Summary and Keywords
Consumer fraud is the intentional deception of one or more individuals with the promise of goods, services, or other financial benefits that either never existed, were never going to be provided, or were grossly misrepresented. In contrast to ancient times when consumer fraud and other white-collar crimes were considered to be at least as serious as violence and other street crimes, today’s consumer fraudster tends to be viewed as less dangerous and deserving of harsh sanctioning. Despite several social movements against consumer fraud and a proliferation of popular and scholarly literature on the topic, contemporary U.S. society has maintained a relatively lenient stance toward white-collar crime—a “soft on crime” position that is inconsistent with conservative “tough on crime” approaches that have dominated U.S. penal policy since the 1960s.
In his suicide note to his wife, Cliff Baxter said, “I am so sorry for this. I feel I just can’t go on. I’ve always tried to do the right thing, but where there was once great pride now it’s gone… The pain is overwhelming” (McRoberts & Simpson, 2002). Cliff was an instrumental player in Enron’s victimization of thousands of consumers, investors, and rank-and-file employees (McLean & Elkind, 2004). “The business that I spent 23 years building gone,” wrote Mark Madoff not too long before ending his life; “I am unemployed, my livelihood destroyed, and my family will forever live with the shame of what my father has done” (O’Connor, 2011). Mark’s father Bernie Madoff was responsible for the largest Ponzi scheme in U.S. history, defrauding investors out of $50 billion (van de Bunt, 2010).
The pain described above is caused not by the official criminal justice system process or fear of the sentence likely to be meted out in a courtroom but by how the public responds to people like Cliff Baxter and Bernie Madoff’s son—consumer fraud offenders. These suicide cases illustrate how informal sanctions doled out by business partners and loved ones, clients and employers can be more severe than formal sanctions like incarceration and fines. As will be discussed in this article, this becomes an important point when considering criticisms that the government does not do enough about consumer fraud (or any other crime type for that matter). History is covered in two separate areas here as context for two distinct issues. First, a relatively brief history of consumer fraud is provided as a framework for a discussion of informal responses to this broad category of white-collar crime. Second, the article focuses on consumer fraud in the United States. As foundation for this material, history is outlined in much greater detail, tracing literary and associated sociological developments in understanding and formally responding to consumer fraud throughout U.S. history.
Consumer fraud is an individual’s deliberate deception or intention of deception with the promise of goods, services, or other financial benefits that are actually nonexistent, were never intended to be provided, or were grossly misrepresented (Titus & Gover, 2001 p. 134). As such, consumer fraud can be considered a white-collar crime. For purposes of this analysis, white-collar crime is defined as “a crime committed by a person of respectability and high social status in the course of his occupation” (Sutherland, 1949/1983, p. 7). By following Sutherland’s definition of white-collar crime, this article employs an offender-based approach that focuses on the malfeasance of society’s elites and not on the misdeeds of the middle or lower classes.
Because of this article’s attention to formal and informal sanctioning over time, a broad conceptualization of punishment is used that goes beyond legal processes and the criminal justice system to include punitive methods used by other social institutions (Garland, 1990). On the one hand, formal punishment involves “specialized groups of people (legislators, police officers, judges, and corrections officials) who create laws, interpret them, and apprehend and punish law violators” (Barkan, 2015, p. 5). Examples of formal controls discussed herein include such official reactions to white-collar crime as passing laws, allocating resources, governmental intervention in the marketplace, and sentencing of criminals. Informal punishment, on the other hand, consists of “society’s restraint of norm-violating behavior” (Barkan, 2015, p. 5). According to Williams and Hawkins (1992), there are three types of informal social control: (1) commitment costs, (2) attachment costs, and (3) stigma costs. Commitment costs refer to lost jobs, educational opportunities, and other social group memberships; attachment costs involve losing loved ones and friends and having a harder time finding a spouse; and stigma costs include shame, loss of respect, and social distancing (Williams & Hawkins, 1992; Pate & Hamilton, 1992; Westphal & Khanna, 2003; Efrat, 2006; Fagan & Meares, 2008).
Social Control of Consumer Fraud in the International Context
A Brief History
Historically, consumer fraud and white-collar crime have been considered extremely serious. Prominent literature provides insight into the values, attitudes, and preferences of its contemporary culture. The Roman Institutes of Justinian (451–49 bc), for example, provided a particularly severe punishment for consumer fraud: “A patron who defrauds his client shall be sacrificed to the gods” (Johnstone, 1998, pp. 107–108). Another part of the Institutes continues: “A sale may be contracted conditionally as well as absolutely … but if the seller leads him to believe it to be private property, he has an action ex empto against the seller to recover the damage arising from the deceit” (Johnstone, 1998, pp. 107–108). In On Duties, moreover, Cicero (44 bc) wrote:
While injury may be done in two ways, either by force or fraud, fraud is like the sly little vixen, force like the lion; both are wholly foreign to man, but fraud is the more despicable. Of all injustice, none is more grave than that of the people who, when they are most false, conduct their affairs as if they were good men.
A harsh stance against fraud also is apparent in several passages of the Old and New Testament, such as in the Book of Genesis when, to tempt Eve into eating the fruit of the Tree of Conscience, the serpent falsely represented that she would be godlike if she did so. The Theodosian Code of 438 ad, moreover, outlined a process for distinguishing between varying qualities of bread: “step bread” refers to how different qualities of bread should be displayed on different steps of a building; deception occurred, for example, when a seller placed a low-grade loaf on a high-grade step (Lyon, 1998).
