Walmart has asked the U.S. District Court for the Northern District of Illinois, which is handling the Federal Trade Commission’s (FTC) lawsuit regarding money transfer services the retailer offers consumers, to dismiss the complaint on several grounds.
The FTC had sued Walmart in June for allegedly allowing its money transfer services to be used by fraudsters who fleeced consumers out of hundreds of millions of dollars. In its lawsuit, the FTC alleged that for years the Bentonville, Ark.-based company “turned a blind eye” while scammers took advantage of its failure to properly secure the money transfer services offered at Walmart stores.
“The FTC’s lawsuit is an egregious instance of agency overreach,” Walmart said Monday. “The FTC is trying to hold Walmart liable for the criminal actions of completely unrelated third-party fraudsters, in spite of Walmart’s extensive efforts to prevent those very fraudsters from defrauding our customers, and despite the FTC’s lack of constitutional or statutory authority to bring the lawsuit. Walmart is now and always has been dedicated to its customers, and shares the FTC’s goal of protecting customers from fraudsters.”
The company did not properly train its employees, failed to warn customers and used procedures that allowed fraudsters to cash out at its stores, according to the FTC’s complaint.
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The FTC is asking the court to order Walmart to return money to consumers and to impose civil penalties for Walmart’s violations.
“While scammers used its money transfer services to make off with cash, Walmart looked the other way and pocketed millions in fees,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection, said when the lawsuit was filed in June. “Consumers have lost hundreds of millions and the Commission is holding Walmart accountable for letting fraudsters fleece its customers.”
Walmart previously published a blog that detailed how the company has disrupted the money transfer market to help consumers, how it fights fraud, and the problems with the FTC’s lawsuit. It claims that the FTC’s authority is limited by the Constitution, by the FTC Act, and by its own regulations.
Chief among the arguments by Walmart is that the court should dismiss the FTC’s “Telemarketing Sales Rule” (TSR) claim that the retailer said contorts a regulation that was designed to go after telemarketers and those who actively assist them. Walmart said this claim does not apply to the company.
Walmart charged that “the FTC advances a novel theory that Walmart is liable because it processed routine money transfers requested by Walmart customers, and a small sliver of those requested transfers allegedly turned out to have been induced by third-party telemarketing scams.”
“That sort of routine conduct does not count as ‘substantial assistance’ under longstanding principles of tort law,” the company said. “And, in any event, the FTC does not identify a single specific transaction that satisfies the TSR’s multi-prong definition of telemarketing.”
For its part, the FTC said in addition to its retail business, Walmart offers financial services to consumers in its stores, including money transfers, credit cards, reloadable debit cards, check cashing and bill payments. Walmart 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, tens of millions of money transfers are sent or received at Walmart stores each year, where they are processed by Walmart employees.
Money transfers are services that people use to send money to a recipient in another location. According to the FTC, they are frequently used by criminals across a wide variety of scams because they are nearly impossible to retrieve after the money has been picked up. The FTC has brought multiple cases against money transfer services in recent years, including against MoneyGram and Western Union, alleging they failed to protect consumers who used their services.
Walmart’s practice of looking the other way to fraud had grave consequences for consumers, according to the complaint. It cites numerous instances in which law enforcement investigations found that scammers relied on Walmart money transfers as a primary way to receive payments, including in telemarketing schemes like IRS impersonation schemes, relative-in-need “grandparent” scams and sweepstakes scams.
Based on information from fraud databases maintained by MoneyGram, Western Union and Ria, from 2013 to 2018 more than $197 million in payments that were the subject of fraud complaints were sent or received at Walmart, with more than $1.3 billion in related payments also possibly connected to the fraud.
The FTC’s investigation of Walmart’s money transfer practices showed, according to the complaint, that Walmart knew about the role money transfer services play in scams and frauds. Despite that, the company’s money transfer services harmed consumers in numerous ways.
Walmart also said Monday that the court should dismiss the FTC’s claim that Walmart’s conduct was “unfair.” The company said the FTC didn’t identify any Walmart practice that qualifies as “unfair” under the Seventh Circuit’s longstanding interpretation of Section 5 and that “if anything, Walmart’s conduct is the opposite of ‘unfair’ because, as the FTC’s own lawsuit shows, Walmart adopted a host of measures to stop scammers with the ‘goal to educate, detect, investigate, respond, and deter consumer fraud against our customers.’”
The complaint charged that despite offering money transfer services for many years, Walmart did not have a written anti-fraud or consumer protection program until November 2014. After that time, the complaint cites numerous instances in which Walmart failed to have an effective program or violated its own policies, as well as the policies of its partners, like MoneyGram, that were ostensibly in place to protect consumers from fraud.
The complaint notes that Walmart, unlike most other outlets where money transfers can be received, pays even large payments in cash. In addition, the complaint said scammers were often able to retrieve their payments from Walmart by using fake IDs. This made it an attractive option for fraudsters looking to conceal their identities.
According to the complaint, Walmart failed to display or provide required materials to consumers at many of its locations that could have warned them about potential frauds and stopped them from sending money to scammers. More recently, the company stopped using a paper “send form” that included important information for consumers to help them realize they may be making a bogus payment, replacing it with a printout that contains only small print warnings.
The complaint alleges that Walmart’s training materials for the tens of thousands of employees who worked with money transfers was often contradictory or unclear. In many cases, employees who were authorized to handle money transfers as “backups” received no anti-fraud training at all or only limited training related to transfers. The complaint notes that in some instances Walmart staff were complacent or complicit in scams, accepting cash tips from scammers in exchange for processing fraudulent payments or being directly involved in the scams themselves.
The FTC’s Telemarketing Sales Rule has since 2016 prohibited money transfers from being used to pay for telemarketing purchases because of the high risk of fraud. But the complaint alleges that, for years, Walmart failed to take steps to comply with that provision.
Walmart also claims that the FTC lacks constitutional authority to bring this case, citing Supreme Court rulings that the Constitution permits the FTC to be an independent agency only because at the time, the FTC didn’t exercise what the Supreme Court calls “executive power.”
“But in the years since that ruling, Congress has purported to give the FTC new powers, like the authority to bring lawsuits like this one for monetary and injunctive relief,” Walmart said. “Recent Supreme Court rulings make it clear that filing lawsuits for monetary and injunctive relief are ‘executive powers.’ That’s why Walmart argues that the FTC’s statutory basis for bringing this lawsuit is unconstitutional.”