With the Federal Reserve ordering severe constraints on bank overdraft fees and Congress considering even tougher rules, U.S. banks face a serious dilemma: How to replace the potential loss of billions in fee revenue?

Consumer groups that have been fighting the costly "courtesy overdraft protection" fear that banks have hit on a replacement that might be even worse – a crop of products with names like "Direct Deposit Advance" that are being pushed by lenders such as U.S. Bank, Wells Fargo and Fifth Third Bank. The advances have a stated annual percentage rate of 120 percent but -- if calculated as a traditional loan product -- could have an APR of well over 1,000 percent.

"Banks are trying to figure out a way to keep getting high fees from consumers once the Fed and Congress tighten up overdrafts, and I think this will be the next big abuse," said Lauren Saunders, managing attorney at the National Consumer Law Center.

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Here's how the lending products work.  Consumers who have an existing relationship with a bank and a history of automatic direct deposits are pre-authorized to borrow up to $500 at the click of a mouse.  U.S. Bank's "Checking Account Advance" product also allows account holders to borrow directly through its ATMs.

Cost is generally $10 for every $100 borrowed.  There is very little risk for banks, because the money is repaid from the consumer's next direct deposit.   But account holders pay interest rates far higher than those of the riskiest loans.

Assuming the payment arrives one month later, the interest rate is 10 percent for a month, or 120 percent for a year. But most consumers would repay the loan much sooner, whenever their next paycheck arrives at the bank. If payment arrives within a week, the loan's APR would be around 520 percent, notes Jean Ann Fox of the Consumer Federation of America. If payment arrives in two days, the interest rate would be 1,850 percent.

Because banks define the product as a line of credit rather than a loan, they are allowed to calculate interest based on a 30-day billing cycle.

"It should be shocking enough that banks say they charge 120 percent interest," Saunders said.  "But these are loans you will likely take out only a few days ... so the real rate is likely, much, much higher."

At an online forum sponsored by the American Banker trade newspaper this summer, Terry Zink, executive vice president of Fifth Third Bank, bragged about the potential of his firm's new lending product, now called "Early Access." He said customers see the advance lending product as a valuable service, rather than overdraft fees, which are seen as punitive.

"If we pre-sell an overdraft in the form of a direct deposit advance, customers then are opting to buy, versus being punished for doing something,"  American Banker quoted him as saying. He said consumers have "overwhelmingly accepted" the products, adding that 80 percent of those who use it are repeat customers.

Today, Wells Fargo customers who log in to their online banking Web sites and click on "account activity" have the opportunity to obtain a direct deposit advance by clicking on a prominent link next to their available balance.

The service is not new, said Julia Tunis Bernard, a spokeswoman for Wells Fargo. She said the bank introduced direct deposit advance  in California in 1994, and has offered the service in the 24 states where it has branches for about 10 years.

"We do several things to make sure our customers understand this is an expensive form of credit," she said. "...We try to educate customers to consider lower cost forms of credit."

On Wells Fargo's Web site, there is a warning and a link to other Wells Fargo lending products.

"It not intended to solve someone's credit issues. It's meant to get people through emergency situations ... to help customers who are in a financial pinch"

She defended the bank's stated 120 percent APR, saying Wells performed the calculation "according to federal regulations for an open-ended line of credit."

But Saunders warned that consumers who borrow using direct deposit advance services might not realize how quickly they can dig themselves into a hole.

"Remember, that next direct deposit to the account could be a Social Security check or an unemployment check, money that's protected from debt collection, targeted at core necessities like food. But in this case, the banks get first crack at it," she said. "These could be worse than payday loans."

If for some reason, consumers do not make a new deposit to cover the cost of the borrowed amount, banks will pull the funds directly out of consumers' checking accounts on the 35th day.  If the money is not there, consumers could be hit with a double-whammy of high-interest borrowing and overdraft fees, Fox warns.

