Consumer Fraud
Consumer fraud occurs when consumers attempt to deceive businesses for their own gain. Shoplifting comprises 37.4 percent of retail shrinkage (losses incurred from employee theft, shoplifting, administrative errors, and supplier fraud) in the United States. Consumers engage in many other forms of fraud against businesses, including price tag switching, item switching, lying to obtain age-related and other discounts, and taking advantage of generous return policies by returning used items, especially clothing that has been worn (with the price tags still attached). Table 3-5 describes some common types of consumer fraud. Such behavior by consumers affects retail stores as well as other consumers who, for example, may unwittingly purchase new clothing that has actually been worn. Fraudulent merchandise returns are estimated to cost about $10.9 billion a year.
Table 3-5
Types of Consumer Fraud
Type of Fraud
Definition
Example
Friendly fraud
Making a big purchase with a credit card and then filing a fraud claim with the credit card company
After receiving her large shipment in the mail, Melanie filed a claim with her credit card company claiming it was never shipped.
Price arbitrage
Substituting differently priced but similar items for a higher return
Daniel placed a 1-terabyte hard drive into the box for a 20-terabyte drive and returned it for a full refund.
Return fraud
Replacing an item with something different and returning it for a full refund
Joe filled a PlayStation box with rocks, resealed it, and received a full refund when the store clerk failed to check the merchandise.
Wardrobing
Wearing an expensive item once for an event and then returning it for a full refund
Jessica wore an expensive dress to a dinner party and then returned it for a full refund.
Returning stolen goods
Receiving a full refund on goods that had been stolen
Samantha stole some clothing and then returned it to the retailer for a refund.
Source: Rich Johnson, “How Do Customers Take Advantage of Retailers,” Site Jabber, September 24, 2010, http://www.sitejabber.com/blog/2010/09/24/how-do-customers-take-advantage-of-retailers/ (accessed April 15, 2017).
Consumer fraud involves intentional deception to derive an unfair economic advantage by an individual or group over an organization. Examples of fraudulent activities include shoplifting, collusion or duplicity, and guile. Collusion typically involves an employee who assists the consumer in fraud. For example, a cashier may not ring up all merchandise or may give an unwarranted discount. Duplicity may involve a consumer staging an accident in a grocery store and then seeking damages against the store for its lack of attention to safety. A consumer may purchase, wear, and then return an item of clothing for a full refund. In other situations, a consumer may ask for a refund by claiming a defect. Guile is associated with a person who is crafty or understands right/wrong behavior but uses tricks to obtain an unfair advantage. The advantage is unfair because the person has the intent to go against the right behavior or result. Although some of these acts warrant legal prosecution, they can be difficult to prove, and many companies are reluctant to accuse patrons of a crime when there is no way to verify wrongdoing. Businesses that operate with the philosophy “the customer is always right” have found some consumers take advantage of this promise and have therefore modified return policies to curb unfair use.
3-3kFinancial Misconduct
The failure to understand and manage ethical risks played a significant role in the financial crisis. The difference between bad business decisions and business misconduct can be hard to determine, and there is a thin line between the ethics of using only financial incentives to gauge performance and the use of holistic measures that include ethics, transparency, and responsibility to stakeholders. From CEOs to traders and brokers, all-too-tempting lucrative financial incentives existed for performance in the financial industry.
The most recent global recession was caused in part by a failure of the financial industry to take appropriate responsibility for its decision to utilize risky and complex financial instruments. Loopholes in regulations and the failures of regulators were exploited. Corporate cultures were built on rewards for taking risks rather than rewards for creating value for stakeholders. Ethical decisions were based more on what was legal rather than what was the right thing to do. Unfortunately, most stakeholders, including the public, regulators, and the mass media, do not always understand the nature of the financial risks taken on by banks and other institutions to generate profits. The intangible nature of financial products makes it difficult to understand complex financial transactions. Problems in the subprime mortgage markets sounded the alarm for the most recent recession.
Ethics issues emerged early in subprime lending, with loan officers receiving commissions on securing loans from borrowers with no consequences if the borrower defaulted on the loan. “Liar loans” were soon developed to create more sales and higher personal compensation for lenders. Lenders encouraged subprime borrowers to provide false information on their loan applications in order to qualify for and secure the loans. Some appraisers provided inflated home values in order to increase loan amounts. In other instances, consumers were asked to falsify their incomes to make the loans more attractive to the lending institutions. The opportunity for misconduct was widespread. Top managers and CEOs were complacent about the wrongdoing as long as profits were good. Throughout the early 2000s, in an economy with rapidly increasing home values, the culture of unethical behavior was not apparent to most people. When home values started to decline and individuals were “upside down” on their loans (owing more than the equity of the home), the failures and unethical behavior of lending and borrowing institutions became obvious.
The top executives or CEOs are ultimately responsible for the repercussions of their employees’ decisions. This is why many leaders step down after a misconduct disaster at a firm. For example, the executive chairman and mortgage mogul William Erbey of Ocwen Financial Corp. stepped down due to alleged misconduct of the company. According to allegations, Ocwen mishandled foreclosures, engaged in conflicts of interest, and abused borrowers who were delinquent in paying back their loans. As a leader, Erbey was expected to exert oversight over the company and its employees to ensure appropriate conduct. Risk management in the financial industry continues to be a key concern. A rise in sub-prime automobile loans and the bundling of these loans into securities has caused concern among some stakeholders. Subprime loans were a major contributor to the last financial crisis, leading some to believe that the finance industry has not learned its lesson from the past.
