

"From a review of these documents, we conclude that this is merely part of Chrysler's business plan," Abrams said. He claimed that Chrysler has shown "a pattern of obstruction" in similar lemon laundering suits across the country. In addition, a number of state attorneys general have brought actions against Chrysler for lemon laundering.

The Pleskaches bought the minivan for $14,300 in 1999 without knowing its history of a noisy engine, bad brakes and faulty door locks. At a damages hearing in June, a jury will decide if monetary damages will be awarded to the couple.

Consumer advocates say the Chrysler documents released in the Pleskach case offer evidence of what they have long suspected-that manufacturers, not just a few less than honest dealers, profit from the resale of lemon cars.

"Auto manufacturers have breathed new life into the notion of profiting from their mistakes," said Rosemary Shahan of Consumers for Auto Reliability and Safety (CARS), a national expert on lemon vehicles. "The owners are unaware of the vehicle's history, so they pay a higher price than if they knew. Dealerships usually sell these cars 'as is' with no warranty coverage and, as if that wasn't bad enought, they profit from expensive repairs and replacement parts for vehicles they knew were flawed."

For more information about lemon laws, lemon laundering and legal efforts to stop the fraud, visit CARS (www.carconsumers.com) and Safetyforum (www.safetyforum.com).

Anti-fraud advice online

Forewarned is forearmed—you can defend yourself against fraud by checking out these helpful web sites:

AARP (www.aarp.org), the senior advocacy group, has launched a nationwide educational campaign to prevent home loan fraud.

The American Institute of Philanthropy (www.charitywatch.org) is a charity watchdog service that can help you avoid giving your money to fraudulent "look-a-like" organizations.

Consumer Action (www.consumer-action.org) offers guides on how to avoid many frauds, including credit card, phone, home loan and credit repair frauds.

The Federal Trade Commission has many consumer education publications about fraud on its site (www.ftc.gov). Also check out its press releases for news about legal actions taken by the agency against fraudulent promoters.

The National Association of Consumer Agency Administrators newsletter, NACAA News (www.nacaa.net/newsletter.htm) features stories about new con games and efforts to combat them.

The National Fraud Information Center (www.fraud.org), a project of the National Consumer League, helps you to recognize fraud and file a complaint if you've been defrauded.

Quatloos (www.quatloos.com) chronicles colorful and bizarre scams. The site states that "quatloos" is a term coined on the Internet for "farcical units of currency" used to poke fun at ridiculous business offers.

Scambusters, a free online newsletter (www.scambusters.org), features articles on Internet scams and fraud.

The U.S. Securities and Exchange Commission (SEC) offers "Investor Alerts" (www.sec.gov) to warn you about fraudulent investments. Also check out the SEC's press releases for news about legal actions taken by the agency against fraudulent investment promoters.

- L.S.

Don't fall for this call

Consumer Action is cautioning all consumers that it is not affiliated in any way with the "Consumer Action Center," a telemarketer that sells credit card protection services. We issue this statement in order to protect the integrity of our name as well as to alert individuals to the deceptive practices of this telemarketer, which sometimes calls itself "Consumers Action."

Based on complaints we have received since 1997, this company makes cold calls selling useless credit card protection packages. Some of the complaints allege that these telemarketers have tricked people into giving out their credit card numbers. Although a $99-$189 charge appears on these individuals' credit cards, they receive only a worthless folder of information, or in some cases, nothing at all. Existing federal laws offer far greater protections for credit card holders at no charge.

Sales of phony credit card protection offers have been targeted by the Federal Trade Commission. Callers from these companies often falsely state that they are with the consumer's own credit card issuer or that they are calling on behalf of MasterCard or Visa.

Be wary of promoters who tell you that you are liable for more than $50 of unauthorized charges on your credit card or that you need credit card loss protection because online shopping is risky. Never give your credit card number to someone who calls you-even if the caller claims to be from your credit card company.

If you are contacted by telemarketers using a name similar to ours, please let us know.

CA's 30th anniversary party

Consumer Action is celebrating its 30th anniversary. It's not every day that a non-profit organization celebrates three decades of service to consumers!

We invite you to join us at our annual June fundraiser and awards ceremony on Thursday, June 21, 2001, from 5:30 to 7:30 p.m. at the Marines Memorial Club, Crystal Lounge, 609 Sutter St., 11th Floor, San Francisco.

Tickets to the party are $30 per person. To RSVP, please call (415) 255-3311.

Please join us-without your valuable support we would not be one of the nation's foremost consumer education and advocacy organizations.

McEldowney honored by NCL

Ken McEldowney, Consumer Action's executive director, was honored last month by the National Consumers League, which presented him with its Florence Kelley Consumer Leadership Award. McEldowney received the award at the League's annual conference in San Diego on April 27.

McEldowney has been CA's executive director since 1980. A former consumer reporter and a founder of San Francisco's Media Alliance, he helped CA grow from a small local organization to one of national stature during the 1980s and '90s. McEldowney has helped focus CA's energies on protecting the interests of low income and limited-English-speaking consumers.

A participant in many government and private-sector consumer advisory and education alliances, McEldowney is the immediate past president of the Consumer Federation of America (CFA)---a federation of 250 pro-consumer organizations with more than 50 million individual members.

The National Consumers League's award is named for its first executive secretary, Florence Kelley, appointed in 1899 to lead the newly formed advocacy organization. Kelley's motto was "investigate, educate, agitate."

New staff member

Martha Hannan joined CA in April as associate director of the Healthy Children Organizing Project. The project focuses on building community capacity to prevent childhood illnesses that result from environmental factors, such as lead poisoning and asthma.

Hannan, a native of England who has volunteered and taught in Africa, served as campaign coordinator for CHANGE International in 1995, working for women's economic rights. From 1996-2000 Hannan worked for International Development Exchange as development director. During those years she helped guide "Fifty Years is Enough," a Washington, DC-based campaign seeking the "fundamental transformation" of the World Bank and the International Monetary Fund (IMF), and volunteered with Economic Justice Now in San Francisco. She is a board member of Child Family Health International in San Francisco.

- L.S.