FTC targets cash-reload code scams
Rule change would restrict use of recharge codes for payments
By Fred O. Williams | Published: May 21, 2013
It's the newest quick and convenient way to send cash -- convenient for fraudsters, that is, who collect fees for bogus job offers or lottery jackpots, then vanish without leaving a money trail.
The U.S. Federal Trade Commission Tuesday announced new restrictions on "novel payment methods" that phone and Internet scammers favor -- including cash reload codes, which are typically used to replenish prepaid cards.
The FTC's proposed changes to the Telemarketing Sales Rule will make it illegal for telemarketers to ask for payment using the cash reload mechanisms, along with other cash transfer methods.
"People are being asked to go down to the store and purchase a reload," said Karen Hobbs, an attorney in the FTC Bureau of Consumer Protection. "It is essentially cash -- there's no governance out there."
The scams start out like a regular cash reload transaction: A buyer goes into a store and pays the cashier for a reload product such as MoneyPak or REloadit. In exchange for cash, the consumer gets a piece of paper or plastic bearing a shielded code number that only the buyer can reveal -- often by scratching off a protective coating like those on lottery tickets. Once unveiled, the code number can be activated by the phone or Internet.
The code can be used to recharge a prepaid card, or send money to relatives. But when crooks gets involved, consumers are conned into giving the number to scammers, who can load the cash onto their own prepaid cards and withdraw the money from an ATM, anonymously and untraceably.
"This makes it difficult to identify or track down the perpetrator of the fraud and return funds to customers," the FTC's proposed rule states.
Cash reload mechanisms have become popular virtual deposit slips, allowing people without bank accounts to convert cash into digital form. In addition to leaving no link to the parties involved, reload codes are not subject to consumer protections that limit your losses from fraud in conventional bank and credit card transactions.
The rule change would also bar telemarketers from asking you to pay via remote check authorization -- where the recipient of funds uses your bank account information to create a check or electronic payment order. Also prohibited in telemarketing sales would be cash-to-cash money transfer services such as those from MoneyGram and Western Union.
Scammers have used the novel payment methods to collect more than $100 million in ill-gotten gains, the FTC's proposed rule stated.
In one example, the St. Louis Better Business Bureau has seen a rash of employment scams that used cash reloads to defraud victims. One Alton, Ill., man received a call about a supposed $17-an-hour cleaning job, and was told he needed to load $89 on a MoneyPak card to pay for a background check. After he gave the reload code number to the caller, the supposed employer disappeared.
"The scams tell you this is the best way to send money, that it's insured," said Bill Smith, investigator for the St. Louis BBB. Such untrue statements are part of the scam.
The untracked payments have been used in a wide range of cons, the BBB said, including supposed loan offers that require an advance payment of insurance. Hobbs at the FTC said that phantom debt collection fraudsters have also used cash reloads to shake down victims, threatening them with jail unless they paid the money immediately.
Other cash-based money transfers via services such as MoneyGram and Western Union can be similarly unprotected, but warnings about paying unknown merchants with those services have driven fraudsters to new techniques, Smith said. Both MoneyGram and Western Union have entered settlements with multiple state attorneys general that required them to set up anti-fraud programs and provide warnings to customers.
Public comments sought
The FTC will take public comments on the proposed rules until July 29. The rule change also broadens a ban against seeking advanced fees for so-called "recovery services," which promise to help victims recover funds they lost to fraud. The ban, which is currently limited to offers involving funds lost to a telemarketing transaction, would be extended to offers involving any transaction.
Warnings with REloadit already tell customers not to use the cash code to pay merchants. Green Dot, owner of MoneyPak, lists merchants on its website that are authorized to accept payment via cash code and warns against paying others via MoneyPak.
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