In his Inferno, Dante (1314) consigned fraudsters to the innermost ring of hell, reflecting how crimes of betrayal and abuse of trust were considered the most reprehensible behaviors. Likewise, after being demoted publicly, Cassio lamented: “Reputation, reputation, reputation! O, I have lost my reputation! I have lost the immortal part of myself, and what remains is bestial (Shakespeare 1604, 2.3.24). As indicated by Cassio’s quote, Shakespeare’s Othello stressed the importance of a person’s reputation. Indeed, it was Iago’s reputation as a trusted friend that allowed him to manipulate Othello into murdering his wife. Octavius’s eulogy in Shakespeare’s (1599) Julius Caesar similarly suggests the importance of honor and reputation three centuries later: Antony observed how “[t]he evil men do lives after them”; he also describes Brutus as “honorable” five times in less than 30 lines, each time drawing more attention to the irony of such a description for one who betrayed Caesar.
But between then and now, a transformation in attitudes toward violations of trust occurred that seems to be the product of multiple influences. Chevigny (2001) outlined the descent of trust crimes in place of violent crimes as the top crime concern:
[C]rimes of betrayal were the most serious not only because they required the most deliberate exercise of free will, but also because they did the most damage to the ethical net of obligations in society; conversely, violence seemed neither much out of the ordinary nor extraordinarily to be condemned.
Criminal intention—the abuse of reason—was bracketed with treason and fraud in a way that it no longer is in contemporary thinking. In the intervening generations, on the other hand, as life has come to seem less dangerous, it has come to seem more precious. The risk of death has become a characteristic fear, with life-threatening crimes correspondingly terrifying and grave.
Where Chevigny described the declining importance of trust crimes as a by-product of the rising prominence of violent crimes, others have linked shifts in societal reactions to white-collar crime to developments ranging from canned goods and railroads to the expansion of the Roman Empire and the Enlightenment (Johnstone, 1998; Holtfreter, Van Slyke, & Blomberg, 2005). What becomes evident by the 1800s is a tendency for those who actually make decisions concerning consumer fraud to distinguish people who commit white-collar crimes from “real” criminals.
As the Sherman Antitrust Act was being debated, for instance, Justice Wendell Berge explained, “Most of the defendants in antitrust cases are not criminals in the usual sense” (cited in Sutherland, 1949/1983, p. 54). Where Justice Berge’s comment explains lenient formal responses to consumer fraud, Ross’s (1907) observations reflect a lenient public:
The shocking leniency of the public in judging conspicuous persons who have thriven by antisocial practices is not due, as many imagine, to sycophancy. Let a prominent man commit some offense in bad odor and the multitude flings its stones with a right good will. The social lynchings of the self-made magistrate who put away his faded, toil-worn wife for the sake of a soubrette, proves that the props of the old morality have not rotted through.
In 1967, Geis’s case study of a major antitrust case reported similar evidence that criminal justice officials do not view white-collar criminals as real criminals who are deserving of a harsh sentence. One sentencing judge was quoted as saying he “didn’t think that this was the type of offense that probation lent itself readily to or was designed for” (p. 153). And one of the companies involved in the conspiracy explained why it retained conspiring employees: “each of these individuals is in every sense a reputable citizen, a respected and valuable member of the community and of high moral character” (p. 158).
The most recent survey research indicates an increase in public perceptions of the seriousness of some consumer frauds and white-collar crime (Rebovich & Kane, 2002; Kane & Wall, 2005; Van Slyke, 2009; Huff, Desilets, & Kane, 2010). A plausible cause of this observed trend is social movements against white-collar crime that develop in response to major financial and governmental scandals and crises (Clinard & Yeager, 1980; Katz, 1980; Calavita & Pontell, 1994). Testing for evidence of such a social movement, Hagan and Palloni (1986) reported a “Watergate effect” when they compared the likelihood of incarceration for white-collar offenders sentenced before and after Watergate; however, the greater odds of incarceration was balanced by shorter sentences. Likewise, Van Slyke and Bales (2012) found evidence of an “Enron effect” when they compared sentencing outcomes for white-collar and street offenders in 2000–2001 to those sentenced in 2003–2004. Specifically, white-collar criminals sentenced after the Enron scandal were more likely to be incarcerated than white-collar criminals sentenced before 2002.
Thus, while a historical overview of popular opinion and white-collar crime and punishment indicates that the contemporary U.S. public does indeed view white-collar crime as a serious problem in need of criminal justice system control, there is no evidence that popular furor over white-collar crime has translated into heightened and sustained governmental responses. Van Slyke, Barrick, and Bales (2007), for example, found that the “Enron effect” existed only in the immediate aftermath of the scandal; after 2 years, the Enron effect had disappeared. And although the role of major financial institutions in causing the crisis has been well documented (Black, 2010; Nguyen & Pontell, 2010; Financial Crisis Inquiry Commission, 2011), no federal criminal prosecutions of corporate executives resulted from the 2008 economic crisis (Hiltzik, 2013; Raymond, 2013).
The policy orientation guiding most research on public opinion on white-collar crime could explain the lack of scholarly studies of public opinion on informal punishments for white-collar offenders. Compensating for this evidentiary shortcoming, this section supplements public opinion research with indirect and behavioral indicators of informal punishment preferences.
