FTC Ends $275 Million Credit Card Scam

The Federal Trade Commission (FTC) has won a federal court order to halt operations ofBadCustomer.com, a website that allegedly scammed $275 million from the accounts of approximately five million credit card holders and bank customers during the past four years.

The Scheme

According to the FTC, a company by the name of I Works, Inc lured customers into becoming members of the site. In return for their membership, which was supposed to be a “trial” membership, consumers would receive information on federal grants and products. It turned out, however, that these were bogus grants and products.

Forced Continuity

Even though it was supposed to be a trial membership, the scam turned out to be a forced continuity membership, which means that once the site received a consumer’s credit card information, the company continually charged the card month after month. When customers would complain or threaten to report the company to the FTC, the company in turn would threaten to report the consumers to the website BadCustomer.com.

BadCustomer.com

As it turns out, the same scam artists running I Works, Inc. also ran BadCustomer.com. Essentially, customers listed on BadCustomer.com were reported as those that do not pay their bills, or engage in a lot of requests for credit on items purchased. Being listed on the BadCustomer website could make it difficult for the consumer to make future online purchases.

According to FTC Chairman Jon Leibowitz, "No consumer should be sucker-punched into making payments for products they don't know about and don't want."

When the victims were unable to cancel the monthly charges through I Works, they asked their credit card companies to investigate and provide a charge-back, which is a temporary credit until the problem is resolved. The charge-backs eventually led to the uncovering of the entire scheme. Foxbusiness.com reported that a total of 10 individuals, 10 corporations and 51 shell corporations were involved in the scam. One individual has already been jailed and the operations of all the involved companies have been shut down.

It is estimated that approximately 5 million consumers were victims of the scam. At least 500,000 went through the credit card dispute process with their credit card companies and demanded charge-backs.

Kristie Lorette

Kristie Lorette is an award winning credit specialist and an MBA graduate of Nova Southeastern University. Her lengthy tenure includes service at Merrill Lynch where she oversaw a $300 million dollar portfolio and 16 branches. At Merrill Lynch, Kristie specialized in consumer issues related to credit and mortgages. As a writer and researcher in personal finance, Kristie is also a contributor to Yahoo! Shine, Quizzle.com, Moneysmartlife.com and many other online and print publications.