Economic impact study Scam phone calls

Transcription

1 Economic impact study Scam phone calls truecall Ltd v9 3/01/2017 Management summary We estimate that the average amount lost by each older vulnerable person to telephone scams each year is 313, and that the social care cost attributable to scams for each older vulnerable person each year is 623. Analysis A proportion of nuisance phone calls are scam calls calls where the objective is to defraud the called party. This document aims to estimate the proportion of nuisance phone calls that are scam phone calls, the likely amount lost by victims, and the likely additional social care costs required to support the victim. Estimating the losses to older vulnerable people from scam calls a requires chain of estimates: 1. The number of nuisance calls received each year by older vulnerable people In May 2016 Which? analysed data collected by truecall units and identified that older vulnerable people received on average 38 nuisance calls per month, or 456 per year The proportion of nuisance calls that are scams In Appendix A we use data from Ofcom s diary studies to estimate that 17% of nuisance calls are scam attempts. 3. The proportion of scam calls that are successful and average loss In Appendix B we use various reference data to estimate that the probability of a scam attempt being successful is 0.48% (ie 1 in 208 scam phone calls is successful) 4. The average amount lost to a scam In Appendix B we use various reference data to estimate that the average weighted loss per successful scam is The average social care cost associated with supporting a scam victim In Appendix C we consider information from various studies about the impact of scams on the victim s physical and mental health, and the cost of providing the additional care. We estimate that the average social care costs incurred if an older vulnerable person is scammed is 1, The cost of investigating a crime A Home Office report in 2000 estimates the cost of investigating a crime for example, the cost of the Police investigating a theft from a vehicle is 70, and investigating a burglary is 240. We know that only a small proportion of telephone scams are ever reported, so only a small proportion are ever investigated. This makes it very difficult to attach a Police cost to each telephone fraud, so we have not attempted to do this. The probability that an older vulnerable person will fall victim to a scam during a year is 37% (456 nuisance calls per year x 17% of which are scams x 0.48% of scam calls that are successful = 37%) The average amount lost by each older vulnerable person each year is 313 ( 845 x 37%). The average social care cost attributable to scams for each older vulnerable person each year is 623 ( 1,685 x 37%). This estimate excludes the costs to law enforcement agencies of recording and investigating the reports of fraud and the costs of mis-selling. We have only looked at scam phone calls (estimated 15% of calls) we haven t attempted to evaluate the amount lost to phone calls that are mis-selling (estimated at 37% of nuisance calls). These additional costs are significant, but are difficult to attribute to individual cases. Summary 1 The number of nuisance calls received each year by older vulnerable people 456 per year 2 The proportion of nuisance calls that are scams 17% 3 The proportion of scam calls that are successful 0.48%

2 4 The average amount lost to a successful scam call by an individual Proportion of older vulnerable people to become victim to a telephone scam each year. 37% 6 The average social care cost associated with supporting a scam victim 1,685 6 Police costs of investigation Cannot estimate 7 The average amount lost by each older vulnerable person each year The average social care cost attributable to scams for each older vulnerable person each year 623

3 Appendix A - Estimating the proportion of nuisance calls that are scams Nuisance calls fall into three categories: Legitimate call Mis-selling call Scam call Legitimate products are being sold in a legitimate way over the phone. There is a legitimate product, but the sales techniques used are illegitimate. This may involve the use of illegal robocall technology, misleading or exaggerated claims for the product or service, a hard sell approach, the targeting and exploitation of vulnerable consumers, etc. There is some financial risk or unnecessary inconvenience involved for the consumer. There is no legitimate product or service - the whole purpose of the approach is to deceive in order to get money or personal information from you. Ofcom carry out an annual diary survey where a group of consumers keeps a detailed log of the nuisance calls they receive. This tells us the proportion of all nuisance calls that fall into different types home improvements, pensions, PPI, loans, surveys, etc. Each call type has a different likelihood of being a scam call - for example, all the Computer/ maintenance/ support calls can be assumed to be scams, but few calls encouraging you to switch energy supplier will be scams (though they may involve mis-selling). Appendix D reviews each call type and estimates what proportion of the calls of this type are legitimate, the proportion that are mis-selling and the proportion that are scams. When these figures are weighted by the proportion of nuisance calls of each type, we can estimate the proportion of all nuisance calls that are scams (Appendix E ). We estimate that 17% of nuisance phone calls are scam calls, that a further 39% of calls are mis-selling of some form or other, and that only 44% of nuisance calls are legitimate. Charity Funeral plans Medical/health/health products Debt repayment/advice/consolidation Banking/ Credit card Scam calls eg banking/computer/password Financial Services/ products Energy company Computer/ maintenance/ support Government grants/schemes Communications e.g. Free calls/ Broadband Solar panels Accident claims/ compensation Insurance (car/ health/ life /apppliances etc.) Others Market research/ Survey Home improvement e.g. kitchen/windows PPI 0% 5% 10% 15% 20% 25% Legitimate Mis-sold Scam

