Volume 35, Number 2, February 2000
dont be Fooled
recognizing fraudulent consumer practices
by Susan Edwards, Ph.D.
Fraud wears a human faceone that every industry has to confront at some point. But, it is much harder when that face belongs to a customer. As a specialist in consumer-based fraud, I am constantly amazed by the tactics people use and the lengths they will go to get something for nothing. This is gamesmanship at its besta game that always comes down to money.
Although seldom discussed among businesspeople, consumer-perpetuated fraud is expensive. It absorbs profits, raises insurance rates and, in some cases, even bankrupts businesses operating on narrow margins. Viewed as having deep pockets, some businesses never realized they were set uptargeted by pathological individuals who viewed them as a source of free or easy money. But the money isnt really free. If this is the case, then who pays the cost of fraud? We all do.
Recognizing the nature of consumer-based fraud in any industry is vital to protecting its future. Professional organizations, manufacturing councils and business chambers of commerce are recognizing fraud as a growing problem and are actively working to counter it by educating its members.
The glass industry is no exception. Outlined below are some of the common strategies used by pathological people to fool businesses. As a result, more business leaders, employees, manufacturers and suppliers, are working together to counter the flow of free money through fraud-related conduit. Review these items, add those from your own experience, and share the material with your staff. Encourage your professional groups to provide more seminars in this area. Litigation threats and marketing of complaints without cause for the purpose of gaining out-of-court settlements are alive and well and growing in numbers. The more you learn, the more your business (as well as industry) benefits.
1. Consumer Fraud Can Masquerade as Customer Dissatisfaction
An unhappy customer is one who wants a problem fixed; he wants a monetary refund and/or some statement from the businessperson in which this person apologizes for any wrongdoing. A fraudulent person wants money and may even design a problem just to make money.
Mable was an elderly woman who was upset her window leaked. She cried to everyone she met about how she was victimized by the window, its manufacturer, installer and sales representatives. No solution to the problem seemed to work: not caulking, not a new window, not even an engineering analysis. What Mable wanted was money. And because she looked like Mrs. Santa Claus, no one ever suspected that she painted the weather-stripping around the window so it shrank and leaked. Mable was a pathological customer; she created a problem so she could get cash (which she did, from the supplier, builder and manufacturer.)
Business involves analyzing costs as well as benefits. With a customer like Mable, the owner often asks, Is it worth it for me to cut my losses and pay this customer so he will go away? Sometimes the answer is yes and sometimes its no. Either way, the result needs to be an action that will reduce the chances the incident will reoccur.
2. Avoid Letting a Customer (or Potential Customer) Get into a Position of Emotional Blackmail
Does a customer ask you to inflate repair bills on a home or auto window to cover his insurance deductible? If you do it (out of desire to be helpful or to get business), guess who is liable for fraud? The customer isnt. You are.
Check with your attorney (and your contracts) to make sure you follow good business practice with respect to insurance billing. I know of several cases where business professionals were asked to violate the law by customers under the guise of everybody does it only to have the customer turn around and threaten to report the company unless it performed another illegal or unethical act. In each case, the business owner was stunned that the customer turned on him or her.
As a psychologist, I am not quite as shocked. The goal of pathological people is to win and they make up their own (unfair) rules to do so.
3. Know your Rights and Dont Give Them up to Get Business
In commercial construction, lien rights represent some of the strongest rights possessed in the building industry. While the application of these rights may vary from state to state, your attorney can explain the implications for your business. Essentially, lien rights support the part of the law that allows you some recourse if a customer tries to defraud you.
Asking you to give up your rights as a term of doing business is a questionable practice at best. Work with your attorney and professional organizations to design contracts which protect you. Dont knowingly agree to give up your rights as a requirement for doing business. With someone intent on defrauding you, the cost may be more than you are prepared to pay.
