Public Policy Analysis & Opinion

By Kevin P. Hennosy

TRUST BUSTERS

Giant robocall scam hurts consumers and ethical insurance producers

Insurance is a business based on trust.

So if a gang of vicious clowns shows up in the marketplace pretending to sell insurance only to tender what amounts to bags full of scorpions, then people lose trust in all insurance.

Federal action

Consider the case announced by the Federal Communications Commission (FCC) this spring, where the commission cited approximately 1 billion illegally spoofed robocalls perpetrated to sell health insurance.

The term “spoof” refers to when telemarketers deliberately falsify the information transmitted to your caller ID display to disguise their identity.

Now, there is a bag of scorpions that will certainly weaken public trust!

Following an investigation into the frenzy of spoofed calls, the FCC cited John C. Spiller and Jakob A. Mears, doing business as “Rising Eagle” and “JSquared,” and recommended a penalty of $225 million.

[I]f a crook makes a billion robocalls peddling fraudulent insurance transactions … affirmative regulation is absent without leave.

The announcement in early June 2020 was what the FCC refers to as a Notice of Apparent Liability for Forfeiture, or NAL, which contains only allegations that advise a party on how it has apparently violated the law and may set forth a proposed monetary penalty.

The Commission may not impose a greater monetary penalty in this case than the amount proposed in the NAL. Neither the allegations nor the proposed sanctions in the NAL are final Commission actions.

Although an FCC news release described the fine as the largest ever levied by the Commission, the cited parties still have an opportunity to respond.

Still, the FCC seems highly confident that it busted up a fraudulent insurance sales racket.

The FCC release explains: “Beginning in 2018, there was an increase in consumer complaints and robocall traffic related to health insurance and other healthcare products.”

The robocall scheme depended on individuals’ and small business owners’ desire for cheap health insurance coverage.

According to an FCC news release, the calls “falsely claimed to offer health insurance plans from well-known health insurance companies such as Aetna, Blue Cross Blue Shield, Cigna, and UnitedHealth Group.”

Once the “mark” entered the clown car by “pressing 3” on their phone, the twisted circus of insurance sales began. To quote the old Broadway song: “Send in the clowns, there ought to be clowns; don’t bother, they’re here.”

The FCC release continues: “Consumers were transferred to a call center with no affiliation to the named companies, where call center representatives then would attempt to convince the consumer to purchase an insurance product sold by one of Rising Eagle’s clients.”

The FCC statement documents how this kind of activity causes collateral damage to businesses that had nothing to do with the scam. Again, quoting from the FCC statement:

“The scam also caused the companies whose caller IDs were spoofed to become overwhelmed with angry call-backs from aggrieved consumers. At least one company was hit with several lawsuits because its number was spoofed, and another was so overwhelmed with calls that its telephone network became unusable.”

Imperfect

The federal response to the scam was aggressive but imperfect. FCC Commissioner Jessica Rosenworcel drew direct attention to an unexpected flaw in Washington’s enforcement effort: “[T]here’s something missing in this all-hands effort. That’s the Department of Justice. They aren’t a part of taking on this fraud. Why not? What signals does their refusal to be involved send?”

Why did the Department of Justice withhold its usual aggressive application of the law? Who knows? This fine magazine will leave that discussion to certain cable television channels.

Commissioner Rosenworcel did not stop there. She discussed how the non-appearance by the Department of Justice impedes the Commission’s ability to enforce the law and apply penalties.

“Here’s the signal I see. Over the last several years the FCC has levied hundreds of millions in fines against robocallers just like the folks we have here today. But so far, collections on these eye-popping fines have netted next to nothing. In fact, it was last year that The Wall Street Journal did the math and found that we had collected no more than $6,790 on hundreds of millions in fines. Why? Well, one reason is that the FCC looks to the Department of Justice to collect on the agency’s fines against robocallers. We need them to help. So, when they don’t get involved—as here—that’s not a good sign.”

State action

Building upon the FCC enforcement action, state attorneys general from Arkansas, Indiana, Michigan, Missouri, North Carolina, Ohio, and Texas filed lawsuits alleging that Rising Eagle and JSquared violated the federal Telephone Consumer Protection Act and various state consumer protection laws.

The FCC news release notes that “Rising Eagle’s largest client, Health Advisors of America, was sued by the Missouri Attorney General for telemarketing violations in February 2019.”

Missouri Attorney General Eric Schmitt’s office explained in a statement: “Between January 1, 2019, and May 14, 2019, 14 million robocalls were made to residents of Missouri. Similarly, between January 1, 2019, and April 1, 2019, defendants initiated 5,193,698 robocalls to telephone numbers on the Missouri Do Not Call Registry.”

