Federal Trade Commission Targets Demand Drafts
The FTC is beginning a process of using new regulations, legal actions, and Education to make the business community aware of the fraud that is occurring in Demand Drafts, an increasingly common method of check payment.
Jodie Bernstein, Director of the Federal Trade Commissions' Bureau of Consumer Protection, reports that these supposedly "Pre-approved" items are robbing consumers of tens-of-millions-of-dollars a year.
What are Demand Drafts, you ask? These drafts look like checks, but instead of a signature they have a statement printed on the face of the check or draft, stating that the account holder has given permission to have money withdrawn from his or her checking account.
This type of payment is becoming popular for regular and reoccurring payments such as rent, insurance premiums, or other regular bills. It is now beginning to be used by collection organizations, and one time phone and Internet purchases.
The FTC has begun its efforts by bringing civil suits accusing half-a-dozen magazine marketing firms and their officials of unauthorized withdrawals. In addition, the FTC has implemented new rules which require companies using demand drafts to get expressed, verifiable authorizations. This verification can take the form of a written authorization or a recording. The most important step, however, that the FTC is taking is education. The FTC is releasing articles whenever it can to send its message of caution.
The FTC is urging consumers to remember: "Never give any information about your account to anyone you do not know. Don't read anyone the number off the bottom of the check, the sequential number at the top, anything."
With regard to why we are seeing this particular area of fraud, Thomas Greco, assistant general counsel of the American Bankers Association says, "There's been this squeezing down of credit card fraud, so then there was this opportunity here in this area."
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