"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