The Secret Shoppers Quietly Enforcing Federal Law

How normal Americans have become an invaluable tool for exposing corporate malfeasance.

James Martinez knew the shop had gone bad as soon as his trainee started lunging at olive trays. She was supposed to be acting drunk, but not this drunk. An aspiring actress, she travelled to a bar in Albuquerque, New Mexico late that night with Martinez and a group of two dozen others.

The trainees weren’t actually drunk, but they wanted to convince the bartenders that they were. They were preparing to become researchers of the customer service industry—or, in the foreboding industry parlance, mystery shoppers—and Martinez was there to teach them the most authentic way to do it. He wanted them to capture a certain aesthetic: “I’ve been partying, I’m having a good time, I’m happy,” and not, “I’m just smashed, in any moment, I’m going to hit the floor.”

But this trainee bulldozed over that line. “She freaked out everybody behind the bar, she was way over the top, she was nervous,” Martinez told me. “And then, she turned on her heels and left.”

Martinez has come to expect wide-eyed reactions when people ask him what he does for a living. A 55-year-old resident of Albuquerque, he is—by the strictest definition—a researcher. Since 2006, he has worked with the Responsible Retailing Forum, a nonprofit that helps private retailers and regional governments to minimize alcohol sales to underage or overly intoxicated patrons. His official title is a “pseudo-intoxicated mystery shopper” trainer for RRF’s alcohol investigations program. In other words, his professional life is devoted to teaching acting students how to pretend to be drunk on the government’s dime.

Before that, he was a mystery shopper in his own right, starting in the late 1990s. Martinez has done business with everyone from the University of New Mexico to the Montana Alcoholic Beverage Control Division to the Department of Justice, all of which asked him to test whether and when bartenders would cut off his (fake) drinking as part of a larger effort to curb drunk driving in the U.S. “It’s wonderful to watch people’s faces when I tell them, ‘I act drunk in bars for fun, profit, and science,’” Martinez said.

Martinez’s job is less novel than you might think. Mystery shoppers—who are essentially fake consumers hired to evaluate services—span nearly every industry. They are most commonly deployed at restaurants, hotels, and retailers to conduct quality tests: mystery shoppers go through the motions of a regular consumer, then submit a report on what they experience.

But over the last couple of decades, government agencies at the state and federal level have quietly used mystery shoppers to achieve higher ends. They are now dispatched to uncover violations of specific regulations, often as a last resort to determine when companies flout laws and regulations around everything from serving alcohol to fair lending.

The Trump administration, however, has been unwilling to pay for any regulatory action, period. In 2018, it cut $23 billion out of compliance enforcement across a number of federal departments. But even in such an unsympathetic political climate, mystery shoppers offer a tantalizing service: an inexpensive on-the-ground way to figure out which companies are following the rules—and which are screwing over the American consumer.

The idea of mystery shoppers has long been lambasted on the right. When the New York Times uncovered a plan by Obama’s Department of Health and Human Services in 2011 to deploy undercover shoppers to doctor’s offices, Georgia congressman Tom Price, who later became Trump’s director of the Health and Human Services, said that the plan left doctors “wondering when Uncle Sam might be calling to spy on them.” A number of medical professionals compared the practice to “Big Brother.”

The actual text of the HHS proposal, however, was much less drastic than the reaction to it suggested. All HHS wanted was to hire mystery shoppers—ordinary Americans who had a few free hours and a hankering to make some extra change—to phone more than 4,000 doctor’s offices two times each. The secret shoppers would claim they had private insurance one of the times, and say they had Medicare or Medicaid the other. The Department of Health and Human Services was trying to see if government insurees received different treatment—and through an initiative that was projected to cost only $347,000 to reach 4,000 doctor’s offices. But under intense pressure, the Obama administration scrapped the plan.

And yet, mystery shoppers are deployed by numerous other government agencies to cheaply determine who is violating federal laws. The Department of Education spent $18,300 using them to investigate fraud in financial aid; the FTC set aside $103,000 so they could probe for violations of the Funeral Rule; and the Department of Veterans Affairs, which has one of the more extensive mystery shop programs, spent more than $2 million to examine patient wait times at its own offices. Once a significant problem for the agency, that issue has since been virtually resolved.