"If a borrower is unable to repay a $100 checking account advance at U.S. Bank within 35 days, the bank collects $10 for the initial advance, the bank's $37.50 maximum overdraft fee, and $8 every day after four days that the account remains overdrawn and the loan unpaid," she wrote in a recent report. "If the loan is not repaid until 7 days after the due date, the borrower would have paid $71.50 for a 42-day $100 loan.  That comes to roughly 621 percent APR if calculated as a closed-end payday loan would be."

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I call them Dear John data letters, because of the bad news they bring and their decidedly warm and fuzzy tone.

"Dear Consumer.  We've lost your personal information. It's fallen off a truck/was on a laptop that was lost/was stolen by a hacker. We're sorry and we promise to be better in the future. Good luck."

About one in nine consumers receives a Dear John data letter each year, and nearly half of all consumers have received at least one since the year 2000, when California law forced these kinds of disclosures on corporations and government agencies, according to a new study.  The letters have become so familiar that many folks just ignore them and relegate them to the junk mail heap. But that's a big mistake.  That same study shows consumers who receive such a notice are four times more likely to be hit with identity theft than members of the general population.

In fact, U.S. adults who get a Dear John data letter have a one in five chance of being victimized in the next 12 months, according to the survey, conducted by financial services research firm Javelin Research.

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The researchers have concluded that consumers don't take the notices seriously enough. Even after they are victims of ID theft, most consumers don't blame the company for the leaked data. While 19.5 percent of those who received a fraud letter were victims of ID theft, only 2 percent linked the crime to the data leak, according to study author Mary Monahan.

"People don't connect the dots," said Monahan, Javelin's research director. "They don't understand the risk. ... People don't even seem to understand what the letters mean."

The results are consistent with previous research showing consumers don't react strongly to the announcements. In fact, the vast majority don't even take up a company's offer of free services like credit monitoring as apology for the transgression. After the infamous Lexis Nexis data leak in 2005, 305,000 letters went out with offers of free credit monitoring. Only 18,000 consumers, or 6 percent, signed up. In a similar incident, after Citibank sent out 4 million letters after a data leak, only 4 percent signed up.

Those results show consumers just aren't being helped by the notification letters, Monahan said.

"The letter is made so the consumer will take action, but the notification is not working because it's not clear enough, consumers don't understand and it's putting them at risk for fraud," she said. "This calls into question the effectiveness of the data breach notification laws in 45 states, as well as consumer education around data breaches in general."

It might be an oversimplification to simply declare consumers lazy, however.  The quality of the letters varies widely.  Some appear like urgent government notices. Some are easily-missed one-page letters in thin envelopes. Most have scant details, and don't tell consumers how their data was lost, or in some cases, even what specific data was put at risk.

(We argued for better Dear John data letters last year.)

The quality of free credit monitoring offers also varies.  In many cases, the offers are thinly disguised marketing schemes for $10-a-month monitoring services offered by the nation's credit bureaus. Sometimes, the free offer is more like a free trial of three months, following by automated enrollment in the subscription program.  

And there might be another reason: previous research, including one report by Javelin, suggested there was little connection between data breaches and identity theft. Monahan said improved research techniques account for the new finding.

With all these factors conspiring to lull consumers into ignoring the notices, a real opportunity to stem identity theft crime is being lost, the Javelin report concludes.  Timing is critical for consumers who are victims.  Those who discover the crime quickly have a far easier time cleaning up the mess than those who are in the dark for four or five months. According to the survey, victims who take up to five months to detect fraud suffer nearly three times the average consumer cost in lost time, wages and other expenses ($933) as those who discovered fraud within one day ($323) and double the cost of those who discover it in a week ($484).

Still, most consumers are befuddled when they get a Dear John data letter. They don't know which agencies to call, how to place credit freezes on their reports or the odds that they will become identity theft victims.

 "Obviously consumers do need to have more guidance on what to do," Monahan said. "While the idea of notification is to provide an opportunity for consumers to take action, apparently they do not. This suggests that notification is not working."

Red Tape Wrestling Tips

A step-by-step list of "what to do if your ID is stolen can be found in this story.

And here's a what-to-do chart provided by Javelin:

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What if there were a way to have your credit card debt erased if you lost your job or became disabled? That's the pitch behind debt cancellation, a service offered by many credit card issuers and retailers.

