The Federal Trade Commission announced this week that MoneyGram International Inc., a leading U.S. money transfer service, will pay $18 million in consumer compensation for what seems to be its compliance with fraudulent money-wiring schemes. This can be seen as a minor victory for consumers.

According to the FTC, MoneyGram was complicit in schemes that cheated people out of money by doing the following:

• Alerting them of false winnings or opportunities: Consumers were told (often via mail) that they’d won the lottery, been chosen for a “Secret Shopper” program or been guaranteed a loan.
• Prompting them to transfer money: In order to “collect” their money or activate their accounts, customers were required to deposit a check (which had come in the mail with the notification) and wire some of the money to a third party.
• Taking the money: In these schemes, the checks that consumers were given to deposit were fraudulent and worthless. The money transferred, then, came from consumers’ own accounts.

More than $84 Million Lost

Consumer complaints indicate that as much as $84 million was lost to such schemes, though the FTC’s site indicates that the actual total is likely higher, since many cheated consumers never file complaints. With that much money out of consumers' pockets, it's easy to imagine that the fraud caused a few bankruptcy filings.

The FTC’s charges reportedly include that MoneyGram was aware of the fraudulent activity but did almost nothing to stop it, and that 95 to 96 percent of complaints filed about the company were against 131 of the company’s 1,200-plus agents in from 2006–2008.

In addition to the $18 million in consumer redress funds, MoneyGram has agreed to include anti-fraud and agent-monitoring policies in its future operations. Because part of the charges levied by the FTC include MoneyGram’s active ignoring of reports of agent fraud, new agents will be required to complete background checks before being hired.

What to Watch Out For

In general, the FTC warns that wire transfers can be dangerous, and sets these guidelines:

• Never wire money to a person you don’t know, in the U.S. or another country;
• Never wire money to someone requesting to keep the transaction a secret;
• Don’t wire money to those who claim that money transfers are the only acceptable mode of payment; and
• Don’t wire money to someone who asks you to deposit a check and wire a fraction of that amount.

Tags: fraud, FTC, money, moneygram