FTC’s Amended Complaint vs. Walmart Bolsters TSR Fraud Allegations

Walmart is well aware that telemarketing frauds “induce people to use Walmart’s money transfer services to send money to domestic and international fraud rings,” said the FTC’s complaint against the retailer (docket 1:22-cv-03372) in U.S. District Court for Northern Illinois in Chicago, amended Friday to bolster the agency’s fraud claims under the Telemarketing Sales Rule. Walmart “continued to process fraud-induced transfers at its stores while failing to take sufficient steps to warn consumers of the risks and help them make informed choices,” it said.

Though the FTC’s original complaint said Walmart processed money transfers on behalf of criminal fraud rings that perpetrated telemarketing scams, it failed to allege the details of those scams, said U.S. District Judge Manish Shah’s March 27 memorandum opinion and order, granting in part Walmart’s motion to dismiss. The original complaint didn’t show the fraud at issue “fits a pattern of prohibited conduct under the TSR,” said the order.

The amended complaint adds two counts against Walmart. In one, the FTC alleges that in the course of processing money transfers, Walmart provided “substantial assistance or support” to sellers or telemarketers who it knew or “consciously avoided knowing” induced consumers to pay for goods or services or charitable contributions through the use of false or misleading statements in violation of the TSR. In the other new count, the FTC alleges Walmart knew or should have known fraudsters “requested or received payment of a fee or consideration in advance of consumers obtaining a loan when the seller or telemarketer has guaranteed or represented a high likelihood of success in obtaining or arranging a loan.”

Walmart for many years “did nothing whatsoever to attempt to comply with the TSR’s ban on the use of cash-to-cash money transfers as payment for goods or services offered or sold through telemarketing or for charitable contributions solicited or sought through telemarketing,” alleges the amended complaint. That ban, which took effect in June 2016, imposes obligations on money transfer businesses like Walmart to avoid processing “violative transfers,” it says. But Walmart “failed to take appropriate steps to prevent those types of transfers at its locations,” it says.

The TSR prohibits all cash-to-cash money transfers in telemarketing transactions, “not just those that are fraud-induced,” alleges the FTC. Despite the ban, Walmart for years didn’t “attempt to identify banned transfers,” it says. Walmart could have trained employees “to ask questions about whether transfers were related to telemarketing and warning consumers that those transfers were illegal,” it says.

Even today, in some instances, Walmart employees don’t ask questions “to attempt to determine whether a consumer’s money transfer is a payment for goods or services offered or sold through telemarketing or for a charitable contribution solicited or sought through telemarketing,” says the complaint. Other times, Walmart also doesn't give consumers “a clear, concise, and conspicuous warning” that it’s illegal for any seller or telemarketer to accept a cash-to-cash money transfer as payment for goods or services offered or sold through telemarketing or payment for a charitable contribution solicited or sought through telemarketing, it says.

Fraudulent telemarketers and con artists “preferred to use money transfers at Walmart stores to facilitate their scams,” says the amended complaint. One reason is that “there are many convenient locations from which victims can send the money,” it says. Another reason is that Walmart “pays recipients in cash, even for large-dollar transfers,” it says. “Fraudsters also have been able to pick up money transfers within minutes and at multiple locations,” it says. The fraudsters also were given anonymity because no IDs were required or fake IDs were used, it says.

Walmart’s employees haven’t been properly trained “on the policies or procedures that are required to detect and prevent fraud,” alleges the complaint. Some employees “failed to comply with the policies and procedures in paying out money transfers,” it says. Employees also “have sometimes been complicit in the frauds,” it says. Walmart “failed to implement and maintain its own effective policies or procedures to detect and prevent fraud,” it says. “Walmart’s failures on this front often have made it easier for victims to unwittingly send money to fraudsters and for fraudsters to receive payments through money transfers at Walmart locations.”