4. Clearly Define the Terms of Business
If an error occurs in the specs you created for a door design, who pays the charges according to your contract? If the color of a window is wrong, who is responsible for payment? If a customer says, I thought this low-E was included in the quote (and it wasnt), who pays the extra costs?
If appropriate to your business, attach standards (or paint colors, etc.) to the
contract or work order. Clarifying the terms up front can reduce the amount of discounting
involved in customer claims of I
didnt understand. Fraudulent people use this phrase to get what they want. They know having your word against theirs works in their favor. This can boil down to having one opinion against another, so it becomes harder to prove who is right.
5. Remember Contract Software can be Bought by AnyoneAlways Check the Specs, Terms and Money When Customers Return Designed Computer-Generated Forms.
Have your bids been generated by a computer?
Have your change orders been churned out after each new spec is submitted on a job? Review
each spec, cost and terms after the forms are signed. This is important because
pathological people sometimes purchase the same software, alter the specs and try to get
(or an upgrade) for nothing. Sound unusual? Its not.
Years ago, I received a phone call from a distraught custom builder. He had built a home for a customer who bought the same software he used, upgraded the specs while keeping the cost lines unchanged and signed the forms. At the end of the construction project, the customer demanded the upgrade. But we never talked about that, said the builder.
Theyre here in the (change order) contracts, said the customer.
The courts held for the customer and the builder went bankrupt. I can still hear the builder saying to me over the phone, I never even knew there were people like this.
6. Recognize that There Are Serial Litigators Who Victimize Businesses
Tom, a 32-year-old professional man, sued the supplier and manufacturer of a shower door after he fell in the shower and cut his foot on the metal drip cap of the door. The companies settled out of court for some $10,000 each. When the manufacturers new attorney joined its legal department, he ran a litigation search on all previous cases, including Tom.
Tom turned out to be a serial litigatoran individual who used the court system on a regular basis for profit. In the past ten years, Tom had sued some three manufacturers a year. His complaints were similar, as were the out-of-court settlement levels. He doubled and sometimes tripled his income this way.
In the past five years, the court systems have gone on-line. Court cases are organized by county (within state systems) and by the LEXIS/NEXIS system (within the federal court system). Many attorneys have access to this information on-line. They can look it up and get a print-out once they know the customers social security number or name and previous addresses. Knowing your customer is a serial litigator is helpful to the people assigned to the claimyour customer service people, attorney and insurance carrier.
Serial litigators know the business cost of going to court and offer to settle for less, hoping the company will see this as a way of saving money. When the company has a more complete picture of the customer, it can change the dynamics of the case.
Mrs. C. ordered a custom shower door of tempered glass for her new home. Her manufacturers cost was $500 and he charged Mrs. C. $1,000. She provided the specs, but when the door arrived, she reported that it was the wrong size. She added that she luckily found a tradesman to alter the door for her. She requested a discount of $500the cost she gave as the amount she paid the tradesman to fix it.
Unfortunately for Mrs. C, the manufacturer did not agree. It seems tempered glass, by virtue of its heat treatments, cannot be cut or altered in any way. It shatters. Therefore, the manufacturer reasoned that she was lying to get a discount.
Direct us to the tradesman, the company representative said, for this process has not been possible up to now on such a product. The glass shatters if someone tries to alter it. It cannot be cut. Give us his name and well contact him for this new process; then well be glad to discuss the matter.
End of discussion. End of talk of discount. End of contact from Mrs. C. Although this case did not involve litigation, my guess was that Mrs. C had used this strategy time and time again. And she will probably continue to do so with other custom productsnot just tempered glass shower doors.
Susan Edward, Ph.D. is a nationally-recognized speaker and writer in the field of consumer-based fraud. Working as a psychologist in Princeton, NJ, she is author of Dangerous Clients: How to Protect Yourself, available from Miller-Freeman Books (1-800/859-3669) and www.amazon.com. It is the featured book on the USGlass website.
Editors Note: All of the cases in this article are real. For the sake of privacy, names and identifying factors have been changed.
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