This subsection is concerned with what people think about white-collar criminals losing their jobs/having a hard time getting a new job, being denied educational opportunities, and being excluded from church and other social groups. Most respondents in a survey of executives said they would refuse to do business with people convicted of fraud (Levi, 2002). Consistent with this sentiment, Waldfogel (1994) found lower reemployment odds for white-collar than for street offenders, while Lott (1992), Karpoff and Lott (1993), Western, Weiman, and Kling (2001) reported that white-collar offenders’ future earnings are more severely affected than are the future incomes of street offenders.
Research on corporate perceptions of tangible reputational consequences serves as evidence of commitment costs. As described by van Erp (2012),
Firms’ fear of reputational sanctions arises out of the expectation that consumers, clients, or investors respond to the disclosure of offender names by avoiding them and thus cause them financial damage, such as decreased sales, market share, share value, or business opportunities. This financial reputational damage may be more significant to the firm than the legal sanction itself.
Bennett and Manheim (2006) presented a series of statistics on public trust in and approval of Microsoft that do little to support significant commitment costs. Although favorable opinion of Microsoft declined 10 percent during its criminal investigation, 70 percent of businesspeople still thought favorably of it during the height of the legal war in 1997. Likewise, although negative opinions of Microsoft doubled among consumers, the result was 8 percent of consumers holding negative opinions. When asked to choose sides, twice as many Internet users believed the Justice Department as believed Microsoft.
Also, contrary to the notion of popular endorsement regarding informal sanctioning of white-collar offenders is Benson’s (1989) research showing that job loss is less likely for high- than for low-status white-collar criminals. Kerley and Copes (2004) found that white-collar ex-offenders are more likely than street ex-offenders to get a new job. Research on actual consumer reactions to negative publicity suggests that public awareness of corporate malfeasance rarely translates to action. A sad face sticker posted on the front window of a Dutch restaurant signals that the restaurant is not up to code, but noncompliant restaurants have not lost customers (van Erp, 2012).
This subsection addresses whether members of the public support the loss of family members, friendships, and other intimate relationships as a consequence of white-collar crime. Levi (2002) described how “a substantial majority” of the same UK executives as mentioned in the previous subsection reported that they would avoid socially people convicted of fraud against investors or other people (p. 153).
Consistent with the notion of public support for attachment costs for criminals is research on prison inmates and their families. Western and McLanahan (2000), for example, found that ex-offenders rarely go on to marry or live with a romantic partner, and Western (2004) reported higher separation and lower remarriage rates among incarcerated than nonincarcerated men. Both of these findings align with differential association and labeling theory’s identification of the erosion of close relationships with law-abiding others as a key part of the process of becoming criminal (Sutherland, 1937; Lemert, 1951). Payne (2016) identified numerous relationship effects experienced by incarcerated white-collar offenders, including spouses’ feelings of betrayal and consequent separation/divorce. One white-collar inmate explained, “My own family disowned me and unfortunately I did not realize my father had died…. I did not realize my wife would get dragged in and that my family would disown me. I will walk out of prison alone” (Gill, 2005, p. 47). The notion that criminals are unfit spouses and parents appears to be widespread, as evidenced by the following series of statistics:
• 29 states consider criminal conviction acceptable grounds for marital dissolution;
• 48 states terminate parental rights as a result of conviction for certain crimes; and
• 15 states prohibit convicted felons to be adoptive or foster parents (Uggen, Manza, & Thompson, 2006, p. 297).
But research refuting the sensitivity hypothesis suggests that, compared with street offenders, white-collar offenders are less likely to experience attachment costs. Stadler, Benson, and Cullen (2013), for example, discussed how “white-collar offenders often have strong and supportive bonds relationships with spouses and children outside of prison” (p. 1094; see also Benson & Cullen, 1988).
Stigma costs refer to reputational damage and embarrassment. Because powerful offenders have strong positive reputations and elite status, the logic goes, they stand to lose more than street offenders. This reasoning is evident among sentencing judges from across research studies (Geis, 1967; Wheeler, Mann, & Sarat, 1988; Kahan & Posner, 1999). Levi (2002) explained how this thinking benefits white-collar and other high-status defendants:
whether or not shame and its more negativistic, socially excluding close cousin, stigma, actually occur, some sort of meaningful sanctions—social and/or professional—are assumed by sentencers to take place arising from or independent of the criminal process.
In other words, in addition to both formal punishments and career penalties, white-collar offenders are thought to suffer a loss of status and respect and feelings of shame and humiliation.
Additional evidence for stigma costs caused by white-collar criminality comes from research on perceptual deterrence. Simpson and Ellis (1995) and Paternoster and Simpson (1996), for instance, found that fear of shame and loss of respect acted as strong deterrents against intentions to commit white-collar crime. Research by Simpson, Gibbs, Rorie, Slocum, Cohen, and Vandenbergh (2013) further specified how it is colleagues’ anticipated negative reactions to knowledge of one’s wrongdoing that most powerfully deters potential white-collar crime.
But scholars tend to agree that white-collar crime typically carries little stigma (Ross, 1907; Sutherland, 1949/1983; Benson & Cullen, 1988; Posner, 2000). But where stigma requires a deviant act to be known to the public, public knowledge is hampered by low reporting rates among white-collar crime victims (Walsh & Schram, 1980; Huff, Desilets, & Kane, 2010) as well as ordinary citizens’ frequent inability to tell when they have been the victim of a white-collar crime (Croall, 2012). Furthermore, respondents who do report tend to do so to credit and banking institutions rather than to criminal justice agencies (Huff, Desilets, & Kane, 2010), and official crime statistics do not include white-collar crimes (Barkan, 2015).
