MoneyGram To Pay $13M, Revamp Policies To Protect Against Wire Transfer Fraud

While advances in technology now allow us to zap money from our bank accounts to our friends and family members with the touch of a button, some people continue to rely on money transfer services. But as we’ve reported several times in the past, these companies are often the service of choice for scammers looking to get their hands on your hard-earned money. One such outfit, MoneyGram, today agreed to revamp its policies and provide $13 million in restitution to consumers who were harmed by fraudsters using the service. 

New York Attorney General Eric Schneiderman, along with 48 other state attorneys general and the District of Columbia, announced the agreement with Dallas-based MoneyGram Payment Services, Inc. to settle an investigation into complaints from consumers who used the company’s wire transfer service to send money to third parties involved in schemes aimed at defrauding people.

According to the settlement [PDF], the states’ investigation centered on complaints from consumers who were contacted by phone, mail, or the Internet by the operators of several different schemes, including the:

• Grandparent scheme: where a grandparent is contacted by someone claiming that money is urgently needed and must be wired to assist with a grandchild’s emergency.
Foreign lottery – the alleged scammer tells the consumer that she/he has won a lottery or contest but must wire money to cover “fees,” “taxes,” or other charges.
• Romance scam – using a fake online profile, the scammer contacts a potential victim, professing their love and, citing a variety of issues — lost wallet, or an emergency, asks for money to be wired to them.
• Employment and business opportunity scams – scammers offer work-at-home opportunities, such as mystery shopping, but requires that the consumer first wire money to them.

To resolve the investigation, which included all states except California, MoneyGram agreed to a voluntary settlement to repay victims, and implement tougher measures to protect customers against future wire transfer fraud.

Under the settlement, MoneyGram must pay $13 million to a fund that will distribute restitution to consumers who previously filed complaints against the company between July 1, 2008 and Aug. 31, 2009.

A third-party administrator will review MoneyGram’s records and send notices regarding restitution to eligible consumers. The states have set up a settlement website where more information can be found.

As for preventing future fraud, the settlement orders MoneyGram to create a comprehensive and robust anti-fraud program that will detect and prevent consumers from suffering financial losses as a result of fraudulent wire transfers.

The company must also provide mandatory training for all employees regarding when their conduct warrants suspension or termination; hold employees responsible if they fail to take steps to reduce fraud; create a hotline system where employees and agents can report noncompliance with anti-fraud measures; and evaluate actual fraud rates and consumer losses from fraud induced money transfers.