Editors Note: On Monday, Aug. 29, Walmart asked the federal court handling the FTC’s lawsuit to dismiss it. Walmart’s brief lays out several reasons why the FTC’s case is legally flawed and shouldn’t go forward. Read more about the arguments in Walmart’s motion to dismiss here.
A narrowly divided Federal Trade Commission (“FTC”) has filed a misguided lawsuit against Walmart regarding money transfer services that the Company offers to consumers. Here’s what you need to know about the lawsuit:
Since Walmart began offering our customers flat, low fee money transfer services at our stores, the company has saved consumers—particularly the unbanked and underbanked— an estimated $6 billion in fees by bringing important competition to the money transfer industry.
Walmart has a robust anti-fraud program to help stop third-party criminals who try to use money transfer services to commit fraud, and only a miniscule number of transactions are even alleged to be fraudulent. In fact, Walmart has stopped hundreds of thousands of suspicious transactions totaling hundreds of millions of dollars.
Despite Walmart’s anti-fraud programs, the FTC is trying to blame the Company for actions by third parties, including fraud the FTC has already acknowledged was caused by another company—while that company was under federal government oversight through a compliance monitor, and during a period when that company’s own fraud prevention system had failed.
This civil lawsuit is factually misguided and legally flawed. In fact, it was approved by the FTC by the narrowest of margins after Chair Lina Khan refused Walmart the due process of hearing directly from the company, and then the Department of Justice refused to take this case to court.
Despite the fact that the Justice Department took a pass on this lawsuit and two of the FTC’s own Commissioners voted against it, the FTC has unfortunately chosen to pursue a misguided lawsuit that distorts existing law by attempting to hold Walmart strictly liable for the wrongdoing of third-party criminals, despite all our efforts to stop fraudsters.
Walmart will defend against this lawsuit aggressively.
Pro-consumer competition in the money transfer industry is too important to be threatened by the unfortunate decisions of a few Commissioners of the FTC, and Walmart remains focused on fighting fraud and delivering low prices to our customers.
How Walmart Disrupted the Money Transfer Market and Saved Consumers Billions
Walmart is dedicated to serving our customers by providing everyday low prices to help people live better. We are proud to offer customers convenient and budget-friendly one-stop shopping and services that are accessible to all. As part of delivering on that mission, Walmart offers a number of financial services in-store, including money orders, bill payment, check cashing, gift cards, branded credit cards, and money transfers—the financial service product that is the subject of the FTC’s lawsuit.
Money transfers are just one component of our overall business. They provide an important service to millions of customers who are often excluded from traditional financial services, and rely on Walmart to send or receive money from family and friends.
Walmart serves as an “agent” of other companies that actually transmit the money from one location to the other. Walmart first began offering money transfers as a MoneyGram agent in 2005, and later became an agent for Western Union.
Over time, Walmart saw an opportunity to lower prices for our customers by introducing a white label money transfer service. In 2014, Walmart partnered as an agent for Ria to launch Walmart2Walmart, a new low-cost money transfer service built around transparent, everyday low prices.
This new service gave consumers another choice to send or receive cash in a market that had been dominated for years by MoneyGram and Western Union. As explained in the Wall Street Journal, by offering money transfer fees “as much as 87% below the competition,” Walmart’s innovative and disruptive entry into the money transfer business has been especially beneficial to “financially vulnerable” unbanked and underbanked consumers who often lack access to traditional financial services.
In addition to saving our own customers an estimated $2.4 billion in fees since launching Walmart2Walmart, our entry into the market caused MoneyGram and Western Union to cut their prices, saving consumers an estimated additional $4 billion in fees.
How Walmart Helps Fight Fraud
While saving consumers billions by shaking up the money transfer market, Walmart has also worked hard to keep those same consumers safe by helping stop third-party criminals from using money transfers to scam customers. And Walmart’s efforts are working. Walmart has stopped hundreds of thousands of suspicious transactions totaling hundreds of millions of dollars. Our efforts have been incredibly effective, resulting in fewer than 2 out of every 10,000 money transfers at Walmart being reported as possibly fraudulent in 2021. Below are some notable steps that Walmart takes to ensure that customers can feel confident using our financial services products.
Walmart Works with Law Enforcement, Non-Profit, and Private Sector Partners to Combat Fraud
Walmart routinely works with law enforcement and government agencies to stop fraud and other crime. The Company has made significant contributions to enforcement efforts, and has been recognized by various regulators and law enforcement agencies.
For example, after detecting a fraud trend in Colorado, Walmart started an investigation and worked with law enforcement to apprehend a fraudster who scammed victims across several states. DOJ ultimately charged the fraudster with defrauding victims out of more than $3 million through a property rental scam.
