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MoneyPak, a popular prepaid money card, opens path to fraud schemes

Federal authorities are sounding alarms about a wide range of fraudulent schemes involving a popular prepaid money card product.

Thousands of consumers have been lured into sending money through the card, called MoneyPak. For online fraudsters, the reusable green-and-white paper card that can be used to quickly "reload," or transfer, hundreds of dollars in cash onto another prepaid card is often the money conduit of choice, regulators and law enforcement officials say.

The abuses are mounting as the market in prepaid cards is increasingly finding favor with Americans who don't have access to a traditional bank account or credit card. The roughly $80 billion that consumers are expected to put on prepaid debit cards this year is double the amount put on those products in 2010, according to the Mercator Advisory Group, a banking industry consulting firm. Consumers also use the cards to transfer money into PayPal accounts to shop online.

The MoneyPak card from Green Dot.Credit.
The New York Times
The MoneyPak card from Green Dot.Credit.

Law enforcement officials are also concerned about drug dealers and other criminals using MoneyPak to launder small sums of cash, because money transfers using the cards are hard to track. "We are increasingly seeing MoneyPaks used to facilitate Internet fraud schemes and it is a concern for us," said David A. O'Neil, deputy assistant attorney general for the criminal division of the Justice Department. "Anything that makes it easier to get money from the victim to a fraudster concerns us."

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The federal Consumer Financial Protection Bureau recently said that it was looking into consumer complaints about prepaid cards.

The abuse of MoneyPak, a perfectly legal prepaid card, has created a problem for its seller, Green Dot, the largest provider of reloadable prepaid debit cards, according to Mercator.

A Pasadena, Calif., bank holding company, Green Dot says it now has a technological answer to address the worst of the illegal uses. A new electronic cash-transfer system it is installing in most of the 92,000 retail stores that sell its products will ultimately replace the MoneyPak altogether, the company says.

Still, consumer advocates and some in law enforcement question whether the technological fix will work or whether fraudsters would then gravitate to similar but less popular products offered by other prepaid card companies.

The schemes that use MoneyPak involve fraudsters posing as bill collectors, bail bondsmen, government officials or sales agents in emails, online ads or phone calls. Over the last two years, the Federal Bureau of Investigation has issued at least a half-dozen alerts about schemes involving a MoneyPak.

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In June, Victor Jones, of Arlington, Va., fell victim to one of those scams when he sent $267 to a company that promised to write him a $2,500 loan if he first sent it a handling and processing fee using a MoneyPak. A 33-year-old building services engineer, Mr. Jones never got his loan or his money back.

Another victim was Diane Stephens, 54, of White Plains, who says she lost $2,000 when she sent money using a MoneyPak to a company she found online to participate as a "mystery shopper."

In most cases, the victim is directed to go to a Walgreens, CVS, Duane Reade or another big retailer that sells prepaid cards, buy a MoneyPak and have the cashier put as much as $500 on the card. The victim then is typically instructed to email the unique 14-digit access code on the back of each MoneyPak. With that code, anyone can "unlock" the card and transfer the money to another prepaid debit card either by going online or by calling an automated Green Dot phone line.

To address this problem, GreenDot says it expects that by early next year, most stores will be able to let consumers add money directly onto an existing prepaid card by swiping the card through a machine connected to a Green Dot data-processing center.

The new system, already in place in Walmart stores that sell Green Dot products, will render obsolete the kind of access codes presently on the back of every MoneyPak card. Customers will be charged the same $4.95 transaction fee as with a MoneyPak now.

"Reloading at the register not only is a great thing for honest customers, a side benefit is it eliminates all of these nefarious uses," said Steve Streit, chief executive of Green Dot, which went public in 2010. "This will all be a thing of the past."

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Green Dot's decision to retire its 14-digit MoneyPak product recently won praise from Senator Bill Nelson, the Democratic chairman of the Senate Special Committee on Aging, in a July 16 hearing focused on fraudulent schemes against the elderly.

But Sally Greenberg, executive director of the National Consumers League, a nonprofit advocacy group, says she worries that cybercriminals will simply leapfrog from MoneyPaks to cash-transfer products offered by other prepaid card companies. She noted that the Vanilla Reload network, a subsidiary of InComm, offers a cash-transfer product that works similarly to MoneyPak. Ms. Greenberg said that her group received over the last year an increased number of complaints from consumers about frauds seeking payment with Vanilla prepaid cards.

Representatives for InComm, a privately held company based in Atlanta, did not return requests for comment. The Vanilla Reload website says cards can be bought at "thousands of stores nationwide."

The Federal Trade Commission said last year that Americans reported losing $42.86 million to schemes involving prepaid products. Regulators and consumer advocates say the true figure is probably much higher since many victims do not report being ripped off because of the difficulty in prosecuting such cases and the embarrassment of being duped.

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Green Dot's own internal estimate is that fraudulent schemes involving MoneyPaks cost consumers $30 million in 2013. Green Dot said that's a small number compared with the $10 billion in cash that customers added to either a MoneyPak or its new prepaid card with a swipe transaction last year. Over all, customers put $20 billion on all Green Dot products in 2013.

Still, it's not just consumer scams that have concerned authorities.

Last year, federal authorities charged Olivia Louise Bolles, a Delaware doctor who sold drugs on Silk Road, an online marketplace where drugs and weapons could be bought with virtual currencies, with using MoneyPaks to help conceal some of her ill-gotten proceeds.

In the criminal complaint against Ms. Bolles, an agent with the Drug Enforcement Administration described MoneyPaks as a "preferred method of payment for illegal money launders and persons wishing to transfer currency without triggering legal and reporting requirements."

MoneyPaks also played a pivotal role in drug-running scheme in the Maryland state prison system involving a gang called the Black Guerrilla Family. Federal authorities last year charged that gang members would send text messages containing the 14-digit access code to a MoneyPak to pay off corrections officers and others involved in the conspiracy to smuggle drugs into the prison.

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An online prostitution service based in North Carolina asked that patrons pay with MoneyPak.

Consumers also report being less than satisfied with the way Green Dot responds to reports of fraud.

Mr. Jones said when he called to complain about paying a fee to a company that did not deliver on writing him a loan, a Green Dot representative said there was nothing the company could do. Similarly, Ms. Stephens said Green Dot advised her to fill out a police report, but offered no other advice.

"They weren't very responsive," she said.

A warning on the back of each MoneyPak tells consumers not to give out the 14-digit code to people or businesses they don't know. The company also tells consumers that Green Dot is not responsible if a person falls victim to a fraud.

Mr. Streit, a former radio executive and disc jockey who founded Green Dot in 1999, said the company was committed to reducing fraud, noting that of Green Dot's 2,700 employees, about 200 work in its fraud detection division.

Even so, Mr. Streit said he had been surprised at the number of scams involving the company's MoneyPak cards.

"It turns out bad guys like convenience as much as anyone else," he said.

— By Matthew Goldstein, The New York Times

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