The Federal Trade Commission is cracking down on a new scam, fradulent college scholarships, that may find a prime breeding ground on the Internet.
The law enforcement drive follows similar moves against credit card fraud and so-called pyramid schemes online. The latest fraud involves scholarship search services that target college students and their parents by guaranteeing academic money for a finder's fee--but never deliver.
Under the scam, companies guarantee scholarships or claim that students have already won the money, then ask for a fee in advance. The FTC says swindlers entice students through telephone, mail, newspaper, and online solicitations.
"Online, you have to be more careful because you don't really know who is on the other end," Commissioner Christine Varney said today. "We've shut down a couple of sites."
Online scholarship operations can remain hidden longer than other types of fraud, Varney said, and can resurface easily with new identities. The FTC says most offer a money-back guarantee but attach conditions that make it impossible to get the refund.
Others provide nothing for the advance fees, and some tell students they've been selected as "finalists" for awards that require up-front payment. Some companies have asked for student checking accounts to "confirm eligibility" and then manage to withdraw the money without permission.
The FTC has filed charges against seven companies since September. So far, none of the cases filed have been against companies marketing on the Internet.
The best bet is for consumers to protect themselves by never paying anyone who claims to have scholarship or grant money for them. Also, regulators say, never give out a credit card or bank account number on the phone without getting information in writing first.
The FTC is not warning against all online scholarship services. Some services compile databases of legitimate scholarships and claim to check each listing for authenticity.
fastWEB is a free search service with a staff of 20 that checks every one of its listings, said electronic marketing manager Eamon Daly. There are at least 180,000 awards or scholarships listed on fastWEB.
"We always to tell students to investigate each agency, be sure they're are not costs involved. It's really hard to prove fraud," he said. "But the FTC has actually asked our advice on who it should take a closer look at."