More recently, CNBC reported that technology developed by Walmart helped the Company identify and freeze millions of dollars in suspected gift card fraud, and Walmart turned those funds over to law enforcement—keeping them out of the hands of fraudsters and helping the government support fraud victims.
Walmart also works with corporate and non-profit partners to help prevent financial services fraud. For example:
- Walmart shares information about trends and patterns in reported fraud with money transfer principals MoneyGram, Ria, and Western Union.
- Walmart participates on the Strategic Board of Advisors for the Knoble, a non-profit network of financial crime experts, on an initiative to combat financial services fraud.
Walmart Educates Customers to Help Prevent Fraud
Walmart provides warnings and customer-facing resources to help our customers recognize frauds and scams before they fall victim. These resources are available in Walmart Money Centers and online.
- Walmart has customer-facing fraud warnings in our stores to raise consumers’ awareness and prevent fraud.
- Walmart provides fraud awareness brochures in English and Spanish.
- Walmart plays fraud warning videos in more than 3,700 stores on prominent big-screen televisions in the money center or at the customer service desk. These videos provide information about various specific scam types.
- Walmart also provides customers a printout prior to money transfers being completed (or disbursed electronically if the money transfer is staged online or via a MoneyCenter kiosk). This printout contains warnings about fraud and contact information for reporting fraud.
- Consumers who initiate money transfers online are also warned about potential scams. Walmart’s webpage dedicated to money transfers contains a comprehensive fraud warning, which educates customers about telemarketing scams, how to recognize when they may be the target of a scam (like if they have been asked to make a transfer in order to receive lottery winnings, or to pay the IRS or police to get out of a warrant), and how to submit a complaint to MoneyGram, Ria, Western Union, and/or the FTC. The warning also contains links to helpful resources, including the IRS’s “Common Tax Scams” page, the FTC’s article “How to Avoid A Scam,” and a report from the National Council on Aging entitled “Top 10 Financial Scams Targeting Seniors.” This information is available on the money transfer home page, educating customers before they even begin the process of sending a transfer.
- Walmart also has an entire section of our website dedicated to fraud information, which includes, among other things, information on various frauds and scams, such as government imposter scams, grandparent scams, and tech support scams. The fraud webpage also educates consumers on techniques fraudsters may use and tips on how to avoid fraud—such as not providing gift card numbers over the phone. It also includes a link to the FTC’s fraud report website (reportfraud.ftc.gov), and encourages customers concerned that they may have been defrauded to contact the FTC or the Consumer Fraud Division of the customer’s state’s Attorney General’s office.
Walmart Trains our Associates to Help Fight Fraud
Walmart associates are part of a large team dedicated to preventing fraud. Before Walmart associates can process money transfers, they must complete computer-based anti-fraud training. Each year they go through additional computer-based training on Walmart’s financial services compliance procedures and how to apply those procedures to identify, prevent, and report fraud and other suspicious activity. Walmart has developed our own register “lock-out” function so that associates who are not current on required training cannot process money transfers.
Through Walmart’s anti-fraud training, associates who process financial services transactions are trained to recognize red flags suggesting potential fraud, such as customers who are on the telephone with someone instructing them to send money, customers who are concerned about an emergency situation, or customers who have not met the sender or receiver of a money transfer. Walmart also trains associates to ask customers questions, such as how they know the receiver and why they are sending money. And associates are trained not to process the transaction if they suspect fraud.
Associates are also prompted to ask specifically whether customers are conducting a money transfer based on outreach from a telemarketer. If the customer says that he or she is sending money to pay for a telemarketing purchase, Walmart’s point of contact services system (“POCS”) terminates the transaction.
In addition to annual computer-based training, Walmart takes other steps to educate associates about fraud, including:
- Providing telephonic trainings;
- Providing on-site store trainings;
- Providing other anti-fraud messaging to Walmart associates throughout the year, such as before the holiday season or tax season when the risk of fraud might be higher;
- Displaying information about consumer fraud reports for a particular store on the POCS, which is the screen associates use to process financial services transactions;
- Making training documents available on the POCS so associates can learn to prevent common types of fraudulent transactions; and
- Displaying a daily knowledge check question through the POCS that appears when associates sign into their register, thus providing a resource for continuing education on fraud prevention.
Walmart’s Consumer Fraud Team and Fraud Monitoring
Within our Financial Services Compliance team, Walmart has a Consumer Fraud Team dedicated to anti-fraud measures including, but not limited to, the following:
- Analyzing information about money transfers to identify stores where associates may need additional training;
- Analyzing information about money transfers and fraud reports to determine whether associates should be alerted about particular fraud types or trends; and
- Visiting and evaluating stores based on risk and recommending remediation as needed.
