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'Egregious overreach:' Walmart says FTC can't try to hold retailer liable for wire fraud by others

COOK COUNTY RECORD

Friday, December 27, 2024

'Egregious overreach:' Walmart says FTC can't try to hold retailer liable for wire fraud by others

Lawsuits
Walmart 2

Computermusic1999 (Nicholas Osorio), CC BY-SA 4.0 <https://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons

Walmart has asked a federal judge to agree the Federal Trade Commission has engaged in “an egregious ... overreach” by attempting to hold Walmart liable for the actions of scam artists who committed fraud using the company’s money wiring service.

In a motion filed Aug. 29, the retail giant said U.S. District Judge Manish Shah should dismiss an FTC complaint, which Walmart said is rooted in “the criminal actions of completely unrelated third-party fraudsters,” ignores Walmart’s “extensive efforts” to thwart such conduct and also alleging the FTC lacks “constitutional or statutory authority to bring its lawsuit.”

Walmart said it started offering money-transfer services through MoneyGram, Ria Financial Services and Western Union more than 10 years ago and took credit for saving customers billions in fees by making the market competitive. It further positioned itself like Western Union or the U.S. Postal Service — “overwhelmingly used for legitimate services even if scammers sometimes take advantage” — and said the scammers are the criminals, not the service provider.

According to the motion, Walmart processed almost 200 million transfer transactions from 2015 through 2010, and fewer than 0.08% were reportedly fraudulent. It described such instances as originating when one party pretends to be someone in need of quick cash, such as a grandchild needing bail money or a federal agent demanding back taxes, then requesting the victimized party send money through Walmart.

To combat such transactions, the company said it added customer warnings, employee training and blocking protocols, all on top of measures Western Union, Ria and MoneyGram installed. As of March 2019, Walmart instructed employees to cancel and report any transactions if a customer acknowledged they were trying to buy something a telemarketer sold.

“Yet the FTC is now engaging in post-hoc nitpicking of Walmart’s anti-fraud program to try to punish Walmart for the actions of the third-party criminals who Walmart actively tried to thwart,” the company said. “Because the FTC cannot point to a violation of any statute specifically regulating money transfer anti-fraud programs, its complaint resorts to the broad and amorphous language of Section 5 of the FTC Act, prohibiting ‘unfair’ conduct. The FTC also attempts to shoehorn this case into the Telemarketing Sales Rule, relying on a novel aiding-and-abetting theory at odds with longstanding common-law principles.”

Walmart noted FTC Commissioners Noah Phillips and Christine Wilson objected to initiating the action and pointed out the U.S. Department of Justice declined to pursue the issue for the FTC. It further contended the FTC doesn’t have full executive litigation authority, that the complaint fails to show how Walmart substantially assisted these illegal telemarketing transactions and also doesn’t “identify any public policy remotely on point, nor does it seriously assert that Walmart’s conduct — processing money transfers requested by customers — is immoral,” as would be required to bring an unfair act or practice claim.

“The complaint flyspecks the historical details of Walmart’s anti-fraud program,” the company said, “criticizing, for instance, the precise content of consumer warnings, the content and timing of employee trainings, and even the text of the buttons on Walmart’s electronic money-transfer interface.”

Furthermore, it said the complaint references no rule or law requiring or even mentioning any of the additional anti-fraud procedures the FTC accused Walmart of failing to activate.

Representing Walmart in the action are attorneys with the Chicago and Washington, D.C., offices of Latham & Watkins, as well as Jones Day, also of Washington, D.C.

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