Arkansas Attorney General Leslie Rutledge is “following the money.” Upon filing suit, her department released a statement alleging violations of the Arkansas Deceptive Trade Practices Act (ADTPA) and the Regulation of Telephonic Sellers (RTS).

Attorney General Rutledge “seeks a permanent injunction from further violations of the ADPTA and RTS, up to a $10,000 civil penalty for each ADTPA violation, up to a $10,000 civil penalty for each RTS violation, and attorneys’ fees and costs.”

Michigan Attorney General Dana Nessel explained in a statement that her enforcement action arose from an initiative her office maintains against abusive robocall campaigns.

“These bad actors seeking to take advantage of consumers are the exact reason we created our Robocall Crackdown Initiative,” Nessel said. “We have made it clear that illegal robocalls are not welcome here and, thanks to this collaborative effort, we are holding these businesses accountable for attempting to mislead and harass consumers.”

North Carolina Attorney General Josh Stein’s complaint alleges that “in 2019 and 2020, the defendants made more than 75 million robocalls to North Carolina phone users, including more than 34 million calls to numbers on the National Do Not Call Registry.

“These defendants allegedly made more than 75 million robocalls to North Carolinians—calls that are disruptive and pose a greater threat to our most vulnerable people,” said Attorney General Stein. “I will continue to do everything I can to shut down these robocallers. We have all had enough!”

Texas Attorney General Ken Paxton looks a little like the dog owner who allows his pooch to run free and dig in the neighbors’ gardens. Paxton could not bring himself to describe the activity in any harsher terms than an invasion of privacy.

“I thank the FCC and attorneys general involved with this enforcement initiative for their dedication to stopping deceptive and abusive robocallers from targeting our citizens. Robocalls, especially those that spoof Caller ID information and violate specific do-not-call lists, are a blatant invasion of privacy,” said Attorney General Paxton. “My office will continue to work diligently to stop those who disregard privacy and seek to take advantage of Texans.”

“Thanks to thousands of watchful Ohioans, we’re taking the fight to a source of these pestilent robocalls,” Ohio Attorney General Dave Yost said in a statement. “Every call you report represents an important piece of evidence that can help us build cases like this one. Keep ‘em coming.”

The next day, Yost announced a settlement that bans operations in Ohio by a payment processor that facilitated the robocall scam. “The people who handle the money are just as culpable as the ones who do the bad acts,” Yost said. “We promised to go after every link in the deceptive robocall chain, and we’re making good on it.”

Attorney General Yost echoes an approach made famous by another Buckeye general. William Tecumseh Sherman said, “The scenes on this field would have cured anyone of war.”

Yost’s legal strategy visits a Sherman-like cure on fraudsters—and those who would profit from the fraudsters’ corruption. Make them howl, General Yost!

State inaction

And then we have the sound of crickets from the nation’s insurance regulators. I suppose by the time this edition goes to print, some state insurance regulator will issue some ditto-head statement decrying the robocall scandal.

Oddly enough, neither the National Association of Insurance Commissioners (NAIC) nor their vaunted membership of “fighting crickets” seem to have played any role in putting a stop to the scheme. Maybe now they will form a working group to assess consensus opinion on the topic?

Perhaps the regulators were on their way to regulating the business of insurance, but then something shiny alongside the road grabbed their collective attention? Maybe they all forgot to stop by Walmart and recharge the burner phones they use to accept consumer complaints—for two years?

Consider this: If one tries to attend one of their conventions without paying a registration fee, the NAIC’s wrath is swift and terrible. However, if a crook makes a billion robocalls peddling fraudulent insurance transactions that poison the wells of insurance producers, affirmative regulation is absent without leave.

Just let the market sort it out!

Of course, the market does not “sort it out.” Often, the market rewards grifters at the expense of consumers and ethical producers. The grifter tells the mark everything they want to believe. No one can compete with that in an ethical manner. So the sales commission rides in the grifter’s pocket. Not yours.

This example provides the explanation of why the National Association of Insurance Agents, now the Independent Insurance Agents and Brokers of America (IIABA), worked to negotiate the McCarran-Ferguson insurance regulatory framework following World War II.

It would be nice if some state insurance regulators would use that framework.

The author

Kevin P. Hennosy is an insurance writer who specializes in the history and politics of insurance regulation. He began his insurance career in the regulatory compliance office of Nationwide and then served as public affairs manager for the National Association of Insurance Commissioners (NAIC). Since leaving the NAIC staff, he has written extensively on insurance regulation and testified before the NAIC as a consumer advocate.