For stigma to occur, there also must be a strong social norm against white-collar crime. Yet research on public perceptions of the seriousness of white-collar crime indicates that white-collar crimes fail to evoke a sense of threat among the public the way street crimes do (Cullen, Clark, Mathers, & Cullen 1983). Violent crimes generally are perceived as the most serious crimes, and some white-collar crimes have received lower seriousness ratings by members of the public than even certain public-order crimes (Warr, 1989). And white-collar criminals know that their law breaking is unlikely to lead to punishment: Contemporary qualitative interviews with convicted white-collar offenders reveal a perceived general lack of concern about white-collar crime. Put simply, white-collar offenders do not fear the threat of punishment. Specifically, these offenders share the perception of low odds of being caught and of punished severely (Copes & Vieraitis, 2009).
By definition, statistical deviant behavior is behavior that is rare in a population.
All indicators of white-collar crime frequency, however, converge on the conclusion that white-collar crime is common. Research has found that people perceive a greater victimization likelihood by white-collar than street offenders (Meier & Short, 1985). And the people are right: Americans stand a far greater chance of white-collar than of violent crime victimization (Huff, Desilets, & Kane, 2010). More broadly, most people share the perception that deviance and deception are typical of American economic and political elites. Persila and Lammie (2004), for example, explained how, since the 1960s, the percentage of Americans who trust the government has been declining and the percentage thinking government leaders are crooked has been increasing. A 2010 Harvard survey found that Wall Street is one of the two least trusted institutions, while 78 percent of a national sample believes that politicians are less ethical than people in other professions (Rasmussen, 2013).
Emerging from this article’s use of direct (attitudinal) and indirect (behavioral) indicators is a widening gap between ordinary people’s preferences; their behaviors, as in hiring ex–white-collar offenders; and criminal justice system treatment of white-collar crime, particularly sentencing patterns. The contemporary U.S. public consistently expresses punitive attitudes toward convicted consumer fraud and other white-collar criminals, but actual responses to white-collar crime are not equally punitive. Nevertheless, the threat of informal sanctions is extreme—much stronger than the threat of formal sanctions—in the minds of potential white-collar criminals (Benson, 1989). This knowledge has practical value.
A key concept in successfully reducing consumer fraud is perceptions of likely and meaningful costs associated with informal sanctioning. This is a general deterrence-based approach that operates through peoples’ perceptions rather than through objective reality. After all, it makes little difference if a jurisdiction elevates the severity of punishment if people are not aware of the changed punishment. Furthermore, a sanctioning threat must be perceived as credible and substantial, if it is to dissuade a would-be offender from engaging in crime (Shover & Hochstetler, 2006; Nagin & Pogarsky, 2006).
It is not necessary for informal sanctions themselves to trigger the deterrence process; rather, promising policies appear to be those that simulate the negative consequences of informal sanctions, such as shaming techniques and professional penalties. Sanctions like registration and community notification, special license plates, and mandated wearing of placards are public and embarrassing (Van Slyke, Waldo, & Bales, 2008). As demonstrated here, these sanctions have financial, relationship, and other negative costs. And they are what most strongly push potential fraudsters away from law-breaking behavior. They also are significantly cheaper for the government than incarceration is (Office of Program Policy Analysis and Government Accountability, 2010); that said, these sanctions and the more commonly imposed sanctions such as incarceration and fines need not be mutually exclusive.
Consumer Fraud Literature and Law in U.S. History
Mainstream criminology, governments, the media, and the public traditionally have focused on violent crimes and incarcerated deviants to the neglect of deceit crimes and deviants who escape official sanctioning. An interesting side-effect of criminology’s relative omission of certain crimes is the opportunity created for other disciplines to claim these fields of inquiry. Thus, popular literary authors, field agents writing exposes and memoirs, and muckraking journalists were the first to publish accounts of consumer fraud as a criminal activity in the late 1800s. It would be inaccurate to say that consumer fraud has since captured criminological interest; rather, consumer fraud generally seems to have maintained a lukewarm presence on the criminological radar—ever so often reminding people of its existence with occasional flare-ups such as Enron and Bernie Madoff. A historical review of U.S. primary sources highlights the roots of consumer fraud literature as well as rather agnostic scholarly activity, indicated by patterns such as short bursts of publications on most consumer fraud topics appearing against the backdrop of a consistent return to “the lone swindler” genre of the 1800s.
Phase 1: Consumer Fraud Enters U.S. Popular Literature
Two areas of consumer fraud literature developed in the first period, which covers the late 1800s and early 1900s. The confidence man, or lone swindler, is the first area, which rose in response to the mobility and anonymity of America’s rapidly rising cities beginning in the late 17th century (Holtfreter, Van Slyke, & Blomberg, 2005). Taking advantage of the relatively new freedom to move about freely from town to town without having one’s reputation precede him, some individuals sought to take advantage of the fact that one could enter each town with a fresh slate—residents of the new town would not have heard of the newcomer, would not be familiar with the newcomer’s family, and would have few other methods of checking someone’s credibility before entering into a business dealing with him or her.
