InfoBytes Blog
FTC sues national retailer for allegedly facilitating money transfer fraud
On June 28, the FTC filed a complaint against a national retailer for allegedly allowing its money-transfer services to facilitate fraud. The complaint alleges the retailer knew about the role money transfer services play in scams but failed to properly secure the services offered at its stores, thus allowing money to be sent to “domestic and international fraud rings.” According to the FTC, at least 226,679 complaints totaling more than $197 million were received by several money transfer services companies about fraud-induced money transfers that were sent from or received at one of the retailer’s stores between January 1, 2013 and December 31, 2018. An investigation by the FTC purportedly revealed that the retailer’s practices allegedly harmed consumers by, among other things, (i) allowing the payout of suspicious money transfers, which allowed scammers to retrieve fraud proceeds at one of the retailer’s stores; (ii) failing to have in place a written anti-fraud policy or consumer protection program until November 2014; (iii) allowing cash pickups for large payments, often through the use of fake IDs; (iv) failing to display or provide materials warning consumers about potential frauds; (v) failing to effectively train or retrain employees; and (vi) allowing money transfers to be used for telemarketing purchases, which are prohibited under the Telemarketing Sales Rule (TSR) due to the high risk of fraud.
According to the complaint, the retailer “is well aware that telemarketing and other mass marketing frauds, such as ‘grandparent’ scams, lottery scams, and government agent impersonator scams, induce people to use [the retailer’s] money transfer services to send money to domestic and international fraud rings. Nevertheless, [the retailer] has continued processing fraud-induced money transfers at its stores—funding telemarketing and other scams—without adopting policies and practices that effectively detect and prevent these transfers.”
The complaint seeks a permanent injunction, monetary relief, civil penalties, restitution, and other relief for each violation of the FTC Act and the TSR. The FTC also requests the “rescission or reformation of contracts, the refund of money, the return of property, the payment of damages, public notification, or other relief necessary to redress injury to consumers damages.”
The retailer issued a press release following the FTC’s announcement, stating that it considers the agency’s claims to be “misguided and legally flawed,” and that the civil lawsuit “was approved by the FTC by the narrowest of margins after Chair Lina Khan refused [the retailer] the due process of hearing directly from the company.” The retailer noted that the FTC’s decision comes after DOJ declined to pursue the case in court. Among other thing, the retailer contended that because it maintains robust anti-fraud measures there is no need for injunctive relief requiring the retailer to change its practices. The retailer pointed to the U.S. Supreme Court’s ruling in AMG Capital Management LLC v. FTC, which limited the FTC’s ability to obtain monetary relief in federal court (covered by InfoBytes here), to argue that the FTC “pivoted their focus in this case after AMG to a distorted interpretation of the TSR to effectively try and hold [the retailer] strictly liable for money transfers that third-party criminals reportedly persuaded some consumers to send.” The retailer added that “[s]witching their main legal theory to the TSR is an obvious attempt to get around the Supreme Court’s ruling in AMG.”