Scams and Fraud

Fraud and scams are a significant and growing problem. In 2024, the Consumer Sentinel database maintained by the Federal Trade Commission (FTC) recorded 2.6 million fraud reports. Consumers reported losses of $12.5 billion, a 25 percent increase from 2023. Over half of all fraud reports were from adults age 50 and older, who reported $3.4 billion in losses. Additionally, in 2023, the Federal Bureau of Investigation’s Internet Crime Complaint Center received nearly 167,000 complaints of fraud targeted at people age 50 and older. Their losses totaled over $5.1 billion, with an average of over $30,000 per case.

Despite ongoing efforts to combat fraud, criminals continue to adapt and evolve their tactics. Traditional methods, such as approaching potential victims via phone calls and emails, are still prevalent. Increasingly, however, criminals are using artificial intelligence (AI) to enhance these methods (see also Artificial Intelligence). AI tools can craft highly personalized and convincing deepfakes, including exceedingly realistic voice or video messages that impersonate loved ones or trusted authorities. It is therefore more and more difficult for victims to discern the truth. 

Criminals frequently use financial products to facilitate fraud. They ask their victims to pay them through various financial products, including gift cards, electronic payments, wire transfers, peer-to-peer payment apps, and cryptocurrencies. Older adults may be directed to send money urgently to strangers through these anonymous payment mechanisms as a form of ransom or extortion. Common schemes include fake check scams, romance scams, government or business impostor scams, family emergency impostor scams, and investment scams. Payments often change hands quickly. Payments may be untraceable and irreversible, making it difficult for law enforcement to prosecute crimes and for victims to recover their money.

Payment methods that facilitate fraud: According to the FTC, in 2024, consumers paid $212 million to scams using gift cards. Victims lost an average of more than $5,150 per incident. A 2022 AARP survey found that just over one-third of U.S. adults have been targeted for scams seeking payment through gift cards. Victims are tricked into buying gift cards. They share serial numbers and PINs with criminals, who then drain the accounts. About one-quarter of the people who were targeted in such schemes followed through in buying the gift cards and sharing the numbers off the back.

Another concern in consumer fraud has been the rise in “gift card-draining.” Thieves steal codes from gift cards in stores. Later, when the gift cards are sold to consumers and activated, the thieves drain the value of the card before the rightful owners have a chance to use them. An AARP survey found that nearly one-quarter of U.S. adults have bought or received a gift card with zero balance on it.

Criminals are increasingly using peer-to-peer (P2P) payment apps to carry out fraudulent transactions. P2P apps are digital platforms that allow users to transfer money directly to one another using their mobile devices. By exploiting the convenience and speed of these platforms, criminals can quickly obtain money from an unsuspecting victim. Common tactics include creating fake online marketplaces or social media profiles to sell nonexistent goods or services. Up-front payments are requested through P2P apps. Then the scammer disappears without delivering the promised items. In 2024, the FTC received over 25,000 complaints from consumers who lost approximately $113 million to criminals using P2P apps, with an average loss of nearly $4,500 per incident.

Increasingly, criminals are seeking payments in cryptocurrency. The reason is that cryptocurrency transactions do not pass through a bank or other institution, which otherwise might flag and stop suspicious activity before the transfer happens. Like wire transfers, cryptocurrency transfers cannot be reversed once the funds have been transferred. In 2024, the FTC received nearly 47,000 reports of cryptocurrency fraud, costing over $1.4 billion, an average of more than $34,000 per incident.

Private-sector role in fraud detection and prevention: Companies across various sectors play a crucial role in preventing fraud. For example, financial institutions can implement advanced fraud detection systems using AI and machine learning to identify unusual patterns in transactions. Social media platforms can identify and remove fraudulent content and fake accounts with automated tools and personnel. And telecommunications companies can verify numbers by implementing caller ID and spam call-blocking technologies. Some companies are voluntarily implementing programs and procedures to identify and stop fraudulent actions on their platforms. A strong regulatory framework and industry standards would further encourage companies to invest in fraud prevention, thus better safeguarding consumers.

Reversal of fraudulent transactions: Reversing fraudulent transactions can be a complex and often unsuccessful process, depending on the payment method used to facilitate the fraud. Money sent by wire, gift cards, or cryptocurrency is difficult to recover once transferred. Payments made through more traditional methods, such as credit and debit cards, however, provide fraud protection measures and chargeback processes for unauthorized transfers. Even with these more conventional methods, account holders who are deceived into authorizing payments may have difficulty obtaining reimbursement.

Consumers need better protections from increasingly sophisticated scams. Currently, consumer protection laws primarily provide recourse for unauthorized transactions. However, many scams, such as phishing and romance scams, involve consumers willingly authorizing payments to criminals who often have targeted them using sophisticated techniques. By extending consumer protections to authorized payments made under fraudulent circumstances, policymakers can help ensure that consumers are not held responsible for losses resulting from deceptive tactics. This would create a more equitable system, better safeguard consumers in the digital age, and incentivize financial institutions to improve their fraud detection and prevention processes.