Melville’s The Confidence Man (1857) and Comstock’s (1887) Frauds Exposed exemplify this lone-swindler literature. Comstock shared with his readers dozens of fraudulent schemes he discovered working as a formal postal inspector. Appearing at the end of the first phase, Conwell’s (1937) The Professional Thief also belongs to the lone-swindler genre, but it is more of a scholarly approach to consumer fraud than earlier lone-swindler works. “Chic Conwell” is a professional thief who—with the help of Edwin H. Sutherland—published a detailed account of the life of a career criminal, including the various rackets routinely used by professional thieves. Common to these works is a focus on individual (lone) offenders who have a diverse portfolio of sometimes quite sophisticated schemes with which they use to defraud numerous others. These sensationalized account of frauds were accompanied by a series of like-minded federal legislation: the Mail Fraud Act of 1860, the Radio Act of 1927, and the Federal Securities Act of 1933, each of which was intended to deny fraudsters the ability to use federal resources, like the mail service, in furthering their schemes (Holtfreter et al., 2005).
The second area emerging within the first phase of consumer fraud literature was motivated by concern over the safety of food, drug, and cosmetic products and was spearheaded by the muckrakers. Representative literature includes Sinclair’s (1906) The Jungle; Schlink and Kallett’s (1933) 100,000,000 Guinea Pigs; and Lamb’s (1936) The American Chamber of Horrors. The muckrakers’ success is evident from a series of laws aimed at protecting consumers from the dangers exposed in these works: the Pure Food and Drug Act (1906); the Meat Inspection Act (1906); the Food, Drug, and Cosmetic Act (1938); and others. The muckrakers exposed the unethical and unsafe practices of industries, such as the meat industry in the case of The Jungle, horrifying readers across the county into boycotting the meat industry and forcing governmental action. Both the enormous scale of victimization (in terms of number of victims) and the inability of potential victims to protect themselves indicated that only a federal response would do.
Phase 2: Consumer Fraud Gains Scholarly Attention
The second phase comprises the middle third of the 20th century and demonstrates a new scholarly interest in consumer fraud. Three distinct areas were covered in the second phase: crimes of the powerful, criminogenic industries, and self-regulation. Additionally, there was some persisting interest in swindling—such as Hancock and Chafetz’s (1968) The Compleat Swindler—as well as harbingers of phase three—Vaughan and Carlo’s (1975) “The Appliance Repairman” and Cressey’s (1953) Other People’s Money.
Representing a break with the past preoccupation with the lone swindler, Sutherland expanded the focus on fraud to corporations, arguing that their misdeeds are far more harmful than the crimes of the individual—a fact that calls into question why it is individuals who are targeted by the majority of criminal laws and who fill America’s prisons. The muckrakers were concerned with corporate crime, as was Sutherland, who provided evidence of an alarmingly high crime rate—including repeat crime—among leading U.S. institutions. Both groups also expressed a concern with the misuse of power: Muckrakers worried that the powerlessness of the masses contributed to their ongoing victimization, while Sutherland pointed primarily and explicitly to the power of the offenders. Calling attention to the power of these criminals, Sutherland (1949) defined white-collar crime as crime committed by “a person of respectability and high social status in the course of his occupation” (p. 9). Where phase one’s lone swindler operated via abuse of anonymity and mobility, phase two’s criminals took advantage of their relatively greater social positions to shape laws to their advantage and otherwise ensure that their harmful activities would go unpunished. Consistent with Sutherland and other organizational studies of crime, in 1970 the U.S. government passed the Racketeer Influenced and Corrupt Organizations Act.
One year after the Ford Pinto trial, Farberman (1975) examined the experiences of consumers who complained to manufacturers about guaranteed products, noting that most consumers were not satisfied or worse. This was a study of the auto industry, which Farberman characterized as “criminogenic” in terms of the demands manufacturers made from sellers, which in turn caused the sellers to engage in a variety of fraudulent sales practices and other crimes, such as kickbacks and short sales. Perhaps motivated by the Ford Pinto tragedies themselves the year before, Leonard and Weber (1970) published a study entitled “Automakers and Dealers: A Study of Criminogenic Market Forces,” which echoed Nader’s (1965) Unsafe at Any Speed—an expose of car manufacturer resistance to safety standards (such as seatbelts) in an effort to cut costs. The U.S. government responded to public concern over the widespread and fatal consequences associated with faulty products in the auto industry in 1966 with passage of the Traffic Motor Vehicle Safety Act. Among other provisions, the 1966 Act charged regulators with setting national safety standards designed to protect consumers from “unreasonable risks.” A theme in Nader’s bestseller was, after all, how car manufacturers ignore evidence of risks when making their decisions. Other industry-specific legislation during the second phase includes the 1966 Child Protection Act, the 1967 Flammable Fabrics Act, and the 1968 Gas Pipeline Safety Act (Mayer, 1989).
The criminogenic research examined the front end of the consumer fraud, while the third line of literature focused on the back end of consumer fraud, with consideration of how manufacturers and sellers responded when consumers complained, ultimately questioning the effectiveness of self-regulation. Exemplars of this research are Darby and Karni’s (1973) “Free Competition and the Optimal Amount of Fraud,” Boschung’s (1976) “Manufacturer’s Response to Consumer Complaints on Guaranteed Products,” and Kendall and Russ’s (1975) “Warranty and Complaint Policies: An Opportunity for Marketing Management.” This self-regulation literature in the 1970s revealed a consistent pattern of self-regulation leading to unsatisfactory outcomes for consumers.
While the consumer fraud literature was becoming more objective by the end of the second phase, it was far from comprehensive. Sensational and moralistic accounts of the first phase gave way to scholarly attempts to understand the causes of these behaviors and how they might be predicted and prevented. It is during the third phase where the lines of research began to merge, research designs became sophisticated, and demographic patterns in offenders and victims were identified.