This past widespread financial misconduct led to a call for financial reform. The Dodd–Frank Wall Street Reform and Consumer Protection Act was passed in 2010 to increase accountability and transparency in the financial industry and protect consumers from deceptive financial practices. The act established a Consumer Financial Protection Bureau (CFPB) to protect consumers from unsafe financial products. The CFPB was provided with supervisory power over the credit market. Its responsibility includes making financial products easier to understand, curtailing unfair lending and credit card practices, and ensuring the safety of financial products before their launch into the market. The Dodd–Frank Wall Street Reform and Consumer Protection Act also gives federal regulators more power over large companies and financial institutions to prevent them from engaging in risky practices or becoming “too big to fail.” The act also holds CEOs responsible for the behavior of their companies. Large financial firms must retain at least half of top executives’ bonuses for at least three years. The goal is to tie compensation to the outcomes of the executives’ decisions over time. We will discuss the Dodd–Frank Act and the CFPB in detail in Chapter 4.
3-3lInsider Trading
An insider is any officer, director, or owner of 10 percent or more of a class of a company’s securities. There are two types of insider trading : illegal and legal. Illegal insider trading is the buying or selling of stocks by insiders who possess information that is not yet public. This act, which puts insiders in breach of their fiduciary duty, can be committed by anyone who has access to nonpublic material, such as brokers, family, friends, and employees. In addition, someone caught “tipping” an outsider with nonpublic information can also be found liable. To determine if an insider gave a tip illegally, the SEC uses the Dirks test that states if a tipster breaches his or her trust with the company and understands that this was a breach, he or she is liable for insider trading.
Legal insider trading involves legally buying and selling stock in an insider’s own company, but not all the time. Insiders are required to report their insider transactions within two business days of the date the transaction occurred. For example, if an insider sold 10,000 shares on Monday, June 12, he or she would have to report the sale to the SEC by Wednesday, June 14. To deter insider trading, insiders are prevented from buying and selling their company stock within a six-month period, thereby encouraging insiders to buy stock only when they feel the company will perform well over the long term.
Insider trading is often done in a secretive manner by an individual who seeks to take advantage of an opportunity to make quick gains in the market. The Justice Department has cracked down on insider trading in recent years, including recording phone calls of suspected insider traders to gather evidence. Galleon Group founder Raj Rajaratnam and former Goldman Sachs director Rajat Gupta were both sentenced after secretly videotaped phone conversations appeared to implicate them in an insider trading scheme. An ex-trader at SAC Capital received a nine-year jail sentence for insider trading, and the company paid $1.2 billion in penalties. Surveys revealed people who get involved in this type of activity often feel superior to others and are blind to the possibility of being discovered or facing consequences. However, a decision by a federal appeals court might make insider trading convictions more difficult. The court determined that a conviction must depend on whether the person received a tangible benefit from using nonpublic information.
Get Professional Assignment Help Cheaply
Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?
Whichever your reason may is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.
Our essay writers are graduates with diplomas, bachelor’s, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college diploma. When assigning your order, we match the paper subject with the area of specialization of the writer.
Why Choose Our Academic Writing Service?
Plagiarism free papers
Timely delivery
Any deadline
Skilled, Experienced Native English Writers
Subject-relevant academic writer
Adherence to paper instructions
Ability to tackle bulk assignments
Reasonable prices
24/7 Customer Support
Get superb grades consistently
How It Works
1. Place an order
You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.
2. Pay for the order
Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.
3. Track the progress
You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.
4. Download the paper
The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.
Get Professional Assignment Help Cheaply
Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?
Whichever your reason may is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.
Our essay writers are graduates with diplomas, bachelor’s, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college diploma. When assigning your order, we match the paper subject with the area of specialization of the writer.
Why Choose Our Academic Writing Service?
Plagiarism free papers
Timely delivery
Any deadline
Skilled, Experienced Native English Writers
Subject-relevant academic writer
Adherence to paper instructions
Ability to tackle bulk assignments
Reasonable prices
24/7 Customer Support
Get superb grades consistently
How It Works
1. Place an order
You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.
2. Pay for the order
Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.
3. Track the progress
You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.
4. Download the paper
The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.
PLACE THIS ORDER OR A SIMILAR ORDER WITH Essay fount TODAY AND GET AN AMAZING DISCOUNT
The post Discussion on consumer fraud appeared first on Essay fount.
What Students Are Saying About Us
.......... Customer ID: 12*** | Rating: ⭐⭐⭐⭐⭐"Honestly, I was afraid to send my paper to you, but you proved you are a trustworthy service. My essay was done in less than a day, and I received a brilliant piece. I didn’t even believe it was my essay at first 🙂 Great job, thank you!"
.......... Customer ID: 11***| Rating: ⭐⭐⭐⭐⭐
"This company is the best there is. They saved me so many times, I cannot even keep count. Now I recommend it to all my friends, and none of them have complained about it. The writers here are excellent."
"Order a custom Paper on Similar Assignment at essayfount.com! No Plagiarism! Enjoy 20% Discount!"
