You May Not Have Won, but Your Loss Isn’t Total

For a few short days, Tom thought he was one of the luckiest men alive. Here he was suddenly living in sunny Southern California--a recent immigrant from England--and he gets a letter in the mail saying that he’s won a valuable prize.

The letter didn’t say precisely what Tom had won. But it indicated that his prize was one of five big-ticket items--such as a Ford Explorer or a weeklong trip to the Bahamas--reserved only for grand-prize winners. All Tom had to do was claim it.

He called the number. And after reiterating the official-looking code on his “claim form,” the operator told him he had indeed won a valuable prize. But to get his prize--indeed, even to find out precisely what it was--he had to buy a $400 product.

Tom was torn. He didn’t want the product but the prizes appeared so valuable it seemed foolish to refuse. Tom rattled off his credit card number.

“Being so new in the country, I didn’t even think to be skeptical,” he says. “I know it sounds stupid, but I agreed. And I waited to get my huge prize.”

The product and prize notification arrived on the same day. The prize was worthless--as was the product. Tom returned the product and the prize and asked for his money back. The company, although acknowledging it received the returned merchandise, refused to credit his charge card.

Tom was out $400 and had neither purchases nor prize packages to show for it.

Meanwhile, miles away, another “lucky” Californian named Harold got a postcard in the mail. He had also won a “valuable prize.” Call the toll-free number to claim it, the postcard read.

Harold called. The operator directed him to call a second number that offered a recorded “automated response” message. Harold was told to punch a series of numbers into his touch-tone phone, triggering a series of new automated messages. Twenty minutes later, he learned the prize he had won was worthless. But it had cost him. The second number he had dialed charged by the minute. His phone company added $40 to his bill that month.

Tom and Harold have never met. And, aside from both being taken in ubiquitous prize scams, their stories are unrelated. However, they are both protected by a series of state and federal laws that are designed to combat a burgeoning problem of telemarketing fraud.

Although neither prize scam is completely new, law enforcement officials say telemarketing cons have grown in popularity over the past several years, partly because there are so many new electronic devices that can be used to separate consumers from their cash, says Herschel Elkins, senior assistant attorney general in Los Angeles.

The good news is that both state and federal laws protect consumers from losing money in these scams. And the consumer’s remedy is direct. Rather than trying to battle with telemarketers, who frequently simply disappear once enough consumers and law enforcement officials catch on, both Tom and Harold can be made whole by legitimate businesses that inadvertently facilitated the scams by providing the billing mechanism.

In other words, Tom can address his complaints to the credit card issuer. Harold to his phone company.

“All they need to do is immediately dispute the bills,” Elkins says.

Specifically, the federal Truth in Lending Act says that if you have a problem with the quality of property or services purchased with a credit card, and you have tried in good faith to correct the problem with the merchant, you may have the right not to pay the remaining amount due. There are two caveats: You must have made the purchase in your home state, or, if not in your home state, within 100 miles of your home. And, the purchase price must have been for more than $50.

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In addition, both Tom and Harold are covered under California law, which bars as illegal “lotteries” that require you to make a purchase to claim a prize, Elkins says. As a result, Harold can refuse to pay the $40 charge on his phone bill, and the phone company cannot cut off his service as a result.

Tom has the legal right to have the credit card company reverse the charge on his bill--even if he has paid it--because the transaction violated California law, Elkins adds.

What if the credit card or phone company balk and demand payment anyway? “They won’t,” Elkins says. “But, if they did, the [consumers] should definitely call us. We would want to know if there was any problem.”

Consumers who believe they’ve been taken in a similar scam should report the telemarketer to the state attorney general’s office in Los Angeles, Elkins says. In addition, consumers can also report suspected scams to the Telemarketing Fraud Hotline at 1 (800) 876-7060.

Kathy M. Kristof welcomes your comments and suggestions for columns but regrets that she cannot respond individually to letters and phone calls. Write to Personal Finance, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or message kristof@news.latimes.com on the Internet.