Debt cancellation doesn't come cheap: it costs between $1 and $2 per $100 balance.  A consumer with a $3,000 balance, for example, could pay nearly $60 a month for debt cancellation service.

That might not sound like such a great deal, but thousands of consumers sign up anyway. Why? One telemarketer who sells the service told msnbc.com recently that there's only one reason: Sellers intentionally confuse cardholders about the programs and their costs.

"I hate flat-out lying to someone, but that's exactly what we do, 150 calls a day," said the telemarketer, who requested anonymity out of fear of losing his job.  "I have seen so many people ripped off that I had to attempt to let people know."

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He works in tiny Pennington Gap, Va., a small Appalachian town near the Kentucky border that's been hit hard by the economic downturn.  But he works for some of the biggest firms in America. For the past year, the telemarketer has sold debt cancellation for Macy's retail credit cards issued by Citigroup, working for a third-party firm named Aon Integramark, which contracts work to a local firm, the Kavanaugh CallCenter Group.  Aon is one of the world's largest insurance firms, with 37,000 employees and 500 offices in more than 120 countries. It insures nearly everything -- from Hollywood movies to container ships – and markets debt cancellation programs to credit card issuers through its Aon Integramark division.

"Are you realizing the power of debt cancellation?" the firm asks of banks and retail stores on its Web site. "These programs provide lending customers with new power and control over their finances -- especially in tough times that can affect anyone."

Quietly, a huge industry
Debt cancellation is a large and profitable business for credit card firms and retailers who issued private-label credit cards.  In 2003, the Center for Economic Justice estimated that consumers paid $2.5 billion in fees for such programs, but card firms paid only $125 million in benefits. In other words, the issuers kept nearly 95 percent of the premiums paid.

In standard insurance products, firms pay out about 80 percent of the premiums they collect.  The enormous margins in debt cancellation are possible because the programs are not considered insurance and are not regulated as insurance products, thanks to a 1986 Circuit Court ruling. 

Few financial products are more profitable than unregulated insurance products, and the bonanza that is debt cancellation (sometimes called debt suspension) have led to aggressive sales techniques for the products. Those have been redoubled during uncertain economic times.

Debt cancellation – and its predecessor, credit insurance  -- has a soiled reputation. The Internet is littered with complaints from consumers who say they were signed up for the service and billed hundreds of dollars without their consent.

In 2006, Red Tape readers were first introduced to the problem by Steve Monteith, a reader who purchased a new flat-screen television at Best Buy using a familiar "Same as Cash" program. He ended up getting a surprise bill for $472, thanks to his unwitting enrollment in a debt cancellation program.

Now, thanks to the telemarketer who came forward to describe what he calls unfair sale tactics, msnbc.com can offer insight into why consumers keep falling for the same tricks.

Sounds like it's free
The telemarketer's job may be unsavory, but the call center pays $8.75 per hour – an offer that's hard to refuse in an area where minimum wage is standard for many employers.  When openings occur, applicants go to great lengths to land one of the jobs, he said.

"Before the minimum wage went up, this was by far the best-paying job in the area," he said.

The power of the debt cancellation pitch lies in the presentation, said the telemarketer.  The first lie, he said, is the price. Scripts handed to phone operators there have been carefully worded to make the program sound like it's free. Here's what the script provided to msnbc.com instructs telemarketers to tell customers:

"The cost is only $1.89 per $100 of the outstanding account balance shown on your statement at the end of a billing period and best of all, there is no charge when you don’t have a balance shown at the end of a monthly billing period." That assertion is repeated later: “And remember, if you have no outstanding balance at the end of the month, there is no charge. “ 

That's deceptive, the telemarketer said, because consumers who pay their balance on time every month are left with the impression that the debt-cancellation service will be free.  It's not.  Re-read the cost description.  The cost is computed when the billing cycle ends and a bill is generated, not after consumers pay their bills. That means consumers who initiate any charges during a month will have to pay for the service. There is no "grace period" for debt cancellation, and even if there are no finance charges, there are debt cancellation charges.

