FTC Warns of Prepaid Card Scams

Anytime some new bit of technology or a new way of doing anything faster, better and more accurate comes along, there are countless folks on standby ready to take advantage of it. Prepaid debit cards are no different and the Federal Trade Commission is warning consumers of the latest tricks criminals pull to access your cash.

Wire Me Cash

It used to be that if we wanted to send cash (c’mon…you know you’ve wanted help out that African princess who’s trying to escape her brutal way of life if only she had one million of your dollars), we’d head to the local supermarket and send a Western Union or Moneygram. These days, though, there’s not much we can’t do online – including saving a country – or at least its princess. Unfortunately, there are those who are looking to collect “fees” to help you facilitate your transfer or to help you secure what’s been sent to you. It’s almost impossible for criminals to leave any kind of money trail; naturally, it’s becoming the crime of choice.

FTC Warnings

This week, however, the U.S. Federal Trade Commission announced its newly authored restrictions on “novel payment methods” that phone and Internet crooks often use and that includes cash reload codes, which are typically used to reload prepaid cards. These new restrictions and changes will affect the Telemarketing Sales Rule and will make it illegal for telemarketers to ask for payment using the cash reload mechanisms, along with other cash transfer methods. The rule change also bars 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.

The Crime

Here’s how it works – the crimes begin as a reload transaction for your prepaid debit card. The buyer goes into the store to buy or reload his prepaid card. Once he’s done that, he then scratches that silver barrier off the back that reveals the code. That code is the heart of the prepaid card. It’s used on the internet, it’s used to reload the card online if one chooses, and it’s used to send money to your teenagers away at college. It works flawlessly until a scammer contacts you and tells you he needs that code from the back of your card. Once he has it, he can basically do with it the same you do as the account holder: transfer money. The difference is, the money is transferred to the crook’s own prepaid card, where he promptly hits the ATM and pulls the cash out.

There’s more, though. The rule will broaden an already existing ban against companies and their employees or contractors who are attempting to collect advanced fees instead of doing the work first.

One FTC attorney with the Bureau of Consumer Protection, Karen Hobbs, told a group of lawmakers,

People are being asked to go down to the store and purchase a reload…it is essentially cash – there’s no governance out there.

Another lawyer for the FTC offers,

This makes it difficult to identify or track down the perpetrator of the fraud and return funds to customers.

Digital Deposits

As we mentioned, everything is all digital these days – even the virtual deposit slips used online. People without bank accounts are able to keep their money safer than carrying cash around. Paying bills online is easy and life in general is easier when you have the right tools. Because so many are unbanked or underbanked these days, it’s crucial these products remain a viable choice for so many. The problem is, unlike most all other financial products, including credit cards and secured credit cards, their prepaid counterparts are not subject to the compliance issues from the government. That means if your credit card is stolen and the theft hit you with a $4,000 charge, the bank or credit card company will replace the money in most instances. On the other hand, if you’re hit with the same theft with your prepaid card, you’re on your own. There are no safety nets or protections that limit your liability.

Fast Growing Crime

Make no mistake – this has quickly grown into a massive $100 million fraud effort – and that’s annually. What’s worse, these thieves often target the elderly.

The scams tell you this is the best way to send money, that it’s insured,

said Bill Smith, an investigator for the St. Louis Better Business Bureau. Of course, the crooks are eager to rein you back in and too many times, that’s exactly what happened. Such untrue statements are part of the scam.

The threats made by these so called “telemarketers” are brutal. Many have reported being threatened with jail time if they don’t send the money right away – remember, these aren’t bill collectors. When it’s the elderly, they are often confused about what it’s expected of them and they don’t want to risk legal problems, so that often just given in to the stalker. Other cons include advance payments ahead of new insurance policies, maintenance work and others.

So bad are the scams getting that both Money Gram and Western Union have been sued by multiple states and only just recently did they settle out of court. They were also ordered to remain vigilant and to ensure consumers understand the policies and what happens if their money is intercepted by anyone other than the recipient.

As it stands, the FTC is accepting public comments on these new bill introductions. If you want to add your thoughts, you have until July 29th to do so. For now, avoid providing that code on the back of your prepaid debit card to anyone. You never know who’s ready and willing to intercept it. Also check with your prepaid card’s company website for more tips and how to handle theft if your information is stolen or compromised.

Have you found a fee-friendly prepaid debit card? Let us know – we’ll showcase it on our site.

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