Typically, government agencies have outsourced the service by hiring mystery shop agencies—yes, such a thing exists—as private contractors to complete a given assignment.

It seems to have been effective. The Consumer Financial Protection Bureau, for instance, has hired mystery shoppers to test racial discrimination in the issuance of loans. Although the program is protected by non-disclosure agreements, a 2016 lawsuit revealed that the CFPB used secret shoppers to identify banks that repeatedly offered less favorable loan terms to black and brown mystery shoppers while steering white mystery shoppers toward longer-term, cheaper loans. As a result, the CFPB sued BancorpSouth for discriminatory lending practices, eventually winning a $10.6 million settlement.

Second To None—the agency that supplied mystery shoppers for the CFPB’s lending discrimination program—told me it is often fielding calls from government agencies inquiring about its services.

“We tend to work with these agencies on an as-needed basis,” said Jeff Hall, the company’s president. Second To None has also performed mystery shops for the Department of Education, the FTC, the Food and Drug Administration, and the Postal Service.

Hall oversees a roving group of private contractors anywhere from ages 12 to 79, all of whom are plugged into a database of nearly 400,000 shoppers. There is no single profile of a mystery shopper, according to Hall. Most are women, have graduated from college, and work a full-time job, but otherwise, they represent a smorgasbord of personalities and motivations. The only commonality between mystery shoppers who sign up to shop at restaurants, Hall said, is that those people often just want to get a free meal. “It’s a means of supplementing one’s income,” he said.

Hall only occasionally meets with his shoppers in person. When planning a new project with a customer, the company sifts through its database to narrow down potential shoppers by location, age, race, and gender. Then Hall sends them a series of training videos, and he attaches a list of questions they should ask. Not every job, he said, requires them to “change their personality.” Most of his contracts with federal institutions last for a period of three to six months. In that time, he sends off hundreds of shoppers to see which companies are compliant with the regulation or law in question.

The FTC has long deployed older mystery shoppers to pretend to shop for funeral services as a way to test its Funeral Rule. The 1984 regulation mandates that funeral homes provide grieving consumers an itemized list of prices—something the industry has had a historical aversion to disclosing—before selling a product.

“We do undercover shops to monitor compliance, and violators can be sued, or they can choose to go into our training program,” said Patricia Poss, who oversees the FTC’s Funeral Rule, referring to the agency’s “offender’s program” that works to get funeral homes complying with the statute.

Government-hired mystery shoppers have had their own legal complications. In 2015, the Wall Street Journal noted that the CFPB was briefly concerned that hiring mystery shoppers might violate the 1974 Privacy Act, which requires government agents to identify themselves when requesting information from members of the public.

Except mystery shoppers are not government employees. They are private contractors. According to Hall, the view that the Privacy Act might preclude mystery shop programs is not widespread: “We have not yet encountered an agency with that interpretation,” he said.

The image of a disparate group of Americans going into banks and asking for loans may not square with most people’s notion of how public policy functions, but in an era of winnowing regulatory budgets, these programs are a cheap and effective way to keep companies in check.

Martinez, for one, has dedicated most of his life to the job. Over time, he’s learned some tricks of the trade. Although most mystery shoppers are told to act like themselves, Martinez pushes a different mindset. To appear as drunk as possible without blowing their cover or overdoing it, he tells his students: exaggerate gestures and talk too loud. When ordering a drink, look at the bartender’s eyebrows instead of his or her eyes. Act a little sheepish, like you know you shouldn’t have another.

He has also learned to take precautions. When Martinez’s shoppers go out at night, they carry a folded up emergency letter in each of their pockets—a last resort in case a bartender won’t let them leave without securing a ride, or if he or she wants to call the police on them. The note says, “This person is not drunk, we’re doing research, we’re not out to bust someone.” Martinez said he’s only ever heard of shoppers whipping one out on a couple of occasions. But there are times when the assignment falls apart, and his shoppers have no other choice.

“We call this the get-out-of-jail letter,” he said.

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Michael Waters

Michael Waters is an editorial intern at the Washington Monthly and a student at Pomona College.