4 Appendix B - The effectiveness of scam phone calls and average loss Sussex Police have estimated that half of all scams start with a phone call. The impact of different types of scam phone call varies widely. The amount lost to a lottery scam may be in the hundreds or thousands of pounds, the amount lost to an investment scam may be tens or even hundreds of thousands of pounds. Some scams are remarkably effective Microsoft research suggests that 22% of people who receive calls telling them that their computer had a virus followed the caller s instructions. Of those who received a call, 22 percent, were deceived into following the scammers instructions, which ranged from permitting remote access to their computer and downloading software code provided by the criminals to providing credit card information and making a purchase. The vast majority (79 percent) of people deceived in this way suffered some sort of financial loss. Seventeen percent said they had money taken from their accounts, 19 percent reported compromised passwords and 17 percent were victims of identity fraud. More than half (53 percent) said they suffered subsequent computer problems. Nearly half the victims recorded by Microsoft so far are over the age of 55. The computer giant last night said one in five people surveyed in the UK had received one of the calls since the scam first emerged in The average loss is In Appendix D we consider each type of phone call that people receive, and the proportion of these calls that we consider to be scam calls. We then estimate the probability of someone falling victim to each type of scam, and the amount they are likely to lose if they fall for each type of scam. The probability that the scam call is successful We estimate that generally 0.2% of scam phone calls are successful (ie one in every 500 scam calls). For the Microsoft scam we estimate that 1% are successful (ie one in every 100 scam calls). In Appendix E this gives us an average weighted probability of a scam call being successful of 0.48% - ie one in 208 scam calls is successful. If each older person receives 456 nuisance calls each year, and 17% of these are scams then we would expect 456 x 17% / 208 = 37% of older vulnerable people to become victim to a telephone scam each year. The amount lost if the scam is successful In Appendix E we attach an average loss to each type of scam. These range from 250 for an accident claim scam to 5,000 for boiler room scams. The average weighted loss is 845 per successful scam.

5 Appendix C - The social care cost of scams The impact of scams on the victim s physical and mental health We know that being a scam has an impact on the individual s physical and mental health. Operation Liberal (a program that focuses on distraction burglary), quoting Home Office research, says :- Older victims of distraction burglary decline in health faster than their non-victim peers. 40% of victims reported a change in their quality of life. The impact of this shatters any assumptions they might make about themselves and the world as a meaningful place. It may exacerbate existing health problems and/or identify unknown health issues. In the two years following a distraction burglary the victims are almost 2.5 times more likely to be in residential care or to have died. Repeat victims are also likely to suffer from post-traumatic stress disorder. Up to 80% of victims can be in receipt of health and social care at the time of the distraction burglary whilst another 80% have unmet health and social care needs. In the three months following the burglary 10% of victims have unexplained admissions to hospital. It isn t unreasonable to expect that there would be a similar impact from telephone scams. A study into financial scam victims in the USA showed that: 29% of victims suffered a major depressive episode in the 20 months following the fraud (with some experiencing suicidal thoughts) compared with only 2% of non-victims In addition, 45% suffered a generalised anxiety disorder, compared with 15% of non-victims There can be a domino effect where the losses to a scam result in subsequent catastrophes the loss of a home, difficulty in paying debts and taxes In the USA only 25% of household crimes led to a loss of greater than $250, compared with the thousands and tens of thousands that can be lost of a telephone fraud (Ganzini, L McFarland B., and Bloom J., Victims of fraud; comparing victims of white collar and violent crime. Journal of the American Academy of psychiatry and the Law Online, (1):p55-63). Estimating the additional social care costs for a scam victim The Unit Costs of Health & Social Care report ( identifies the cost of a community care package for an older person. They identify five categories of need - Very low, Low, Medium, High and Very high. Very low Low Medium High Very high Social care cost PA 4,264 10,764 17,004 44,044 51,376 The Ganzini study said that 29% of financial scam victims suffered a major depressive episode in the 20 months following the fraud (with some experiencing suicidal thoughts) compared with only 2% of non-victims, so let s assume that 27% (29% - 2%) of scam victims move up one level of social care need for one year eg from very low to low, or from low to medium, etc. Very low Low Medium High Very high Social care cost PA 4,264 10,764 17,004 44,044 51,376 Additional cost of moving up one level 6,500 6,240 27,040 7,332 ie moving up one level of need increases social care costs by between 6,240 and 27,040 per year. Let us use the lowest of these increases - 6,240. So, if we assume that 27% of older or vulnerable people who are scammed move up one level of social care need for a period of a year, then the additional social care costs for an older vulnerable person who is scammed is 27% x 6,240 = 1,685.

