When Electronic Payments Become a Punishment

Following the shock of imposing restrictions on cashMoney in physical form such as banknotes and coins. More usage across the globe – under the slogan of “fighting the black economy” – there appears to be a counter-trend; a more liberal approach to the dogma is gaining ground. Indeed, a number of large companies and retailers that almost went cashless, are shyly backtracking. These major players seem to have realized what everyday life dictates: that cash plays an important role in the daily lives of many people and economic sectors, and that electronic payments don’t only come with advantages.

In the article “Cash Down but Not Out” published in 2016, I already warned about the risks and implications of limiting the use of cash in Israel as it restricts the freedom of choice of consumers, but that’s not all. Such restrictions also exclude entire populations that either don’t have the means to access the financial system, or people that simply are not capable of using electronic payments.

I also emphasized, and we will see this in this article, that a considerable portion of the population intentionally desists from using electronic payments for a variety of reasons, which include staying away from unsafe telephone transactions and avoiding automatic deductions from their accounts. These people wish to refrain from setting up such deductions either for budgetary reasons, or in order to avoid fraud and coercion to purchase unnecessary good. A prominent example of that is the provision of services for free for an initial period, followed by – and often without clear prior notice – automatic monthly charges. Unfortunately, authorities argue in favor of freedom of choice, leaving more vulnerable sectors of the population even more vulnerable. Nevertheless, data shows that many of these warnings were not theoretical as heavy damages caused to several sectors, particularly the elderly, have occurred with the use of electronic means of paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More, mainly credit cards. It seems that even those who warned in advance against enforcing the switch to electronic payments could not have imagined how soon they will be right in major cases. The word “cash” might have become synonym to something “dirty” in recent times, but there’s a shift as it becomes clear that even electronic payments, mainly credit cards, can be easily misused against people who are not fully aware of the consequences, such as the elderly population.

The elderly are generally more vulnerable to scams but are rarely warned in advance by any authority of the risks of fraud related to credit card use. Many scam companies purposely target the elderly over the phone insisting they buy expensive goods at bargain prices in return for “gifts”. Unaware, the victims reveal their credit card number and are ultimately overcharged for products that they do not need – sometimes causing them to fall into debt as a result. There are several telemarketing companies that specialize in these schemes and drop the bait on thousands of elderly people.

The rush to adopt cashless payments by limiting the use of cash caused authorities to forget the risks and ignore vulnerable populations that objectively would be better off using more tangible payments, such as cash. No authority around the world has ever thought of taking action from the flip side of the coinA coin is a small, flat, round piece of metal alloy (or combination of metals) used primarily as legal tender. Issued by government, they are standardised in weight and composition and are produced at ‘mints’. More, that is, to restrict, or at least recommend, that certain populations refrain from using electronic payments (credit or debit cards) to avoid becoming an easy bait for scammers.

Credit Card Scandal in Israel – Telemarketing to Elderly

To illustrate the risks of electronic payments I would like to present the Israeli case which has now become a priority for the Israeli public – proof that consumers, at least some of them, should be offered some form of protection, or at least be warned of the risks that come with electronic payments.

How Does It Work

The elderly are an easy target for aggressive telemarketers whom exploit their loneliness and their lack of understanding of certain risks in order to extract from them hundreds and sometime thousands of shekels¹, by abusing their credit card accounts.

One of the more disturbing findings rises from a mutual report issued by several consumer organizations, governmental offices and volunteers which show that there are 10-15 telemarketing companies that are constantly being closed, reopened and their names changed according to their needs (they use names such as “Deal”, “Transaction”, “Purchase”, “Sale”, etc.). These companies operate in deceptive and illegal ways to abuse consumers, mainly to sell products over the phone. Some of the methods they use are quite simple: a representative of the company calls the elderly person and informs them that they have been “awarded” something, but that to receive the “gift” they have to submit their credit card details to cover delivery costs. Alternatively, the representative informs the victim that s/he is a “club member” and supposedly authenticates their membership via the last four digits of his/her credit card. From the moment the victim begins to cooperate with the representative, they contact him or her again and again, offering him or her products and “bonuses” and sending products s/he has never asked for – all the while, debiting his/her credit card. These companies apply a variety of sophisticated methods to cut a huge profit on the accounts of the elderly. Sometimes the scams can total a few hundred shekels¹, sometimes in the thousands and even tens of thousands shekels. Furthermore, the elderly who are not fluent in Hebrew become an “easy target” for these companies – some of them have even refined ways to better abuse of particular profiles. The wide variety of ways these telemarketing companies have developed to deceive the elderly clearly proves that a significant part of this population finds it difficult to adapt to technological changes.

