FTC alleges fraudsters used Walmart’s money transfer services to bilk consumers

July 4-10, 2022

By The Daily Record staff

The Federal Trade Commission (FTC) on June 28 sued Walmart for allowing its money transfer services to be used by fraudsters, who fleeced consumers out of more than a billion dollars in a long-running scheme dating back more than a decade.

In its 59-page lawsuit, found here: https://www.ftc.gov/system/files/ftc_gov/pdf/1823012WalmartComplaint.pdf, the FTC alleges that for years, the company turned a blind eye while scammers took advantage of its failure to properly secure the money transfer services offered at Walmart stores. 

The company did not properly train its employees, failed to warn customers, and used procedures that allowed fraudsters to cash out at its stores, according to the FTC’s complaint. The FTC is asking the court to order Walmart to return money to consumers and to impose civil penalties for Walmart’s violations.

“While scammers used its money transfer services to make off with cash, Walmart looked the other way and pocketed millions in fees,” said Samuel Levine, director of the FTC’s Bureau of Consumer Protection. “Consumers have lost hundreds of millions, and the Commission is holding Walmart accountable for letting fraudsters fleece its customers.”  

Walmart’s response

However, in a long response on the company’s website, Walmart said the FTC’s civil lawsuit “is factually misguided and legally flawed.” Instead, Walmart said since it began offering customers flat, low fee money transfer services at their stores, the company has saved consumers—particularly the unbanked and underbanked— an estimated $6 billion in fees by bringing important competition to the money transfer industry.

“In fact, it was approved by the FTC by the narrowest of margins after Chair Lina Khan refused Walmart the due process of hearing directly from the company, and then the Department of Justice refused to take this case to court,” stated Walmart. “Despite the fact that the Justice Department took a pass on this lawsuit and two of the FTC’s own Commissioners voted against it, the FTC has unfortunately chosen to pursue a misguided lawsuit that distorts existing law by attempting to hold Walmart strictly liable for the wrongdoing of third-party criminals, despite all our efforts to stop fraudsters.

“Walmart will defend against this lawsuit aggressively,” stated the Bentonville retail giant.

In addition to its retail business, Walmart offers financial services to consumers in its stores, including money transfers, credit cards, reloadable debit cards, check cashing, bill payments and more. Walmart acts as an agent for multiple money transfer services, including MoneyGram, Ria and Western Union, offering some services under its own brand, like “Walmart2Walmart” and “Walmart2World.” According to the complaint, tens of millions of money transfers are sent or received at Walmart stores each year, where they are processed by Walmart employees.

Money transfers are services that people use to send money to a recipient in another location. They are frequently used by fraudsters across a wide variety of scams because they are nearly impossible to retrieve after the money has been picked up. The FTC has brought multiple cases against money transfer services in recent years, including against MoneyGram and Western Union, alleging they failed to protect consumers who used their services.

In its lawsuit however, the FTC said Walmart’s practice of turning a blind eye to fraud had grave consequences for consumers, according to the complaint. The complaint cites numerous instances in which law enforcement investigations found that scammers relied on Walmart money transfers as a primary way to receive payments, including in telemarketing schemes like IRS impersonation schemes, relative-in-need “grandparent” scams, sweepstakes scams and others.

Based on information from fraud databases maintained by MoneyGram, Western Union and Ria, from 2013 to 2018 more than $197 million in payments that were the subject of fraud complaints were sent or received at Walmart, with more than $1.3 billion in related payments also possibly connected to the fraud.

The FTC’s investigation of Walmart’s money transfer practices showed, according to the complaint, that Walmart knew about the role money transfer services play in scams and frauds. Despite that, the company’s money transfer services harmed consumers in numerous ways, including:

Allowing the payout of suspicious transfers: For years, according to the complaint, it was Walmart’s stated policy for its employees to issue payouts even in the case of a suspicious money transfer, making it easy for scammers to retrieve fraud proceeds at a Walmart location. The complaint cites a Walmart reference guide for employees that stated: “If you suspect fraud, complete the transaction.” Walmart did not begin training employees to deny fraudulent payouts until at least May 2017, but even then it provided this training only to employees at a limited number of locations.

Having no anti-fraud policy or an ineffective, poorly enforced policy: According to the complaint, despite offering money transfer services for many years, Walmart did not have a written anti-fraud or consumer protection program until November 2014. After that time, the complaint cites numerous instances in which Walmart failed to have an effective program or violated its own policies, as well as the policies of its partners, like MoneyGram, that were ostensibly in place to protect consumers from fraud.

Allowing cash pickups for large payments: The complaint notes that Walmart, unlike most other outlets where money transfers can be received, pays even large payments in cash. In addition, the complaint notes that scammers were often able to retrieve their payments from Walmart by using fake IDs. This made it an attractive option for fraudsters looking to conceal their identities.

Not providing materials to prevent consumers from sending fraudulent payments: According to the complaint, Walmart failed to display or provide required materials to consumers at many of its locations that could have warned them about potential frauds and stopped them from sending money to scammers. More recently, the company stopped using a paper “send form” that included important information for consumers to help them realize they may be making a bogus payment, replacing it with a printout that contains only small print warnings.

Failing to effectively train or retrain staff: The complaint alleges that Walmart’s training materials for the tens of thousands of employees who worked with money transfers was often contradictory or unclear. In many cases, employees who were authorized to handle money transfers as “backups” received no anti-fraud training at all or only limited training related to transfers. The complaint notes that in some instances Walmart staff were complacent or complicit in scams, accepting cash tips from scammers in exchange for processing fraudulent payments or being directly involved in the scams themselves.

Allowing money transfers to be used for telemarketing purchases: The FTC’s Telemarketing Sales Rule, since 2016, has prohibited money transfers from being used to pay for telemarketing purchases because of the high risk of fraud. But the complaint alleges that, for years, Walmart failed to take steps to comply with that provision.

The FTC’s vote to file the civil penalty complaint was 3-2, with FTC Chair Lina Khan and Commissioners Rebecca Slaughter and Alvaro Bedoya affirming the federal lawsuit. Commissioners Noah Joshua Phillips and Christine S. Wilson dissented. The FTC filed the complaint in the U.S. District Court for the Northern District of Illinois.  

Photo Caption:

In response to the FTC lawsuit, Walmart said it has a robust anti-fraud program to help stop third-party criminals who try to use money transfer services to commit fraud, and only a miniscule number of transactions are even alleged to be fraudulent.