Phase 3: Consumer Fraud Hits Mainstream Criminology
The social movements of the 1960s and increasingly publicized scandals involving American governmental and economic institutions seem to have fueled a more sustained and focused effort to understand and control consumer fraud. While elaborating on some of the issues raised in the first two phases—such as the lone swindler—phase three witnessed the rise of interest in how consumer fraud appears to be facilitated by globalization and advancing technology. In addition to a nostalgic fascination with the lone swindler of decades past were four new distinct directions taken in the consumer fraud literature: victims, failed self-regulation, punishment, and public opinion.
A handful of victimization studies of consumer fraud was published in the 1970s, but it was not until 1980 when victims became a serious and sustained area of scholarly inquiry or public policy. The victim rights and feminist movements finally were successful in shedding the notion of victim precipitation that had prevailed since the 1940s, thereby drawing national attention to the plight of crime victims. The fading negativity attached to victims is evidenced by a shift in nomenclature: The early victim studies used the word “complainant,” while more recent research prefers the term “victim” (Holtfreter et al., 2005). Jesilow, Klempner, and Chiao’s (1992) “Reporting Consumer and Major Fraud: A Survey of Complainants”; Titus, Heinzelmann, and Boyle’s (1995) “Victimization of Persons by Fraud”; Holtfreter, Reisig, Leeper Piquero and Piquero’s (2010) “Low Self-Control and Fraud: Offending, Victimization, and Their Overlap”; and Reyns’s (2013) “Online Routines and Identity Theft Victimization: Further Expanding Routine Activity Theory Beyond Direct-Contact Offenses” are illustrative of this trend toward understanding the experience of consumer fraud victims—their experiences in becoming victims and their experiences reporting victimization. In addition are several national surveys of victims of consumer fraud and identity theft, such as the Federal Trade Commission’s series of victimization studies in 2004, 2007, and 2011 (i.e., Consumer Fraud in the United States: An FTC Study [Anderson, 2004, 2007, 2011]) and the reports of the Internet Crime Complaint Center. These listed victimization studies also show the increasing interest in the role of technology in the etiology of consumer fraud, as the later studies are more concerned with virtual than with face-to-face consumer transactions.
In at least three ways, consumer fraud appears to be more consequential than street crime. First, consumer fraud affects more people each year; second, consumer fraud incidents cost more, on average; and third, consumer fraud leads to longer term repercussions, such as making it difficult to obtain credit after having been the victim of identity theft (Croall, 2016). Where street crime has declined steadily since the early 1990s, consumer fraud has continued to increase (Blumstein & Rosenfeld, 1998; Zimring, 2006). The Federal Trade Commission’s national survey, for example, reported the victimization of 30.2 million consumers in 2006—up from approximately 25 million victims 3 years earlier (Anderson, 2004, 2007). A recent national survey reported that 24 percent of households and 17 percent of individuals fall victim to one or more consumer fraud attempts annually (Huff, Desilets, & Kane, 2010), while low estimates put consumer fraud losses at $400 annually (Norrgard & Norrgard, 1998). Moreover, the Internet Crime Complaint Center received 303,809 complaints in 2010, nearly all of which were classified as consumer frauds (Internet Crime Complaint Center, 2011).
The phase two literature made clear that consumers are not pleased when they complain to manufacturers and sellers, and phase three took this finding a step further to argue against self-regulation and for governmental intervention in the marketplace. Exemplifying this area of inquiry is research on the savings and loan (S&L) crisis of the 1980s and the economic crisis of 2008. Calavita and Pontell’s (1994) criminological analysis of the S&L crisis provided clear and convincing evidence of how self-regulation set the stage for the crimes that caused one crisis, while Nguyen and Pontell (2010) and Will, Brotherton, and Handelman (2012) performed similar studies of how the mortgage meltdown came about as a result of criminal activity. Tillman and Indergaard’s (1999) “Field of Schemes” was another investigation of the limits of self-regulation, this time in the medical industry, where self-regulation combined with shared interests to create opportunity for medical malfeasance (see also Liederbach, Cullen, Sundt, & Geis, 2001; Jesilow et al., 1992).
Apparently, already recognizing to some extent the limits of self-regulation, a series of laws was passed providing for enhanced governmental regulation of the marketplace. Examples of this legislation include the 1986 Computer Fraud and Abuse Act, the 1992 Fair Credit Reporting Act, the 1996 Credit Repair Organizations Act, and the 1996 Telemarketing Sales Rule (Holtfreter et al., 2005).
Combined, the literature on victimization rates and consequences and evidence of the failures of self-regulation pointed to a singular solution: government intervention. Accordingly, this next line of research has asked whether better outcomes are expected when the criminal justice system becomes involved in consumer fraud. This topic fits within a much larger body of literature on sentencing disparities, which will be addressed chronologically.
Research on federal sentencing outcomes predates that on state sentencing outcomes perhaps because federal courts tend to process the more serious white-collar crime cases (Weisburd, Mann, Waring, & Bode, 1992). Thus, examining sentencing patterns for white-collar and street offenders in 10 federal district courts in the 1970s, Hagan and colleagues found no evidence that white-collar offenders receive preferential treatment at the sentencing stage of criminal justice system processing—except in the one district characterized by a proactive rather than a reactive prosecution style along with a high volume of white-collar crime convictions (Hagan, Nagel, & Albonetti, 1980; Hagan et al., 1980, 1982; Nagel & Hagan, 1982). Watergate exerted no appreciable influence on white-collar crime sentences because, although white-collar criminals convicted in the 2 years after Watergate were more likely to be incarcerated than white-collar criminals convicted in the 2 years before Watergate, the post-Watergate sentences were shorter than the pre-Watergate sentence (Hagan & Palloni, 1986).
