Websites touting phony celebrity endorsements — usually accompanied by “free” trial offers and ongoing monthly subscription plans—are rampant. Fraudsters peddle “miracle” weight loss products, age-defying cosmetics, and get-rich-quick schemes using images of Dr. Oz, Oprah Winfrey, Paula Deen, and others. These deceptive sales tactics are often accompanied by negative option billing and (for the consumer) months of unexpected charges. For the payment provider, these types of merchants are associated with chargebacks, transaction laundering, and card network fines.
Bogus celebrity endorsements (and the accompanying free trial scams) are a worldwide problem. According to the Australian Competition and Consumer Commission: “People are increasingly being caught out by celebrity endorsement scams, with reports to Scamwatch increasing 400 per cent and losses increasing a staggering 3,800 per cent […] in 2018.” In the US, “free” trial scams more than doubled between 2015 to 2017. Between 2011 to 2016, the Canadian Anti-Fraud Centre (CAFC) received 54 complaints regarding “free” trial scams. However, from March 2016 to March 2017, the CAFC received 518 complaints—a shocking 859 percent increase. For details, see the Better Business Bureau, Subscription Traps and Deceptive Free Trials Scam Millions with Misleading Ads and Fake Celebrity Endorsements.
Merchants who unlawfully use celebrity likenesses to sell fraudulent subscription services often pull from the same bag of tricks:
- The fraudster submits a “dummy” website to a payment provider. This website is created solely for the purpose of obtaining a merchant account. The website will often use the same underlying business structure as the intended scam (e.g., a subscription-based service). However, the dummy website will be in full compliance and will meet underwriting guidelines.
- The fraudster and/or its affiliated marketers then create other websites that are designed to engage consumers in the scheme. To hook the consumer, these websites often: (1) imitate the headlines and names of well-known magazines and news channels; (2) use phony celebrity endorsements; (3) create a false sense of urgency; and (4) make egregious claims.
- These consumer-facing websites redirect the victim to yet another website (created by the fraudster). This final website accepts payments.
Card brands are actively cracking down on these bad actors. For example, in early 2019, Mastercard created rules for merchants that offer free trials. More recently, Mastercard declared that the unauthorized use of a celebrity’s name, image, likeness, or other aspect of identity, either via an affiliate marketer or directly from the merchant, is considered a BRAM violation. The FTC has also taken action to stop these scams.
How do you keep this type of bad actor out of your portfolio? First of all, it is important to have a robust merchant monitoring solution that recognizes dummy websites and makes connections by pulling from a large dataset of fraudsters. Of course, you should also use a transaction laundering detection solution. To learn more about G2’s experience stopping transaction launderers, please click here. You can find out more about our Persistent Merchant Monitoring solution here.