Consumer Fraud on the Internet

The Internet holds great promise for the American consumer. Originally the domain of academicians, scientists, and the techno-elite, the Internet now offers an infinite array of ideas, entertainment, and commercial products to every consumer with a computer and modem. The installation of faster lines, better search engines, and more security for online transactions surely will prompt even more consumer use.

By December 1997, 58 million adults (defined as ages 16 years and older) already were online in the United States and Canada.⁽¹⁾ Of those, 48 million reported that they had shopped for product information on the World Wide Web,⁽²⁾ and as many as 10 million reported that they had purchased a product or service online.⁽³⁾ Internet advertising totaled approximately $571 million for the first three quarters of 1997, a 263 percent increase over the same time period in 1996.⁽⁴⁾ Analysts estimate that Internet advertising revenues could reach $940 million in 1997 and $4.35 billion by the year 2000.⁽⁵⁾

Consumers and commercial marketers are not the only groups to see the value and power of the Internet. Con artists also are online, hoping to take advantage of low startup costs; the possibility of "real-time" immediate payments; a nearly infinite number of places to "hide" from law enforcement; unparalleled ability to mimic legitimate business; and instant access to a global customer base. Today's fraud peddlers can confuse consumers more easily through web sites that are as sophisticated and appealing as those of many legitimate businesses.

This report details the FTC's 1997 experiences fighting cyberfraud. It describes examples of technology-based fraud and traditional fraud occurring over the Internet, and explains how the FTC is using the Internet for law enforcement and consumer education.