A second series of white-collar crime sentencing studies—known as the Yale research—looked exclusively at white-collar criminals using a combination of qualitative and quantitative data. Where Hagan and associates found no evidence of leniency for white-collar versus street offenders, the Yale researchers did indeed uncover evidence of differential treatment in their sample of white-collar offenders: High-status white-collar defendants received harsher sentences than did lower-status white-collar defendants (Weisburd et al., 1990, 1992; Wheeler et al., 1988). Their qualitative research suggested that a reason for this pattern was the belief that higher class position is associated with greater expectations and hence more perceived blame (Weisburd et al., 1990, 1992; Wheeler et al., 1988).
In contrast to the Yale findings of a social status effect, Benson and Walker (1988) found evidence that high-status offenders are treated differently than low-status offenders. Using a longer study period than Hagan and colleagues, Benson and Walker’s results indicate that post-Watergate sentences were indeed harsher than pre-Watergate sentences for white-collar offenders sentenced in a single Midwestern federal district court.
Two state-level studies comparing sentences meted out to white-collar and street offenders in Florida both indicated preferential treatment for the white-collar offenders (Van Slyke & Bales, 2012). Of the different categories of white-collar crimes included (e.g., fraud v. government, fraud v. consumer, fraud v. business), consumer fraud offenders had one of the lowest likelihoods of incarceration: They were less likely to be incarcerated than people who defrauded businesses, those who defrauded the government, and those convicted of credit card fraud (Van Slyke & Bales, 2012). The Florida white-collar offenders were more likely to be incarcerated after the wave of corporate scandals that emerged in 2001–2002, which was termed the “Enron effect.”
One of the most developed lines of consumer fraud research has assessed public opinions of and preferences for sanctioning consumer fraud. Despite wanting the government to devote more resources to white-collar crime control (Kane & Wall, 2005; Holtfreter, Van Slyke, Bratton, & Gertz, 2008; Huff, Desilets, & Kane, 2010), most of the U.S. public—while supportive of punitive formal controls for white-collar offenders—is opposed to enhanced government regulation of the marketplace.
The General Social Survey, for one, asks national respondents, “In general, do you think the courts in this area deal too harshly or not harshly enough with criminals?” In 2008, 2010, and 2012, the majority of respondents consistently have said “not harshly enough” (Roper Center, 2014). Second, the Rasmussen Report twice has asked U.S. residents whether they think the federal government has been tough enough in pursuing possible criminal behavior on Wall Street. In 2012 and again in 2013, only 14 percent of survey participants believed the government had been sufficiently harsh (Rasmussen, 2012, 2013).
There appears to be a lack of public demand for formal legal intervention in economic affairs. Unnever, Benson, and Cullen (2008) asked 1,512 national respondents, “Do you think there should be more government regulation of the stock market, less regulation, or should government regulation of the stock market stay as it is?” (p. 174). Only 35 percent supported more regulation, while 59 percent preferred less regulation. Similarly, only a quarter of Americans think there is too little government regulation of business and industry (Swift, 2013), for example, while 60 percent of national survey participants believe that government regulation of business does more harm than good (Roper, 2014). Only 12 percent of Americans think the federal government’s oversight of the banking system has been good or excellent; 42 percent of respondents rate it as poor (Rasmussen, 2013). Further evidence of public distaste for regulatory formal controls are statistics that consistently reveal low public support for bail-outs. More than two-thirds of people participating in a national poll disapproves of the government spending money in 2008 on banks and financial institutions that were in financial trouble (Roper, 2014). Likewise, 55 percent of U.S. respondents wanted the government to let the largest banks go out of business if the banks were unable to meet their obligations, and only 25 percent of respondents wanted the government to help keep these banks in business (Rasmussen, 2013).
In addition to these studies on general punishment orientations, much research has examined how members of the public would like consumer fraudsters and other criminals punished. This research will be reviewed in two groups: pre-2000 and 2000 and later.
Blumstein and Cohen (1980) asked 603 residents of Allegheny County, Pennsylvania, to determine the appropriate sentence length for 23 offenses (based on “the seriousness of the offense”) (p. 229). Although the white-collar crimes generally got relatively short sentences, employee safety violations received longer sentences than all nonviolent street crimes except for selling drugs. Surveys of Boston residents and special groups (e.g., high school students, Job Corps members) by Rossi, Simpson, and Miller (1985) and by Miller, Rossi, and Simpson (1986) indicated that the public wanted violent crimes punished most severely, followed by corporate crimes, nonviolent street-level theft crimes, and then public disorder crimes. These researchers also found that variation in people’s punitiveness could not be explained adequately by perceptions of crime seriousness. Rossi and Berk’s (1997) study involved face-to-face interviews with 1,000 U.S. residents. Nationwide, ordinary people were not particularly punitive toward white-collar offenders (an exception being food and drug violations). Increases in dollar amount lost and evidence of premeditation were associated with harsher sanctioning preferences, and public sentencing preferences were more punitive than the punishments in the federal sentencing guidelines.