Walmart uses fraud controls along with other aspects of our comprehensive program to prevent fraud. Two primary controls are Walmart’s proprietary Store Referrals (STaR), real-time interdiction tool, and customer blocking.
- STaR: Walmart developed STaR (formerly known as eMSAR), a proprietary tool designed to enable associates to easily report and prevent fraud. The STaR screen on the POCS allows associates to report and stop suspicious transactions, and it has been used to stop at least 450,000 suspicious transactions as of May 2022, totaling more than $740 million.
- Blocking & Interdiction: On a regular basis, the Consumer Fraud Team reviews money transfers reported as fraud and adds known receivers of reported fraud-induced transfers to a block list.
What’s Wrong with the FTC’s Misguided Lawsuit
The FTC’s complaint distorts the facts and the law to try and hold Walmart responsible for a miniscule amount of reported fraud, even though we had an extensive program to try to stop such fraud, and continuously improve our anti-fraud efforts to this day. While the FTC faults Walmart for not stopping every reportedly fraud-induced transfer, the fact is that Walmart has worked hard to stop fraud and our associates have stopped hundreds of millions of dollars in suspicious transactions. Below are just some of the problems with the FTC’s lawsuit:
One major flaw with the FTC’s lawsuit is that it tries to shift blame to Walmart for reported fraud the FTC itself has already said was caused by a money transfer principal—and that happened while that company was under a federal government compliance monitor. Specifically:
- In 2018, the FTC publicly said that a money transfer company failed to prevent millions in fraud because it did not do what it was supposed to under a 2009 consent order with the FTC.
- Much of the reported fraud the FTC cites in its complaint against Walmart occurred when, according to the FTC, a principal’s interdiction system—its program for blocking potential fraud—was not working for 18 months.
- The company’s fraud interdiction system was supposed to hold and prevent the payout of potentially fraud-induced money transfers, and the FTC acknowledged that the 18-month system failure allowed millions of dollars in fraud-induced money transfers to be processed.
- That massive system failure happened while the money transfer company was under federal government oversight, including the FTC consent order and a federal government compliance monitor. Today, the FTC tries to shift the blame to Walmart for what it has already said were another company’s failures—which happened on the government’s watch.
Truth about Training
Another big problem with the FTC’s lawsuit is that it wrongly claims that Walmart did not train associates to deny payouts to suspected fraudsters.
- This claim appears to be largely based on an apparent typo on one page of a training document from years ago, and is in spite of the fact that other trainings at Walmart instructed exactly the opposite of what FTC claims.
- You can look at Walmart’s training and judge for yourself—below is just one vivid example of how Walmart empowered associates to stop fraud.
End-run Around the Supreme Court
Not only is the FTC’s complaint untethered to the facts, but it is also based on a flawed and novel legal theory that the FTC is pursuing after a landmark Supreme Court case said the FTC had been ignoring the law for decades.
- The FTC originally focused on pursuing Walmart under Section 13(b) of the FTC Act. But that became a problem for the FTC when the Supreme Court ruled on April 22, 2021 that for decades, the FTC had been wrongly using Section 13(b) to seek monetary remedies without authority. See AMG Capital Mgmt., LLC v. FTC, 141 S. Ct. 1341 (2021).
- The fact is Congress never gave the FTC the authority under Section 13(b) to threaten companies with claims for massive monetary amounts (or any monetary amounts). Instead, Section 13(b) allows the FTC to ask a court to impose “injunctive relief,” ordering a defendant to stop engaging in improper conduct.
- Except in Walmart’s case, as we described above, Walmart’s anti-fraud efforts are already robust, so there is no need for injunctive relief requiring Walmart to change. Walmart has never been in the business of scamming consumers or intentionally enabling fraudsters to scam our customers, so there is no improper Walmart conduct for a court to block.
- But the FTC appears more interested in chasing headlines and big dollars, rather than working with companies like Walmart to fight fraud.
- Thus, the FTC pivoted their focus in this case after AMG to a distorted interpretation of the “Telemarketing Sales Rule” to effectively try and hold Walmart strictly liable for money transfers that third-party criminals reportedly persuaded some consumers to send. Switching their main legal theory to the “Telemarketing Sales Rule” is an obvious attempt to get around the Supreme Court’s ruling in AMG.
- The FTC has never litigated the “Telemarketing Sales Rule” in the controversial way it’s now doing in the agency’s new lawsuit against us. The “Telemarketing Sales Rule” is designed to regulate telemarketers. But there’s no allegation Walmart was a telemarketer and Walmart was not in league with illegal telemarketers. To the contrary, Walmart fights very hard to block telemarketers and scammers and help law enforcement put scammers behind bars.
