The Washington PostDemocracy Dies in Darkness

FTC sues Walmart, alleging it let scammers access money transfer service

The retail giant dismissed the lawsuit as “factually flawed and legally baseless”

The Federal Trade Commission has sued Walmart, alleging the retailer has not done enough to keep scam artists from using its money transfer services. (Mario Anzuoni/Reuters)

The Federal Trade Commission is suing Walmart, alleging the company should have done more to keep scammers from using its money transfer services to carry out schemes that cost consumers tens of millions of dollars.

In the complaint filed Tuesday, the FTC said Walmart failed to intervene in scammer activities in its money transfer services. “The company did not properly train its employees, failed to warn customers, and used procedures that allowed fraudsters to cash out at its stores,” the commission said in a news release.

The retail giant dismissed the lawsuit as “factually flawed and legally baseless.”

The FTC alleged that Walmart violated the agency’s Telemarketing Sales Rule (TSR) amendments, which prohibited traditional “cash-to-cash” payments provided through services including MoneyGram, the Western Union and RIA — three companies that Walmart partnered with in its money transfer services. The rules took effect in January 2016.

The agency is asking the court to order the return of fraudulently obtained money to victims and impose civil penalties on Walmart for violating its rules.

Walmart offers domestic and international money transfer services in its stores. Customers can transfer money from one store location to another, or to one of its partner agents’ locations in more than 200 countries and territories. The service through RIA allowed customers to transfer as much as $2,500.

According to the FTC, scams involved soliciting money from customers under the guise of selling products in phone calls or prevalent schemes like impersonating an IRS agent. From 2013 to 2018, data from Walmart’s partners showed that fraudulent transfers sent or received at company stores totaled more than $197 million, with upward of $1.3 billion possibly connected to such schemes.

The FTC said that Walmart told its employees to “complete the transactions” even when fraud was suspected. Scam artists, the agency said, can pick up large cash payments at Walmart with a fake ID. The agency also called Walmart’s anti-fraud policy “poorly enforced.”

In a news release Tuesday, Walmart said that employees are required to complete anti-fraud training every year, where they are taught to recognize red flags and not process transactions in which fraud is suspected. Walmart spokesman Randy Hargrove said that FTC’s claim about improper employee trainings was “largely based on a typo on one page of a training document from years ago.”

In another statement, the company said the FTC was attempting “to blame Walmart for fraud that the agency already attributed to another company while that company was under the federal government’s direct supervision.”

In 2018, MoneyGram paid a $125 million penalty to settle allegations from the FTC and Department of Justice that the company did not intervene when con artists used the service to defraud customers. Two years later, Western Union reached a similar settlement with the FTC, DOJ and the U.S. Postal Inspection Service for a total of $300 million.

Todd Zywicki, former FTC Director of the Office of Policy Planning and a law professor at George Mason University, said that the lawsuit against Walmart is a “far-fetched effort to end-run the Supreme Court’s decision last year that limited the FTC’s ability to recover money damages in some cases.”

Last April, the Supreme Court ruled unanimously in AMG Capital Management, LLC v. FTC that the agency was not allowed to seek money on behalf of consumers under section 13(b), an avenue within the FTC Act through which the agency used to seek monetary remedies. The agency brought cases against MoneyGram and WesternUnion under section 13(b).

James Cooper, former acting director of the FTC’s Office of Policy Planning, called the action an “aggressive use of the Telemarketing Sales Rule.

“I think it may be difficult to prove, however, that the money transfer transactions processed by Walmart were telemarketing just based on aggregate statistics — that is, it’s unclear that a court will allow the FTC to get by without showing proof that actual transactions were the product of TSR violations rather than just relying on percentages.”

Walmart’s financial services, including its own white-label services through RIA, are low-cost money transfer products that “brought millions of dollars of benefits to unbanked consumers,” according to Cooper, for the company priced its service 87 percent below other services to introduce market competition. The company said its money transfer service had saved consumers $2.4 billion in fees since 2014.