Whereas much of the 20th-century research supported allegations of a tolerant public, research evidence since the turn of the 21st century quite consistently appears to converge in reporting an increasingly punitive public. Cohen, Rust, and Steen (2002), for instance, asked a random sample of more than a thousand U.S. citizens to assign appropriate penalties for eight crime types. Their respondents punished more severely credit fraud offenders than assault offenders and Medicare fraudsters than burglars. Although robbery can involve violence, the first of three National White Collar Crime Center (NWC3) surveys found that members of the public favor equally harsh sanctions for robbers and fraudsters (Rebovich & Layne, 2000; see also Rebovich & Kane, 2002; Schoepfer, Carmichael, & Piquero, 2007). Unnever, Benson, and Cullen (2008) asked their national survey participants, “Do you support or oppose stricter penalties, including longer prison terms and higher fines, for corporate executives who conceal their company’s true financial condition?” More than three-quarters of respondents favored more severe penalties, while only 7 percent opposed stricter penalties.
Other researchers have investigated whether the public supports denying white-collar (and other) offenders the right to vote. Manza, Brookes, and Uggen’s (2004), Manza and Uggen (2006) national survey found that people are less supportive of restoring voting rights for white-collar than for violent criminals, but that people are least supportive of restoring voting rights for sex offenders. Padgett, Chiricos, Bratton, and Gertz’s (2007) survey of Florida residents revealed that respondents expressed more opposition to restoring voting rights for white-collar offenders (convicted of illegal trading of stocks) than for violent offenders and for sex offenders. Eliminating the established positive effect of violence on seriousness and punitiveness perceptions by including nonviolent economic crimes only, Van Slyke’s (2009) Florida survey found that people are most supportive of disenfranchising elite white-collar criminals like corporate fraudsters and were least supportive of denying voting rights to street offenders like people who steal unoccupied cars. Respondents were slightly more punitive toward lower-level white-collar offenders, like false advertisers, than they were toward the street offenders
Three patterns emerge from the review of the existing research on public support for formal controls for white-collar crime. First, while supportive of punishment by the criminal justice system, the public does not endorse increased regulation of economic affairs. Second, while apparent that the public deems prison most appropriate for violent street offenders, evidence indicates an increase in public punitiveness toward white-collar crime since the early 2000s. And third, looking at support for disenfranchisement rather than for incarceration reveals a remarkably punitive public.
We thank the anonymous peer reviewers for their helpful insights and suggestions.
This section provides a list of suggested readings on consumer fraud. These are either “classics” in the field or represent understudied, yet potentially promising, directions for theory, research, and/or policy.
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Cullen, F. T., Maakestad, G. C., & Benson, M. L. (2006). Corporate crime under attack: The fight to criminalize business violence. Cincinnati, OH: Anderson Publishing.Find this resource:
Ermann, M. D., & Lundman, R. J. (2002). Corporate crime and governmental deviance (6th ed.). New York: Oxford University Press.Find this resource:
Holtfreter, K., Reisig, M. D., &. Pratt, T. C. (2008). Low self-control, routine activities, and fraud victimization. Criminology, 46, 189–220.Find this resource:
Levi, M. (2009). Suite revenge? The shaping of folk devils and moral panics about white-collar crimes. British Journal of Criminology, 49, 48–67.Find this resource:
Mascini, P. (2013). Why was the enforcement pyramid so influential? And what price was paid? Regulation and Governance, 7, 48–60.Find this resource:
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Pontell, H. N., Black, W. K., & Geis, G. (2014). Too big to fail, too powerful to jail? On the absence of criminal prosecutions following the 2008 financial meltdown. Crime, Law, and Social Change, 61, 1–13.Find this resource:
Rosoff, S. M., Pontell, H. N., & Tillman, R. H. (2004). Profit without honor: White-collar crime and the looting of America (3d ed.). Upper Saddle River, NJ: Pearson Prentice Hall.Find this resource:
Simpson, S. S., & Koper, C. S. (1992). Deterring corporate crime. Criminology, 30, 347–375.Find this resource:
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Anderson, K. B. (2004). Consumer fraud in the United States: An FTC survey. https://www.ftc.gov/sites/default/files/documents/reports/consumer-fraud-united-states-ftc-survey/040805confraudrpt.pdf.Find this resource:
Anderson, K. B. (2007). Consumer fraud in the United States: The second FTC survey. https://www.ftc.gov/sites/default/files/documents/reports/consumer-fraud-united-states-second-federal-trade-commission-survey-staff-report-federal-trade/fraud.pdf.Find this resource:
Anderson, Keith B. (2011). Consumer fraud in the United States: The third FTC survey.Find this resource:
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Benson, M. L., & Cullen, F. T. (1988). The special sensitivity of white-collar offenders to prison: A critique and research agenda. Journal of Criminal Justice, 16, 207–215.Find this resource:
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Holtfreter, K., Reisig, M. D., Piquero, N. L., & Piquero, Alex R. (2010). Low self-control and fraud: Offending, victimization, and their overlap. Criminal Justice and Behavior, 37, 188–203.Find this resource:
Holtfreter, K., Van Slyke, S., & Blomberg, T. G. (2005). Sociolegal change in consumer fraud: From victim–offender interactions to global networks. Crime, Law, and Social Change, 44, 251–275.Find this resource:
Holtfreter, K., Van Slyke, S., Bratton, J., & Gertz, M. (2008). Public perceptions of white-collar crime and punishment. Journal of Criminal Justice, 36, 50–60.Find this resource:
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