"This information is not told to the customer," the telemarketer said. "They are only told what I quoted above. If the customer asks, 'Well what if I pay off my balance every month?' we are told to just read the 'cost of program' script again, and hope they don't ask any more questions."

His assertion of confusion seems to be backed up by another portion of the telemarketing script which anticipates consumer frustration on this point.  If a consumer asks, "I Thought There Was NO Cost, Since I Do/Did Not Carry a Balance?" the operator is told to answer, "You are correct; your Macy's account will be billed for the Credit Protection program fee only when you have a balance on your account at the end of a monthly billing period.

Those who do probe deeper and manage to get an accurate sense of the program's true costs rarely sign up for the service, he said.

"Only 1 out of 50 who find out all the details actually sign up," he said. "Deception is essential to our sales."

Macy's: 'Neither misleading nor ambiguous'
Beth Charlton, a spokeswoman for Macy's, confirmed the scripts shared with msnbc.com were authentic.  But she defended the sales pitch and disputed the employee's assertion that it was deceptive, saying the scripts are "neither misleading nor ambiguous."

"You are confusing payment with charges," she said.  "It seems that your informant confuses the concepts of payment in full, no balance carried forward with the concept that even if the consumer pays in full each month, if she makes new charges, a new outstanding balance is created for which a fee will be assessed." 

She also said debt cancellation fees are clearly listed on credit card statements, so consumers should not be confused about the cost of the product.

Aon Integramark CEO Steve Williams said he could not speak directly about Macy's customers because of confidentiality agreements, but he agreed to discuss Aon's debt cancellation business in general.  He said his firm went to great lengths to make sure consumers were treated fairly.

"The level of disclosure on these programs is incredible," he said. "There is a tremendous amount of oversight in these programs."

Among other safeguards, calls are regularly monitored both by Macy's and by an independent third party to make sure consumers are fairly treated, he said.

When asked about possibly ambiguity about the terms, and about possible confusion over when there is no charge for the product, he said: "Frankly, this concept is not hard to understand."

Williams also said there are liberal refund policies for the debt cancellation service, some as long as 90 days. So even if consumers are initially confused, they can easily reclaim their money, he said.

"Our business rules are we don't want to irritate our customers," he said. "We face penalties if we do something wrong. We have millions of customers and (if there's a complaint) there is a major fire drill to find out what happened, and we submit a detailed report to our client. The last thing we want to do is have a problem with consumer.  If we ever did anything knowingly deceptive, we would be out of business with the level of monitoring that goes on."

Requests for comment from Kavanaugh CallCenter Group went unanswered.

Punishment is severe
The telemarketer said he is closely monitored while on the job, and penalties are severe for straying from the script.  On second offense, a sales rep will be suspended without pay for three days. A third offense results in firing, he said.

"There are new classes all the time, there are always people lined up for our jobs," he said. "But the turnover rate is unbelievable, too. ... There's only two people left from my original class of 12."

The telemarketer said he is required to close four sales per 100 calls, leading many operators to resort to ever more persistent and aggressive tactics. But most consumers who fall for the pitch are either poor or elderly women, he said.

 "Honestly, the little old ladies are the people who buy the most," he said. "What if it was you mother daughter or calling, would you want them to be lied to?"

A quick Internet search unearths a myriad of complaints against Aon and Macy's. Some are related to unwanted calls from Aon sales staff pushing debt cancellation; others say they were signed up for the service against their will.

"It just sneaked a charge into my Macy's bill," reads one account. "Before that I had no idea that I 'bought' a credit protection plan that I never wanted at all. … This is just outrageous!"

The telemarketer did not blame Macy's for what he called deceptive sales tactics.  He said the firm routinely listens in on what it thinks are randomly selected phone solicitations. But the calls actually are orchestrated so Macy's officials don't hear the deceptive tactics practiced at the call center, he said.

"I would not be surprised if some of (Macy's) surprise is genuine," he said. "We hide the stuff we're doing from Macy's.".

