I read an interesting article today about a young woman named Kim Worman. The theme wasn’t that different than the many stories out in the blogosphere: poor woman gets taken in by some bogus charges on her credit card. Got me to thinking, it’s shocking the number of people unfamiliar with how this overall scam works. So I figured, gotta do some research.

The telemarketing scam Kim got wrapped up in is pretty straightforward. Kim placed an order for some tea whereby she’d pay a simple $4.95 charge but then not long after, she found herself in a ring of charges whereby she was hit with $24.94, $115, $120 and $130. What is really sad is the only reason the charges stopped was that Kim ran out of money.

Fortunately for Kim, she got the attention of some higher ups at Department of Workforce Development but many like Kim are all too unfortunate as it appears Kim was using a Visa Debit card. While debit cards provide some level of protection, it’s nothing close to the level of protection that actual credit cards do.

So how does the scam work?

Well, you place an order with a company that offers a low-priced item, typically with the understanding that you would pay just for shipping. Somewhere in the fine print or in the 20 minutes of conversation, they mention that you will be charged monthly but you can cancel at any time. Once they receive your “Yes” to an order, that’s where things start to get interesting.

It seems companies like the American Computer Group, will then take your data and sell the name, profile, and phone number to their clients. Now the trick is, they don’t sell the credit card data because that would be illegal; however, once the person they’ve sold your name and phone number to claims that they received an “approval” from you to place an order with them, the data broker will then provide the actual card numbers because you have “authorized” them to charge you. So while you may not have technically given your card numbers to the 10 to 20 other groups that have charged you, they certainly have access to it.

Companies like American Computer Group or WhiteHat as is their other trade name are far too common. They are typically based on operations that have been in business for years under the cloak of providing data services, address cleansing, and brokering services. Also, they will routinely change names, shut down sites, and move things around. Take American Computer Group for example, if you try going to their main site http://www.mailorder.com/ - you get nothing. But if you go to the website they give clients, you get http://www.mailorder.com/default.htm - you may notice the reference to the United States Post Office but the USPS is not aware of any such endorsement.

Companies that use these marketing schemes often include membership services, healthcare discount cards, internet service providers, and many others. But the common theme is really membership fees. The challenge becomes when their clients get caught which they often do, they will put the blame squarely back on the marketing company and just move on to the next one. The cycle continues again and again until pressure builds to the point where the membership scams finally attract the attention of the state or federal government. Unfortunately, the list of scam companies is too long to put here, but sites like RipOffReport do a great job for those interested.

Let’s hope 2008 marks the beginning of the end for these illegal “data warehouse” companies and that the federal government steps in to do something about this type of scam once and for all.