Quantcast

COOK COUNTY RECORD

Friday, April 26, 2024

FTC pushes back on Walmart's attempt to end civil action over money transfer fraud

Lawsuits
Walmart 2

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

The Federal Trade Commission is pushing back on Walmart’s efforts to convince a federal judge to dismiss a lawsuit the retailer says is “an egregious” attempt to hold the company liable for the actions of scam artists who committed fraud using the company’s money wiring service.

On Oct. 5, FTC lawyers filed a motion opposing Walmart’s Aug. 29 request for U.S. District Judge Manish Shah, in which Walmart said the FTC’s complaint 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.”

At issue are Walmart’s money-transfer services offered for more than a decade through MoneyGram, Ria Financial Services and Western Union. The world’s largest retailer took credit for saving customers billions in fees by making the market competitive and 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.

In its new filing, the FTC alleged Walmart has known since 2010 that MoneyGram’s anti-fraud program was deficient, including through notification of a court ordered process reform process. The FTC entered a similar order against Western Union in 2017 — again with a copy served to Walmart — and modified its MoneyGram order in 2018.

“Despite these complaints and court orders against its money transfer service providers, Walmart, which is obligated to maintain its own anti-fraud program, still did not take basic, critical steps and necessary precautions to prevent fraud-induced money transfers from being sent and received at its stores,” the FTC said. “To the contrary, Walmart even adopted practices that made it easier for scammers to obtain the fruits of their frauds through money transfers at its stores.”

Although Walmart’s motion to dismiss offered several examples of its anti-fraud procedures, the FTC alleged the company in 2015 instructed workers to complete transactions even if they “displayed obvious red flags of fraud.” The FTC said Walmart first instituted the policy without service providers knowing and then did so over objections from MoneyGram. The FTC also said Walmart “did nothing whatsoever to comply” with its 2016 ban on cash-to-cash money transfers in telemarketing transactions and only began complying at MoneyGram’s insistence.

Walmart’s motion said it processed almost 200 million transfer transactions from 2015 through 2020, 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.

But the FTC said Walmart is involved in more fraud-induced transfers than any other agent worldwide. Specifically, the agency alleged more than $197 million transfers that became the subject of fraud complaints from 2013 through 2018, plus an extra $1.3 billion in transfers the providers said were related to those complaints. The FTC also said some Walmart employees accepted cash tips for processing transfers linked to fraud or who let some customers use different names or identification cards in order to collect multiple transfers. Some Walmart stores, the FTC said, had fraud rates up to 75% of the total dollar amount transferred.

The FTC further argued its allegations against Walmart were materially identical to successful actions against MoneyGram and Western Union and detailed for Judge Shah the “many shortcomings” in both Walmart’s motion to dismiss and its corporate policies.

Targeting the company’s position that it is a passive intermediary in transfers, the FTC pointed to its 2016 Telemarketing Sales Rule amendment imposing affirmative obligations on business that process transfers “precisely because they are best positioned to stop pernicious telemarketing frauds from exploiting the particularly vulnerable payment mechanisms they operate” through the senders’ and recipients’ interactions with store employees.

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. But the FTC said the DOJ’s declination was a requirement enabling the FTC to pursue civil penalties.

The FTC also restated its position that “an injunction, monetary relief and civil penalties are necessary and proper.”

More News