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MoneyGram to pay $18 millions to settle fraud charges

MoneyGram International Inc., the second-largest money transfer service in the United States, will pay $18 million to settle Federal Trade Commission charges that the company allowed its money transfer system to be used by fraudulent telemarketers to bilk U.S. consumers out of tens of millions of dollars.

MoneyGram also will be required to carry out an anti-fraud and agent-monitoring program.

The commission charged that between 2004 and 2008, MoneyGram agents helped fraudulent telemarketers and other con artists who tricked U.S. consumers into wiring more than $84 million within the U.S. and to Canada. These consumers were falsely told they had won a lottery, were hired for a secret shopper program, or were guaranteed loans.

The $84 million in losses is based on consumer complaints to MoneyGram – actual consumer losses likely are much higher, reports the commission.

The commission charged that MoneyGram knew that its system was being used to defraud people but did very little about it, and that in some cases its agents in Canada actually participated in these schemes.

“Money transfer services have a responsibility to make sure their systems don’t become conduits to rip people off,” said David C. Vladeck, director of the commission’s Bureau of Consumer Protection, in an announcement about the settlement. “In this case, MoneyGram not only ducked this responsibility, but also looked the other way while its agents took part in the scams.”

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In many of the scams, the con artists used counterfeit checks to induce consumers to send money back by wire transfer. Most often these scams were lottery or prize schemes in which consumers were told they had won thousands of dollars and just had to pay a fee for “taxes,” “customs,” or “insurance” to a third-party to collect their winnings, reports the commission.

Consumers paid the fee using MoneyGram, but received nothing.

In another scheme, telemarketers told consumers they were guaranteed loans, regardless of their credit score. All they had to do was pay “insurance,” “paperwork,” or “processing” fees to complete the transaction.

Consumers who sent funds using a money transfer service received nothing in return.

In mystery shopping scams, the con artists called U.S. consumers or sent them a piece of direct mail in which they claimed to be hiring consumers to visit stores such as Wal-Mart to evaluate MoneyGram money transfer operations. The con artists sent consumers a cashier’s check, telling them to deposit it in their checking account and then send most of the money back using a money transfer at Wal-Mart.

When the counterfeit checks bounced, consumers realized they had lost the money they transferred. By this time, however, the money transfer agents had already received and paid out the money, often either without checking IDs or by using fake drivers license information.

The agreed-on court order settling the commission’s charges bars MoneyGram from knowingly providing help or support to any sellers or telemarketers that are violating the Telemarketing Sales Rule and requires it to carry out an anti-fraud program.

Under the program, MoneyGram must conduct background checks on prospective agents; educate and train its employees about consumer fraud; institute agent monitoring; and discipline agents who don’t comply with the rules.

The order also requires MoneyGram to provide a clear and conspicuous fraud warning on the front of all its money transfer forms.

The order contains monitoring and discipline provisions that will ensure MoneyGram is properly training, monitoring, and taking actions to address problems related to its agents.

In addition, MoneyGram will pay the commission $18 million, which will be used to provide payments to consumers who lost money.

Consumers interested in finding out about recovering funds should call 202-326-3755.

Copyright 2009, Rita R. Robison, Consumer Specialist

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