- Instead, the FTC has distorted the law to claim that whenever a fraudster is successful scamming a victim, Walmart—rather than the third-party scammer—should be on the hook for the money victims lost to the scammer, even though Walmart tried hard to stop the scammers. The FTC’s legal theory is called “strict liability,” and it just isn’t supported by the law.
- We believe the courts will see the FTC’s lawsuit for what it is: an unprecedented and unfair end-run around the Supreme Court to attempt to expand the Commission’s authority far beyond what any statute or its own rules allow.
- In fact, Chair Khan recently gave an interview where she made clear that under her leadership, the FTC is ready to bring lawsuits the FTC will lose—and will bring those lawsuits not to enforce existing law, but rather to change the law.
Why Walmart Thinks the Case Should be Dismissed
On Monday, August 29, Walmart asked the federal court handling the FTC’s lawsuit to dismiss it. Walmart’s brief lays out several reasons why the FTC’s case is legally flawed and shouldn’t go forward. In short, the FTC is trying to hold Walmart liable for the criminal actions of completely unrelated third-party fraudsters, in spite of Walmart’s extensive efforts to prevent those very fraudsters from defrauding its customers, and despite lacking the constitutional or statutory authority to bring its lawsuit. To be clear, Walmart is now—and always has been—dedicated to its customers and shares the FTC’s goal of protecting customers from fraudsters. But this lawsuit is an egregious instance of agency overreach. The FTC’s authority is limited by the Constitution, by the FTC Act, and by its own regulations. None of those sources supports the FTC’s claims.
Here are a few of the arguments in Walmart’s motion:
- The court should dismiss the FTC’s novel “Telemarketing Sales Rule” claim. The FTC is trying to contort a regulation called the “Telemarketing Sales Rule” that was designed to go after telemarketers and those who actively assist them—but Walmart is neither. As Walmart explains, the FTC does not allege that Walmart engaged in telemarketing in violation of the rule. And the FTC does not claim that Walmart interacted with illegal telemarketers, induced telemarketing transfers, encouraged telemarketing in any way, or had any knowledge of specific telemarketing transactions. Instead, the FTC advances a novel theory that Walmart is liable because it processed routine money transfers requested by Walmart customers, and a small sliver of those requested transfers allegedly turned out to have been induced by third-party telemarketing scams. That sort of routine conduct does not count as “substantial assistance” under longstanding principles of tort law. And, in any event, the FTC does not identify a single specific transaction that satisfies the TSR’s multi-prong definition of “telemarketing.”
- The court should dismiss the FTC’s claim that Walmart’s conduct was “unfair.” There are many problems with the FTC’s Section 5 claim that Walmart’s conduct was unfair. The FTC didn't identify any Walmart practice—past or present—that qualifies as “unfair” under the Seventh Circuit’s longstanding interpretation of Section 5. If anything, Walmart’s conduct is the opposite of “unfair” because, as the FTC’s own lawsuit shows, Walmart adopted a host of measures to stop scammers with the “goal” “‘to educate, detect, investigate, respond, and deter consumer fraud against our customers.’” While the FTC gestures towards anti-fraud measures that it wants Walmart to implement, it has no authority to use Section 5 to second-guess Walmart’s program. As a federal appeals court recently ruled, the FTC has no authority to act as a freewheeling compliance auditor or inspector general, “micromanaging” the details of a company’s anti-fraud program “in accordance with the FTC’s wishes.”
- The FTC lacks constitutional authority to bring this case. Decades ago, the Supreme Court ruled that the Constitution permits the FTC to be an independent agency only because at the time, the FTC didn’t exercise what the Supreme Court calls “executive power.” But in the years since that ruling, Congress has purported to give the FTC new powers, like the authority to bring lawsuits like this one for monetary and injunctive relief. Recent Supreme Court rulings make it clear that filing lawsuits for monetary and injunctive relief is “executive power," which the Supreme Court has already said the FTC cannot constitutionally exercise.
Walmart is going to keep doing what we have been doing—working to provide customers with important financial services at low, transparent prices. We are going to continue working hard to prevent third-party criminals from using money transfers to defraud consumers. And we are going to defend ourselves vigorously against this lawsuit.
The FTC’s decision to pursue Walmart raises serious questions, including about the government’s own conduct. Among other things, we want to know how MoneyGram’s colossal interdiction system failure could have happened—for 18 months—while MoneyGram was supposed to be under government supervision. We want to know when and how the government found out about this failure, and what if anything the government did to warn customers and MoneyGram agents like Walmart about this failure. We have already started asking those questions through a FOIA request we filed weeks ago.
In the meantime, we will keep focusing our attention where it belongs—on improving the lives of our customers.