6 Appendix D Assessment of different call types Call type Description Notes Percentage of these Amount Legitimatsold Mis- Scam lost per victim ( ) PPI Caller offers to process your PPI claim for you 51% of these calls are robocalls. In 2012 the OFT warned of PPI scams companies take an up-front fee of but then do nothing. 30% 50% 20% Home improvements Market research/ survey Insurance (car/ health/ life / domestic appliances etc.) Accident claims/ compensation Solar panels Communications/ Phone company Government grants/schemes Computer/ maintenance / support Energy company Financial services/products Scam calls eg banking/ computer/ password Banking/ Credit card Debt repayment/ advice/ consolidation Company calls offering home improvements e.g. kitchen/windows/loft insulation. Genuine market research companies and companies carrying out consumer lifestyle surveys Company calling to offer you a competitive quote on insurance Caller asks whether you have had an accident recently, or claiming that they know that you have had an accident Company calls offering home improvements Telecoms companies calling to persuade you to switch supplier Caller offering a government scheme for energy saving home improvements or to write off all debts The caller tells you that they are calling from Microsoft and that your computer has reported that you have a virus. They will fix it for you. This is a scam they instruct you to download a virus and they will then use it to steal your personal information and/or charge you for its removal. Energy companies calling to persuade you to switch supplier Caller providing investment services Scam calls attempting to get your banking details Bank offering you a credit card maybe with a low initial interest rate Companies call saying that they can consolidate your debts, reduce your payments and write off some of them. Some Companies often make dubious or exaggerated claims about government grants that are available Citizens Advice say that while there are legitimate companies offering this kind of insurance there are also lots of companies operating scams around insurance for satellite television equipment. 9% of these calls are robocalls. Some companies encourage you to claim for whiplash and out of pocket expenses whether or not you suffered loss this may be fraudulent. 19% of these calls are robocalls. Companies often make dubious or exaggerated claims about the savings that can be achieved and the government grants that are available 70% 30% 50% 50% 40% 40% 20% pa 80% 20% 11% of these calls are robocalls 70% 30% Many of these are outright scams, and many are mis-selling of the Green Deal scheme 80% 20% % 25% 25% A Microsoft survey in 2012 said 22 percent of computer users who had received a call were conned into downloading software, 79 percent of those deceived by the callers suffered some kind of financial loss. On average, those who fell for the scam had 500 stolen from them. We know that this is a very effective scam, and Microsoft s research seems credible but their estimate for the number of people losing money to the scam (17%) seems implausibly high. We have used 1% in our calculations. 30% of these are robocalls 70% 30% Many of these are boiler rooms selling over priced or non-existent investments such as land, wine, graphene, diamonds, etc. Genuine investment companies don t cold call. 32% of these calls are robocalls 60% 40% 24% of these calls are robocalls. The headline claim of an entitlement to write off 100% of your debts is untrue. The debt charity Step Change says that by using the wrong company 100% 100-1,000 20% 20% 60% 1, , % 30% 40% 30% 1,000-20,000