Other assertions he made about the Macy's program, which he called unfair, included:

• Consumers are told they have 30 days to cancel the service and avoid any charges, but materials involving the cost of the program don't arrive for two weeks, limiting the amount of time consumers have to review their choice. Both Aon and Macy's denied this, saying the paperwork is sent within three days, as required by banking regulations.
• New Macy's cards arrive with a sticker urging consumers to call an 800 number, similar to stickers that urge new credit card customers to call and activate their accounts. But Macy's cards arrive pre-activated. Calls to the 800 number are simply routed to the telemarketing center for the debt cancellation service, confusing consumers. The scripts provided to msnbc.com suggest this is intentional, and include a response for the complaint "But I just called to activate my card." Charlton, of Macy's, said the sticker on the card clearly says "call … to hear about optional programs" and is not an activation sticker.
• There are complaints of repeated unwanted phone calls by Aon sales representatives.  Williams said his firm "would never want to call a customer twice. … It's expensive to call and it's a bad business move."   Charlton there were no federal Do Not Call violations, because the firm is allowed to call cardholders with offers because it has an existing business relationship with them.

Red Tape Wrestling Tips
It's hard to imagine a situation where debt cancellation is a good deal. Other forms of insurance are cheaper and will also pay your bills in some situations.

While debt cancellation isn't viewed as insurance by regulators, it's essentially the same type of product.  And as with any insurance, you never know what you have until you have to make a claim.  Debt cancellation claims can be a hassle. Firms often require tedious amounts of paperwork and require that consumers be out of work for at least 90 days before they receive any benefit.

Pushy telemarketing isn't the only way debt cancellation is sold to consumers. Store clerks sometimes fill out credit applications at cash registers for consumers, and check a box automatically signing up the applicant for debt cancellation service. That's what Jamison Frady of Reno, Nev., said happened to him. He bought a television for $2,400 from Best Buy in 2008 using a "Same as Cash" program, and ignored his bills for about a year, as he had no balance due. Only then did he notice that Best Buy had enrolled him in a $20-per-month debt cancellation service provided by HSBC Retail Services – and he had racked up more than $200 in charges. When he complained, he received an e-mail from HSBC saying, "We would be more than happy to discuss the advantages of this program with you."

Consumers should always fill out their own credit card applications – even if there's a big line behind you at the store – and make sure the debt cancellation box is not checked.

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If you only have time to visit one new Web site this week, make it the new Google dashboard. Last week, the search engine behemoth announced the new feature, which helps Web users keep track of all the ways Google keeps track of them.

Visiting this single page gives Googlers centralized access to privacy settings on all the various Google applications -- Gmail, Calendar, Google Docs, YouTube, etc. That's important, because you might not realize that you opened a YouTube account four years ago and divulged your age or zip code -- and that now that information could be available to all other Google products, or even to other Google users.

"The scale and level of detail of the Dashboard is unprecedented, and we're delighted to be the first Internet company to offer this — and we hope it will become the standard," Google wrote in its announcement.

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You might think you already have a good grasp on what information Google has collected about you.  But given Google's dominance in search, and its ever-expanding reach into Web services, it's stunning to see all that information in one place.  Click, and I'll bet you'll be surprised.

Larry Ponemon, who runs privacy research firm The Ponemon Institute, said he thought Google Dashboard was a solid step forward for Web privacy rights.

"I'm pretty impressed with it," he said. "It's always interesting to see what a company knows about you. ... It does create more transparency for users."

As the search giant continues to push into more and more Internet fields, Google's privacy policies have increasingly been the target of government scrutiny, both here and abroad. Last year, the European Data Protection Working Party -- part of the European Commission -- published an opinion that search engines like Google should not store consumer information for more than six months.

Limited access
There are some severe limitations to Google's Dashboard, however. Most important: it doesn't provide any new access to Google's data mines.  Dashboard simply provides a single Web page that pulls all its services under one umbrella and makes it easier to find privacy settings and stored information. That's a good thing, but it does not provide new insights or new protections for Google users who were already careful with their settings.

The tool is also limited to information gathered on users when logged in to Google.  It doesn't give consumers access to information that might be tied to individual consumers in other ways -- such as searches associated with individual computer IP address or cookies. That means it falls short of being a true privacy tool, according to privacy rights advocacy group Consumer Watchdog.

