You might think twice before handing over a wad of cash to a stranger. Yet some aren’t exercising the same caution before handing over prepaid card numbers.
Scams involving prepaid cards and related products are gaining ground and have prompted warnings from AARP, the Better Business Bureau, consumer advocates and even from a company whose payment mechanism has been specifically targeted by thieves.
How the scams work
Many of the scams center on Green Dot’s MoneyPak, which costs about $5 and is widely available at major retailers, discount chains and drug stores. MoneyPak allows users to store money (from a paycheck, for example) until funds can be moved into a bank account, to make payments at Green Dot-approved retailers and to make utility payments.
Carrying a MoneyPak is like carrying cash, only safer, because you need to type in the 14-digit number that comes with the card to transfer the money. So giving out that number is like “giving up the keys to the palace,” says Dan Hendrickson, a spokesman for the Better Business Bureau. Your money can vanish in one untraceable transaction.
Here are a few ways thieves have been tricking consumers into giving out prepaid card numbers.
- Debt payoff scam: Scammers ask a consumer to repay a debt that doesn’t exist. They ask the person to load a MoneyPak with a designated amount and call back with the card’s number. Once thieves have that information, they can use it to get cash at an ATM.
- Employment scam: Consumers are urged to apply for a job on a fake website and then are told that, to close the deal, they need to send money via MoneyPak to cover a final background check and a uniform.
- Lottery scam: Thieves tell consumers they have won huge cash prizes, and they need only to pay taxes upfront with a MoneyPak. Once they do that and give the number on the card, they can collect the big money, scammers say.
Among top consumer gripes
Prepaid scams are one of the fastest-growing complaints among those on Consumer Federation of America’s (CFA) latest annual list, says Susan Grant, director of consumer protection for CFA. In 2011, credit and debit complaints were at No. 2 on the list behind auto-related complaints. But new this year are complaints about prepaid card scams.
Most center on MoneyPak schemes, but sometimes scams are even more blatant, according to Grant. Sometimes thieves ask victims to load a prepaid card and then send the whole card by mail or courier.
Thieves have no shortage of stories used to lure people into sending money, Grant says.
Low-income consumers, minorities targeted
Prepaid scams often are aimed at low-income and minority populations, says Hendrickson.
“Scam artists count on the fact that people are desperate,” he says.
Those who don’t speak English as a first language are also common targets. Hendrickson recounts a recent scam in Wisconsin in which thieves claiming to be from a satellite TV company reached out to Hispanic people offering them a chance to prepay a year of satellite service at a considerable discount. They were told to load the money onto MoneyPaks and supply the scammers with the numbers. People who did this, of course, got no service and were out hundreds of dollars with no recourse.
In July, just after the CFA complaint rankings came out, Grant says, utility company Xcel Energy warned of a new scam in the Texas and New Mexico. Callers claiming to represent the utility company Xcel called Hispanic customers, speaking to them in Spanish, and telling them their service was about to be disconnected unless they made a payment via a prepaid card.
Shift away from wire transfer fraud
These scams are increasing in part because security is being tightened elsewhere. Hendrickson says it used to be wire transfer services — like Western Union and MoneyGram –that were common targets for thieves. But those services have beefed up security after investigations by the Federal Trade Commission. MoneyGram ended up settling a lawsuit in 2009 with the FTC for $18 million after charges that it allowed its system to be used for fraud.
Thieves like the fact that money sent through MoneyPak is untraceable.
“It’s a very clean transaction. Scammers aren’t running too much of a risk of getting caught,” Hendrickson says.
The growth in prepaid fraud likely goes hand-in-hand with the rapid growth of prepaid card use, says Romy Parzick, manager of innovation and research for the Center for Financial Services Innovation. According to Mercator Advisory Group, an advisory firm for the payments and banking industry, the amount loaded onto general purpose reloadable cards in the United States is expected to nearly triple from $57 billion (in 2011) to $167 billion in 2014.
Two things — education and oversight — will be key in reining in these scams, Parzick says. Green Dot, she says, is doing its part by taking fraud complaints seriously and warning consumers on the package and prominently on its website about the dangers of giving out serial numbers associated with MoneyPaks.
The new federal watchdog agency — the Consumer Financial Protection Bureau — is also heading toward federal oversight of the prepaid industry now that it has wrapped up a public comment period on the issue. Parzick says CFPB oversight will likely elevate the profile of the industry — and cause consumers to protect prepaid accounts the way they protect their bank account numbers.
How to avoid getting scammed
MoneyPak’s issuer, Green Dot, warns that it is not responsible for funds lost to fraud and theft. The company offers these tips on how to avoid getting scammed:
- Never give your MoneyPak number to someone you don’t know.
- Refuse any offer that asks you to buy a MoneyPak and share the number or receipt information by email or phone.
- Give the number only to merchants listed on the MoneyPak approved partners list.
- If you’re using your MoneyPak with PayPal, eBay or other online merchant, transfer the money to your PayPal account before you pay the merchant. Don’t email your MoneyPak number directly to a seller.
- Use MoneyPak to load only your prepaid card or accounts you control.