Move over, briefcase full of cash. Crooks' preferred method of payment these days is prepaid cards.
Scammers are exploiting preloaded debit cards to steal money from consumers, according to survey findings released on Tuesday from the Consumer Federation of America, a nonprofit consumer group.
The CFA's new survey aggregated more than 289,000 complaints from 37 state and local consumer agencies in the United States. The highest-ranking issues among the top 10 complaints included car issues, like faulty repairs and misleading ads; fraud or illegal practices related to credit and debt services; and shoddy home repair or construction.
But a growing complaint, consumer agencies reported, is the use of prepaid cards by fraudsters to collect money. Crooks like them because they are difficult to trace and no photo identification is needed to collect or spend the money. And unlike cash, which can be unwieldy to transfer in large amounts, one small card can be the key to thousands of dollars.
Another reason: MoneyGram and Western Union have tightened their security loopholes after a crackdown on wire transfer fraud by the Federal Trade Commission, which may have pushed more fraudsters to use these unregulated financial products to do their dirty work.
"Just as with [wire] transfers, crooks can abuse prepaid cards to get money quickly before consumers know they have been duped," said Susan Grant, director of consumer protection for the CFA.
Jon Round, CEO of Kaiku Finance, which makes the Kaiku Visa prepaid card, said the burden of consumer education is on the industry to reduce scams. "The industry needs to educate consumers," he said, "and help them to realize that there is tangible value in their card numbers and PINs."
Scams that involve prepaid cards can work in a number of ways. One looks like this: A consumer is told to get a GreenDot MoneyPak -- a type of electronic money transfer service sold as a card at places like Walgreens or Walmart -- and load a specific amount on it. Then the crook will ask for the serial number, which he or she uses to transfer the money to another prepaid card.
According to a complaint submitted to the North Dakota Attorney General's Office, one state resident paid scammers more than $17,000 through this method. Another scam involving prepaid cards requires the consumer to buy a prepaid card loaded with a certain amount and send it to an address as part of some money scheme; for example, to enter a fake lottery or pay a fake utility bill.
Earlier this month, GreenDot, one of the largest prepaid card companies and maker of the MoneyPak, issued its own fraud warning to consumers, giving explicit directions that consumers should never give a MoneyPak serial number to anyone they don't know.
GreenDot's MoneyPak system has become an especially popular method because funds sent through the system are untraceable and the company does not assume responsiblity for fraud or theft of funds.
Consumer Federation's Grant said any request by a stranger to use a MoneyPak or other prepaid card should be considered a scam. MoneyPaks can be used by certain merchants to make payments, but consumers should check the full list of merchants on GreenDot's website before sharing a serial number. And any request from a stranger to send a loaded prepaid card through the mail is likely bogus, she said.
"It's the equivalent of putting cash in an envelope," said Grant.
Complaints: Misrepresentations in advertising or sales of new and used cars, lemons, faulty repairs, leasing and towing disputes
Complaints: Billing and fee disputes, mortgage modifications and mortgage-related fraud, credit repair, debt relief services, predatory lending, illegal or abusive debt collection tactics
3. Home Improvement/Construction
Complaints: Shoddy work, failure to start or complete the job
4. Retail Sales
Complaints: False advertising and other deceptive practices, defective merchandise, problems with rebates, coupons, gift cards and gift certificates, failure to deliver
Complaints: Service problems or billing disputes with phone, cable, satellite, Internet, electric and gas service
Complaints: Misrepresentations, shoddy work, failure to have required licenses, failure to perform
7. (Tie) Internet Sales
Complaints: Misrepresentations or other deceptive practice, failure to deliver online purchases
7. (Tie) Landlord/Tenant
Complaints: Unhealthy or unsafe conditions, failure to make repairs or provide promised amenities, deposit and rent disputes, illegal eviction tactics
Complaints: Bogus sweepstakes and lotteries, work-at-home schemes, grant offers, fake check scams, the grandparent scam and other common frauds
9. Real Estate
Complaints: Timeshare sales and resales, retirement communities and assisted living facilities, real estate fraud
10. (Tie) Household Products
Complaints: Misrepresentations, failure to deliver, faulty repairs in connection with furniture or appliances
10. (Tie) Home Solicitations
Complaints: Misrepresentations or failure to deliver in door-to-door, telemarketing or mail solicitations, do-not-call violations