MoneyGram International Inc., a large money transfer service, will pay $18 million in consumer redress to settle Federal Trade Commission charges that the company allowed its money transfer system to be used by fraudulent telemarketers to bilk U.S. consumers out of tens of millions of dollars, according to the FTC.
The company will also have to implement an anti-fraud and agent-monitoring program, the FTC noted.
The Commission charged that between 2004 and 2008, MoneyGram agents helped fraudulent telemarketers and other con artists who tricked U.S. consumers into wiring more than $84 million within the U.S. and to Canada – after these consumers were falsely told they had won a lottery, were hired for a secret shopper program, or were guaranteed loans.
The $84 million in losses is based on consumer complaints to MoneyGram. Actual consumer losses likely are much higher, according to the FTC.
The FTC charged that MoneyGram knew that its system was being used to defraud people but did very little about it and that in some cases its agents in Canada actually participated in these schemes.
Specifically, MoneyGram knew, or avoided knowing, that about 131 of its more than 1,200 agents accounted for more than 95% of the fraud complaints it received in 2008 regarding money transfers to Canada; a similarly small number of agents was responsible for more than 96% of all fraud complaints to the company in 2006, according to the FTC.
Minneapolis-based MoneyGram operates through a worldwide network of approximately 180,000 agent locations in 190 countries and territories, continued the Commission.
In its complaint, the FTC charged that in recent years this network has increasingly been used by telemarketing scammers to prey on U.S. consumers. Con artists prefer to use money transfer services because they can pick up transferred money immediately, the payments are often untraceable, and victimized consumers have no chargeback rights or other recourse.
In many of the scams that used MoneyGram’s money transfer system, the con artists used counterfeit checks to induce consumers to send money back by wire transfer. The most prevalent of these scams were lottery or prize schemes in which consumers were told they had won thousands of dollars and just had to pay a fee for “taxes,” “customs,” or “insurance” to a third-party to collect their winnings, according to the FTC.
Consumers paid the fee using MoneyGram, but received nothing. In another scheme, telemarketers told consumers they were guaranteed loans, regardless of their credit score. All they had to do was pay “insurance,” “paperwork,” or “processing” fees to complete the transaction. Consumers who sent funds using a money transfer service got nothing in return, according to the FTC.
In mystery shopping scams, the con artists called U.S. consumers or sent them a piece of direct mail in which they claimed to be hiring consumers to visit stores such as Wal-Mart to evaluate MoneyGram money transfer operations, according to the FTC.
The alleged con artists sent consumers a cashier’s check, telling them to deposit it in their checking account and then send most of the money back using a money transfer at Wal-Mart. When the counterfeit checks bounced, consumers realized they had lost the money they transferred. By this time, however, the money transfer agents had already received and paid out the money, often either without checking IDs or by using fake drivers license information, according to the FTC.
The FTC’s complaint alleges that MoneyGram ignored warnings from law enforcement officials and even its own employees that widespread fraud was being conducted over its network, claiming that proposals to deal with the problem were too costly and were not the company’s responsibility.
The company even discouraged its employees from enforcing its own fraud prevention policies or taking action against suspicious or corrupt agents. Some employees who raised concerns were disciplined or fired, the FTC charged.
The settlement bars MoneyGram from knowingly providing substantial help or support to any sellers or telemarketers that are violating the Telemarketing Sales Rule and requires it to implement a comprehensive anti-fraud program, according to the FTC.
Under the anti-fraud program, MoneyGram must conduct background checks on prospective agents; educate and train its employees about consumer fraud; institute agent monitoring; and discipline agents who don’t comply with the rules, according to the FTC.
The order also requires MoneyGram to provide a clear and conspicuous fraud warning on the front of all its money transfer forms. The order’s conduct provisions apply to all MoneyGram money transfers sent worldwide from either the U.S. or Canada, according to the FTC.
