Consumer fraud in the United States continues to be a major problem, and the recent crisis in the American economy makes the problem even more profound. The Federal Trade Commission estimates that 13.5% of U.S. consumers (30.2 million people) are defrauded each year, losing a total of close to $3 billion. This figure is likely to be low given that victims of fraud underreport their victim status in surveys. Nevertheless, by any measure, criminal fraud – and how to stop it – continues to be an issue involving people of all ages, with particular challenges for older Americans.
The AARP Foundation and the Stanford Center on Longevity co-sponsored a summit conference in October 2009 on financial fraud crimes. The conference at Stanford University brought together academic experts from the fields of social and cognitive psychology, neuropsychology, behavioral economics and communications, public officials from the FTC and a state attorney general’s office, the AARP and FINRA, the Financial Industry Regulatory Authority, to identify key issues and address such questions as:
• What is known at the present time about the nature of fraud?
• What are the conditions that make people most susceptible to being victimized?
• What psychological tendencies might make particular groups of people especially vulnerable?
• What questions, if answered, might lead to practical solutions to prevent fraud?
Many studies have already been completed in the area of fraud and fraud prevention which have provided greater understanding about the profile of potential victims, the profile of scamming techniques as well as methods of prevention and inoculation. However, there was agreement among the participants that much of the fraud research that has been conducted to date has been fragmented and not well reported in the academic community. This area of study would benefit from having a central repository where fraud research and data could be housed.
Other conclusions drawn by the participants:
• There is a paucity of research showing that broad prevention programs targeting large segments of the public with a “one size fits all” message reduce criminal fraud. Rather, programs that target particular vulnerable populations and customize the message to fit those populations have shown the ability to change behavior and increase resistance to fraud.
• While studies have shown personalized and targeted prevention techniques to be successful in increasing the resistance to fraud, their effectiveness has only been tested over the short-term. Longer-term analysis needs to be completed in order to determine whether such effective methods persist over time.
• The percentage of individuals victimized by fraud is a relatively small subset of the overall population. Therefore, research efforts should focus on identifying individuals most at-risk of victimization, allowing government and social sector agencies to target their efforts.
• In discussing the profiles of fraud victims, it was agreed that several situations and types warrant further study. Specifically, the profiles and behaviors of repeat fraud victims and the profile of those who are victimized during vulnerable moments, such as retirement or bankruptcy. Those seem to be particularly vulnerable populations and with a greater understanding of triggers, could be targeted with specific prevention techniques.
• It was posited that one way to learn how to resist fraud would be to study those who have been approached, pitched and have successfully resisted. Much of the research to date has focused on victims but little is known about those who have successfully resisted fraud appeals. What techniques did they use? How might their situations be different from those who fell for the scam or from those in the general population?
• It was generally agreed that technology has been underused in identifying perpetrators of fraud, potential victims of fraud and as a method of ”inoculating” victims of fraud. And while it can be debated if and how the current generation of elderly would benefit from such technologies, it was agreed that the “next generation elderly” will be comfortable with a variety of technologies and fraud prevention techniques need to be developed which utilize a variety of technology tools.
• Several ideas for new prevention techniques were discussed. Among them: development of short, clever anti-fraud media pieces that could be launched online, incorporation of fraud stories in TV program scripts (the “telenovela approach”), development of anti-fraud curriculum in the schools, development of opt-in/opt-out “default” strategies to protect vulnerable adults’ bank accounts; development of “trusted confidant” or family support systems to protect vulnerable family members, and testing new methods of information distribution such as tele-town halls.
The Stanford Financial Fraud Conference provided experts and academics with an excellent opportunity to engage in lengthy, relatively unstructured dialogue about the state of the fraud prevention knowledge base and what new research should be pursued to reduce fraud in the marketplace. What emerged was the reporting of research that had not been widely known together with several new ideas for how to attack the problem.