"The dashboard gives the appearance of control without the actual ability to prevent Google from tracking you and delivering you to its marketers," said John M. Simpson, a spokesman for the nonprofit organization. "It doesn't reveal anything about what is at the heart of what I call Google's 'black box' -- what is associated with your computer's IP address."

Google addresses this concern on a page titled "Is this everything?" linked from the Dashboard. There, the firm explains that cookies and IP address tracking are intentionally kept separate from Google login accounts, so the information is not displayed on the Dashboard.

"We anonymize this … data by removing part of the IP address (after 9 months) and cookie information (after 18 months)," the firm says.

But Simpson said failure to include that information on the Dashboard tool severely limits its usefulness.

"A true privacy control would enable you to delete all that information and opt out," he said.

Simpson also criticized Google for not including another new privacy setting on the dashboard page -- Google's "Ad Preferences" tool.

Google tracks users, places them into categories based on interests (such as 'current events' or 'science') and serves up targeted advertisements near search results based on those categories. The firm now makes the list of categories available to each user on its Web site, and it’s another page all Web users should visit.

Users can add or remove categories, or they can opt out of the system entirely.

"They have been citing that as another privacy initiative, so why isn't that part of the Dashboard?" Simpson asked.

It's not easy to find Dashboard on Google's home page. Users must glance atop the page and click on settings, then Google Account Settings, and then "View data stored with this account." Direct links to google.com/dashboard also work.

Still, even Simpson concludes that Google's dashboard makes the firms privacy efforts "better than any of the other online providers."

Most are complacent
It's unclear how many users will find Google Dashboard useful, or will spend time tweaking their privacy settings.

Ponemon, the privacy researcher, said studies consistently show that while 70 percent of Americans say they care deeply about privacy issues (the other 30 percent are considered "privacy complacent") only 8 percent of the population cares enough to actually change their behavior out of privacy concerns.  So while most people say they are uncomfortable that a supermarket has their home phone number, only 8 percent decline to sign up for a loyalty card -- or take some other step, such as lying on an application -- out of privacy concerns.

Still, tools like Google Dashboard might help change that -- or at least get more people talking and thinking about privacy issues, Ponemon said.  He thinks every Web user should visit the Google Dashboard and click around, just to get a broad sense of the information that's been collected by the firm.

"It's pretty helpful for people to see it," he said. "People really might be surprised that Google has this much information."

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Click on a weight-loss, work-at-home or acai berry ad and you're likely to land on what looks like a blog or discussion board. Regular folks appear to be debating the merits of the product – you might even see some contrary opinions. But in the end, the bloggers and their readers always win over the skeptics and persuade them to buy the product from a convenient nearby link.

Welcome to the "fakeosphere." Internet marketing veteran and analyst Jay Weintraub says fake blogs – or flogs – fake news sites and manufactured testimonials are the fastest-growing segment of Internet advertising. He thinks it's a $500 million-a-year industry – and he compares it to the explosive growth of spam a decade ago.

"I don't think people realize how big this has become, and how quickly," said Weintraub, adding that a popular top flog campaign can generate 10,000 daily sales.

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That growth might be quickly stunted, however, with recent word from the Federal Trade Commission that fake testimonials from consumers – including fake blogs -- violate federal advertising laws. Weintraub thinks a crackdown may be coming. Already, the state of Illinois has sued a series of Internet marketers for allegedly fraudulent social marketing campaigns.

How does the fakeosphere work? Here's one example tracked by msnbc.com.

Starting in September, visitors to many newspaper Web sites in the Northeast were confronted by an unexpected pop-up ad.  A Web site named WebAnswersPro.com interrupted their surfing, displaying what seemed to be an open debate about a get-rich-quick product named the Google Wealth Connection. The entry began with a question from an apparently curious user about the service's claims that participants were earning up to $4,800 a month. An apparently spirited conversation followed, with some posters questioning the service while others shared their personal success stories. One attractive poster even claimed the site helped her pay for college.

"You've convinced me! I just ordered my Google Wealth Connection kit. I will report back with the results later," concluded user marie09.