Examples:

Two telemarketing companies fraudulently charged the credit card of an 80 year-old couple by 250 thousand shekels (1 Shekel= 3.6 US$, therefore approx.. $70 thousand US), “selling” them a basket of products including electronic appliances and furniture that they did not need. This couple lives off of a social security pension and receives an allowance for holocaust survivors.
An old lady who agreed to buy a 90 shekel (25 US$) product found herself charged thousands of shekels for a shiatsu armchair and TV screen that were never delivered to her. The company never replied to her complaints.

This illustrates only very little of what happens. The phenomenon is not new –authorities and consumer organizations are well aware of the problem. However, despite the efforts made to defeat it – including legislation and an active struggle of the Israel Police and the Authority for Consumer Protection and Fair Trade – the phenomenon is far from disappearing.

Latest Developments

Law enforcement authorities headed by the Authority for Consumer Protection and Fair Trade have been active in recent years in imposing financial sanctions against several of these companies and their directors. Lately, the Authority imposed the highest financial sanction in its history to a telemarketing company for the amount of 10 million shekels ($3 million US). The company coerced many elderly persons to purchase a variety of products such as jewelry perfumes and electronic appliances for thousands of shekels. Sadly, it is quite clear that these sanctions will not solve the problem.

A recently established civil initiative has been attempting to resolve this very severe problem. A special administration staff, supported by around tens volunteers, carried out a process of collecting complaints from the elderly and their families while also locating all the telemarketing companies. They asserted the findings in a report which was submitted to the Minister of Finance, Minister of Economics, Minister for Social Equality, Minister of Internal Security, the Chairman of the Economic Committee of the Israeli Parliament and the Chief Consumer Protection.

As the phenomenon becomes increasingly acute, it rose to the top of the public agenda, becoming a national scandal. It was even a topic of primetime TV and the public was informed that Minister of Internal Security decided that to establish a special investigating team to dig deeper into the issue.

The population of Israel is 8.7 million. Those who are over 75 years of age or older constitute 5% of the total. For the moment, the number of elderly persons that have been affected by telemarketing companies and that have publicly complained is 80. This is the number of complaints collected by consumer organizations. This indicates that only 80 were willing to complain, raising a depressing picture as they represent thousands of people who were affected. They also specify that people from this age group are reluctant to complain and fear being exposed as gullible and easily cheated. They do not want to be presented as an object of mockery and derision.

All these complaints should be collected by the police’s special investigation team. They should also be responsible for uncovering other cases that have not yet been revealed in order to bring the guilty parties to justice. In fact, the Minister of Internal security stated its intention to convict the guilty in serious offenses that would force them to sit in jail.

This issue has gained ground as the Minister for Social Equity was nominated to head a new national team (NB, the first one is a police team for criminal investigations while this one is to propose legislation), which will be responsible to define a new regulation to fight this disturbing phenomenon. Of the 15 million shekels ($4 million US) that have been budgeted annually, the plan is to establish a hotline for the appeals of elderly victims of credit cards scams. The call center will process complaints against any company suspected of fraud or embezzlement. The program will provide legal advice to the elderly to take action against scammers. The program also includes a publicity campaign to educate the public about how to identify fraudulent behavior. The idea is to encourage Israeli financial companies to join the common battle against fraudulent telemarketing companies as well as to promote legislation that could lead to punishment and fines of companies that deceive Israeli citizens. The Minister requires credit cards companies to block and cancel any such fraudulent transactions and to provide an immediate response to the victims.

Not all means of payment are appropriate for all factions of society, and this discussion about the telemarketing scam phenomenon in Israel is the perfect example. A system should be in place to educate and inform users about the risks of credit cards while allowing consumers the freedom to choose their preferred method of payment.

Conclusions

From the Israeli case we can draw the conclusion that all punishments and fines against fraudulent companies as well as support for the victims would greatly assist in reducing such cases. These actions will not suffice to totally defeat the phenomenon, but would already provide the elderly with the necessary tools to avoid falling into scammers traps.
The problem cannot be resolved without supplementary measures such as awareness raising campaigns. Such measures would also be appropriate for other countries. A letter was sent to the Minister of Social Equity to offer these recommendations.
In this capacity, it is recommended that credit card companies are made responsible for the verificationChecking the authenticity. More of the income of people applying for a credit card. This would avoid low-income people from exposing themselves to financial risks.
The Israeli case strongly supports the case that people should be allowed to choose their preferred payment methodSee Payment instrument. More to protect themselves from fraud. Elderly or uneducated people are entitled to defend themselves and control their budget, and authorities should encourage them to do so.
It is about time that the modern world realize that it cannot solely rely only on electronic payments. More and more cases prove that cash offers a level of security that no other payment method can.

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