US Agency Sues Walmart For Turning ’Blind Eye’ To Fraud

June 30, 2022
The Federal Trade Commission alleges Walmart allowed fraudsters to use its money transfer services, causing losses of hundreds of millions of dollars to its consumers.

The Federal Trade Commission (FTC) alleges Walmart allowed fraudsters to use its money transfer services, causing losses of hundreds of millions of dollars to its consumers.

In its lawsuit, the FTC alleges that the retail giant turned a “blind eye” while scammers took advantage of its failure to properly secure the money transfer services offered at Walmart stores.

Walmart offers financial services to consumers in its stores, including money transfers, credit cards, reloadable debit cards, cheque cashing, bill payments and more.

The company 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, Walmart employees processed tens of millions of money transfers each year, which often included transactions that had suspicious characteristics.

Some of these transactions resulted in substantial amounts transferred to high-risk countries known for fraud, while others used fake out-of-state IDs or the same IDs or addresses were used by multiple receivers.

The agency now alleges that Walmart did not properly train its employees, failed to warn customers and used procedures that allowed fraudsters to cash out large payments at its stores.

The complaint cites a Walmart reference guide for employees that stated: “If you suspect fraud, complete the transaction.”

The retail giant adopted this practice despite knowing that once the money transfers were paid out to suspected fraudsters, fraud victims typically could not get their money back.

The complaint estimates that between 2013 and 2018, Walmart stores processed at least $197m in money transfers that were the subject of complaints and more than $1.3bn in related payments that could have been connected to fraud.

“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.”

The FTC is asking the court to order Walmart to return money to consumers and to impose civil penalties for Walmart’s violations.

Walmart said in a statement that the lawsuit of the “narrowly divided” FTC was unfounded and the company will defend against this lawsuit aggressively. The agency voted to file the civil penalty complaint 3-2.

“Since Walmart began offering our customers flat, low fee money transfer services at our stores, the company has saved consumers — particularly the unbanked and underbanked — an estimated $6bn in fees by bringing important competition to the money transfer industry,” the company said.

It claimed that it has a “robust” anti-fraud programme which helped to stop “hundreds of thousands of suspicious transactions totaling hundreds of millions of dollars”.

Fraud has become an increasingly pressing issue in the US after the New York Times revealed in March that scams are flourishing on Zelle, the most popular P2P payments app in the US, and banks are doing nothing to stop it.

Last year, fraud losses reported to the FTC increased by more than 70 percent, resulting in losses of more than $5.8bn in 2021.

Imposter scams and online shopping scams were the most commonly reported types of scams, according to the agency, but a recently issued report by GIACT also found that one-quarter of US consumers were affected by identity theft last year.

This is causing a shift in consumer sentiment and a growing dissatisfaction with financial institutions that allow fraud to occur.

Americans “have become less tolerant of fraud and the financial institutions that allow fraud to take place in their name", according to the report.

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