7 Medical/health products Funeral plans Charity Newspaper/ magazine subscriptions claim that new legislation allows you to write off all your debts. These are often over-priced vitamin pills, assistive technology devices, orthopaedic beds, etc Callers are asking for an up front payment, or series of payments to build up a funeral fund Charities calling asking for donations or increases in regular direct debits These companies call older vulnerable people to get them to subscribe for magazines to manage your debts you could make your debt situation worse, rather than better. Many of the services offered are over-priced, and exaggerated claims are made for the products. Many of these schemes are over-priced or scams The approach is often coercive, and people end up with multiple subscriptions for the same magazine. 30% 40% 30% 40% 40% 20% 80% 20% 50% 50% Won holiday/ money /bonus /cruise etc. Pension entitlement/ rebate/refund Good news! You have won a Holiday / cruise /lottery! Companies offer an early release of 25% of the value of your pension 29% of these calls are robocalls. Advance fee scams will ask for an up-front fee to release your winnings, and they may ask for bank details to enable identity theft. 61% of these calls are robocalls. Citizens Advice say that these schemes are always inadvisable and are often scams. They typically charge 20 30% of your pension, plus an up-front fee of 500. When the company transfers your pension offshore the whole amount is at risk. 100% ,000 50% 50% ,000

8 Appendix E Estimating the amount lost to scams Call type % of % of call type % of all nuisance calls % of Amount Weighted % of scam Weighted Missold Mis- nuisance Legitimate Scam Legitimate sold Scam all lost loss per attempts success calls truecall estimates scams per victim scam successful rate (Ofcom) (estimate) (estimate) PPI 21% 30% 50% 20% 6.30% 10.50% 4.20% 24.8% % 0.05% Home improvement e.g. kitchen/windows 11% 70% 30% 7.70% 3.30% 0.00% 0.0% 0 0.2% 0.00% Market research/ Survey 10% 50% 50% 5.00% 5.00% 0.00% 0.0% 0 0.2% 0.00% Others 9% 45% 38% 18% 4.05% 3.42% 1.62% 9.6% 1, % 0.02% Insurance (car/ health/ life /apppliances etc.) 7% 50% 40% 10% 3.50% 2.80% 0.70% 4.1% 1, % 0.01% Accident claims/ compensation 6% 80% 20% 0.00% 4.80% 1.20% 7.1% % 0.01% Solar panels 5% 80% 20% 4.00% 1.00% 0.00% 0.0% 0 0.2% 0.00% Communications e.g. Free calls/ Broadband 5% 70% 30% 3.50% 1.50% 0.00% 0.0% 0 0.2% 0.00% Government grants/schemes 4% 50% 25% 25% 2.00% 1.00% 1.00% 5.9% 2, % 0.01% Computer/ maintenance/ support 4% 100% 0.00% 0.00% 4.00% 23.6% % 0.24% Energy company 4% 70% 30% 2.80% 1.20% 0.00% 0.0% 0 0.2% 0.00% Financial Services/ products 2% 30% 40% 30% 0.60% 0.80% 0.60% 3.5% 5, % 0.01% Scam calls eg banking/computer/password 2% 100% 0.00% 0.00% 2.00% 11.8% % 0.12% Banking/ Credit card 2% 60% 40% 1.20% 0.80% 0.00% 0.0% 0 0.2% 0.00% Debt repayment/advice/consolidation 2% 30% 40% 30% 0.60% 0.80% 0.60% 3.5% 1, % 0.01% Medical/health/health products 2% 30% 40% 30% 0.60% 0.80% 0.60% 3.5% % 0.01% Funeral plans 2% 40% 40% 20% 0.80% 0.80% 0.40% 2.4% 1, % 0.00% Charity 2% 80% 20% 1.60% 0.40% 0.00% 0.0% 0 0.2% 0.00% Newspaper/ magazine subscriptions 0% 50% 50% 0.00% 0.00% 0.00% 0.0% 0 0.2% 0.00% Won holiday/money/bonus/cruise etc. 0% 100% 0.00% 0.00% 0.00% 0.0% 1, % 0.00% Pension entitlement/rebate/refund 0% 50% 50% 0.00% 0.00% 0.00% 0.0% 2, % 0.00% Total 44.25% 38.92% 16.92% % %