WebAnswersPro.com, which displays comments like a typical blog, mimics question-and-answer services like Yahoo Answers. Its creators went to great lengths to make it appear like any other Web discussion service -- there's even an advertisement for Dish Network alongside.  That ad, however, is not linked to anything.  In fact there is only one active link on the site, and there's only one question answered on the service. All roads lead to the Google Wealth Connection.

While individual posts on WebAnswersPro appear to be from random Internet users, repeat visits to the site suggest the conversation is manufactured: After one month, marie09 has failed to report her success or failure to the group. In fact, the conversations remain identical, except for one element: the time and date stamps had been updated to make it appear as if the discussion is only 24 hours old.

Nevertheless, the technique is apparently successful in generating traffic.  WebAnswersPro went from essentially zero traffic to hundreds of thousands of daily visitors within a single month, according to Quantcast.com, an Internet metrics service.

Following the link on WebAnswersPro brings users to a site named SimplePaycheck.com, where visitors are invited to sign up for a $60-per-month service called MyMoneyPlan that offers tips on search engine marketing.

E-mails sent to SimplePayCheck.com drew no response and calls to the customer service telephone number on the site went unanswered.

Google, in a statement provided to msnbc.com, said it was "not affiliated" with the site and has discussed abuse of its brand name with various federal agencies. The firm has also posted advice for consumers on its blog.

Google is hardly alone, however. Nearly all major media firms and many popular TV stars – NBC, CNN, Oprah Winfrey, Rachel Ray, to name a few -- have seen their names and logos plastered all over the fakeosphere.

FTC investigating
Last week, as part of its new guidelines aimed at blogs and Web advertisers, the Federal Trade Commission issued a warning about the use of fake customer discussions. The agency's advertising bureau chief, Mary Engle, would not discuss WebAnswersPro or any other specific advertisement, but she told msnbc.com that the agency has "non-public investigations under way" in the area.

The Internet has spawned hundreds of new advertising forms, giving the FTC a regulatory headache.  One person's clever viral marketing campaign might be another's unfair and deceptive advertising practice.  Employees pretending to be satisfied customers on blogs is illegal; but what about free coupons that go to independent bloggers who genuinely like a product and say so on their Web site?

The new guidelines generated controversy among vocal bloggers, who feel it might unfairly curtail their still-evolving business models.

But Engle says there's not much vagary around the use of fictional conversations presented as the Web chatter of real consumers.

"Advertising always has to be clear that it's advertising," she said.  "An ad disguised as a blog, or a blog where companies get people to pose as satisfied customers and write reviews, both are deceptive."

Further, she said, the FTC's endorsement guidelines require that any claims made by happy customers must represent "honest opinions and beliefs," and must be verifiable.

Earlier this year, msnbc.com's Herb Weisbaum reported on several alleged scams involving online money-making schemes.

Fake blogs have a long and unsavory past. Back in 2005, an advertising group called Commercial Alert asked the FTC to open an investigation into the practice. (PDF)

In 2006, a free-lance writer and a professional photographer traveled the country in an RV, writing a blog called "Wal-Marting Across America" that painted the retail chain in glowing terms.  The firm was embarrassed when bloggers reported that Walmart helped subsidize the trip. 

Flogs: The 'missing link'
The "flog" technique has largely been abandoned by larger firms, but it found strong footing early this year among former spammers and other niche Web marketers, according to Weintraub, the Internet marketer.

“It turned out to be the missing link for a lot of them,” he said.  So-called performance click marketing, which requires consumers to click through an advertisement and spend money, has notoriously low success rates.  Surprisingly, inserting an extra step into the process – fake testimonials and blogs – dramatically improves conversion, he said.

"Fifteen years people have been trying to market online, this proved to be key," he said. "The biggest difference is that somebody realized that blogging as a medium had seeped into consciousness and become like TV news, had become a trusted source. The average person doesn't realize blogging can be easily manipulated."

