Facts for Consumers from the Federal Trade Commission

Automatic Debit Scams -- October 1993

Fraudulent telemarketers have found yet another way to steal your 
money, this time from your checking account. Consumers across the 
country are complaining about unauthorized debits (withdrawals) 
from their checking accounts.

While automatic debiting of your checking account can be a 
legitimate payment method (many people pay mortgages or make car 
payments this way), the system is being abused by some 
telemarketers. Therefore, if a caller asks for your checking 
account number or other information printed on your check, you 
should follow the same warning that applies to your credit card 
number _ do not give out checking account information over the 
phone unless you initiate the call or are familiar with the 
company. Remember, if you give your checking account number over 
the phone to an unknown person for "verification" or "computer 
purposes," that person may use it to improperly take money from 
your checking account.

How the Scam Works

The new telemarketing scam usually works like this. You either 
get a postcard or a telephone call saying you have won a free 
prize or can qualify for a major credit card, regardless of past 
credit problems. If you respond to the offer, the telemarketer 
often asks you right away, "Do you have a checking account?" If 
you say "yes," the telemarketer then goes on to explain the 
offer, making it sound too good to pass up.  

Near the end of the sales pitch, the telemarketer may ask you to 
get one of your checks and to read off all of the numbers at the 
bottom. Sometimes you may not be told why this information is 
needed. Other times you may be told the account information will 
help ensure that you qualify for the offer. And, in some cases, 
the telemarketer may explain that this information will allow 
them to debit your checking account and ship the prize or process
the fee for the credit card.

Once the telemarketer has your checking account information, it 
is put on a "demand draft," which is processed much like a check. 
The draft has your name, account number, and states an amount. 
Unlike a check, however, the draft does not require your 
signature. When your bank receives the draft, it takes the amount 
on the draft from your checking account and pays the 
telemarketer's bank. You may not know that your bank has paid the 
draft until you receive your bank statement.

What You Can Do to Protect Yourself

Automatic debit scams involve a fraud that is hard to detect and 
could expose you to large financial losses. However, the 
following suggestions may help you avoid becoming a victim.

l  Do not give your checking account number over the phone in 
response to solicitations from people you do not know.

l  If anyone asks for your checking account number, ask them why 
they need this information. 

l  Beware of offers that sound too good to be true, especially 
any offers that require your checking account number. Ask to 
review the company's offer in writing before you agree to a 
purchase.

What to Do if You are a Victim

If a telemarketer has issued a draft against your checking 
account without your knowledge or permission, or the amount is 
more than you authorized, contact your bank immediately. 
Depending on the timing and the circumstances, you may be able to 
get your money back. You also may want to contact your local 
consumer protection agency, state Attorney General and the Better 
Business Bureau to report the telemarketer.

You also may file a complaint with the FTC by writing to: 
Correspondence Branch, Federal Trade Commission, Washington, DC 
20580. Although the FTC generally does not intervene in 
individual disputes, the information you provide may help to 
indicate a pattern of possible law violation requiring action by 
the Commission.

For More Information

The FTC has a series of Facts for Consumers that explain 
fraudulent sales practices that often take place over the phone. 
The brochures list precautions you can take to avoid becoming a 
victim. Titles include:

"900" Numbers
Jobs Ads, Job Scams, and "900" Numbers
"Gold" and "Platinum" Cards
Fraud by Phone
Telemarketing Travel Fraud
Telephone Investment Fraud
Dirt-Pile Scams
Magazine Telephone Scams
Water Testing Scams
Art Fraud
Swindlers are Calling

If you want any of these free brochures, or a copy of our Best 
Sellers _ a complete listing of all consumer and business 
education publications from the FTC _ contact: Public Reference, 
Federal Trade Commission, Washington, D.C. 20580; (202) 326-2222.

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