The fakeosphere, however, has begun to attract attention from regulators and big brands.  In August, Illinois Attorney General Lisa Madigan sued three firms selling acai berries in connection with a weight-loss advertisement.  Two are accused of fraud – tricking consumers with free trial offers that turn out to be costly -- while the third is accused of false advertising and false endorsements through a social networking campaign.

 Madigan's office teamed up in the investigation with Oprah Winfrey's Harpo Productions, which also filed a series of lawsuits – many alleging that the berry ads implied that the daytime TV star endorsed their product.

"We must hold these Internet scammers accountable for their role in a seedy marketing game that steers unsuspecting consumers to online schemes," Madigan said. "We also need to send a clear message to other marketers and networks in the business of designing misleading, traffic enticing schemes."   

Why it works
If it seems like fakeosphere ads appear all over the Web – even on news sites like msnbc.com – that's because they do. Individual media companies don't do business directly with acai berry retailers and the like. Instead, advertising networks like AdBlade, AdSonar, Pulse360 – which supplies ads for many popular Web sites, including msnbc.com -- and others make arrangements with hundreds of Web sites to fill unsold ad space with what are sometimes called "remnant" ads. The complicated arrangements often make quality control difficult, allowing firms that place deceptive ads to fly under the radar for weeks or even months.

"We object to 'fakeosphere' or similarly deceptive ads appearing on our site," said Kyoo Kim, msnbc.com's vice president for sales. "When we see such ads, or they are called to our attention, we contact the ad networks distributing them, which have been responsive in taking them down.  Both we and the ad networks have a vested interest in stopping the proliferation of ads that undermine the value of legitimate messages from legitimate companies."

A slump in Internet advertising has also played a role in the fakeosphere explosion, Weintraub said, as the level of unsold ad inventory has grown and prices have dropped.

Some have likened the fakeosphere to "advertorial" campaigns – special sections that look like editorial content, but are created by advertisers -- that are now familiar in local newspapers. These sections must be labeled as ads, and cannot contain false claims or fake endorsements.

Some ads in the fakeosphere look exactly like advertorial content and include clear labels. But others include dozens of manufactured testimonials or comments from imaginary blog posters. Many such sites include disclaimers in an apparent attempt to stay on the right side of the law.

"This Web site, and any page on the Web site, is based loosely off a true story, but has been modified in multiple ways, including but not limited to: the story, the photos and the comments," says one site. "Thus, this blog, and any page on this Web site, are not to be taken literally or as a non-fiction story,"

It's unclear if such disclaimers are enough to avoid the FTC's ire; the agency won't comment on individual advertisements, but in general, such disclaimers must be deemed "clear and conspicuous" by the agency.

Weintraub thinks there' s no way such disclaimers, which often appear in light grey type at the bottom of page, will ward off federal investigators.

"They are a ridiculously lame attempt to get marketers out of trouble," he said.

Ultimately, he's worried that Web marketers who aggressively push fake blogs and fake sites will ruin what could be an effective and creative advertising arena.  With clearer disclaimers and real testimonials, Web landing pages could become the infomercials of the Internet, perhaps spawning a digital-age Billy Mays.  Instead, they are quickly gaining a reputation as the seediest side of the Web, he said.

"At a time when people are really trying to save their money they are leveraging trust and abusing trust," he said. "They have killed the golden goose before they can even lay an egg … potentially killed off this new form of advertising."

Red Tape Wrestling Tips
Sticks and stones can break bones, but words never cost money.  Fake comments, by themselves, are no big deal, other than the fact that they cheapen legitimate Web comment threads like those that appear on the Red Tape Chronicles.  The real worry for any consumer is that clicking on such an ad may entice someone to fork over a credit card number to an unsavory company.  The end game for most of these sites – no matter what they sell – is to persuade a consumer to sign up for a "free" trial of a product, then make it incredibly difficult to cancel before the trial period ends.   A similar technique, Engle warns, is to offer a free product and charge a Web user a token shipping and handling fee, just to get the consumers' bank account information. Larger charges soon follow.

"Consumers need to be very wary of these offers, and of giving away their credit or debit card numbers" Engle said.  Anyone who feels they've been cheated should report the Web site at FCC.gov or 1-877-FTC-HELP.

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