Citing Fraud Risk: The FTC Seeks to Bar Telemarketers from Using Four Payment Methods

Jul 01, 2013

Telemarketers face the possibility of being banned by the Federal Trade Commission (FTC) from making use of remotely created checks as well as three other payment transactions.

The proposed rule making posted this week by the Federal Trade Commission (FTC), aims at bringing a sweeping ban by stopping the collection of payments through prepaid cards authorization codes, remittances and payment orders by telemarketers. Comments about the proposed rule have until the 29th of July to be sent.

“The proposed rule is technically an amendment to the regulator’s Telemarketing Sales Rule (TSR), which implemented the 1994 Telemarketing and Consumer Fraud and Abuse Prevention Act.”Citing Fraud Risk, the FTC Seeks to Bar Telemarketers from Using Four Payment Methods. The proposed rule puts an end to the charging of an advance fee, usually charged for recovery services in the pretence that it restores money to those consumers who have been defrauded previously.

Initially intended for putting a stop to telemarketing related fraud, the proposed rulemaking would in-effect cover all telemarketing transactions therefore curtailing a substantial market portion for any of the four targeted payment methods that payment processors handle. Federal Trade Commission officials have lost patience and have been making warning remarks at payment industry shows, about the level of fraud associated with such payment methods. The proposed rule doesn’t give an exact amount of losses incurred, other than giving an estimate being in the hundreds of millions of dollars.

In a recent such fraud case, First Bank of Delaware incurred civil fines amounting to $15 million so as to settle a lawsuit filed by the U.S. Department of Justice against the bank and the bank also paid out $500,000 in consumer claims. The bank had been working with independent sales organizations so as to process checks created remotely, the bank reportedly overlooked return rates that exceeded 50%. Eventually First Bank of Delaware ended up selling its assets and deposits to Bryn Mawr Bank Corp., Bryn Mawr, Pa and dissolving itself.

“Payment processors play an indispensable role in furtherance of their clients’ fraudulent and deceptive schemes.” This was the Federal Trade Commission (FTC) response to independent sales organizations (ISOs), who it sees as allowing telemarketing fraud through the four payment methods it seeks to ban. There was no immediate comment from the Electronic Transactions Association, a trade group for ISOs and other payment processors based in Washington. D.C.

The exact figures associated with such transfers are difficult to come by. The proposed rule making looks at surveys that show high occurrences of fraud in cross-border remittances. The proposed rule makes reference to cases of fraud related to authorization codes. “The Commission, consumer advocates, [the American Association of Retired Persons], and the Better Business Bureau have observed a significant increase in the number of scams involving cash reload mechanisms,” it says.”These schemes have involved payments made to cover taxes on purported lottery winnings, settle phony debts, pay for advertised goods and services, and obtain advance fee loans.”

Both forms of cash transfer have enabled too much fraud, the FTC says. “The Commission’s experience in combating telemarketing fraud operators that use these transfers to pocket consumers’ money, and pursuing the third parties that assist and facilitate them, suggests that the use of these transfers in telemarketing is an unfair practice, and that prohibiting them would serve the public interest,” the FTC says in the rule making.

 

 

 

References

Citing Fraud Risk, the FTC Seeks to Bar Telemarketers from Using Four Payment Methods. Digital Transactions. May 23, 2013.”News.” N.p., n.d. Web. 25 June 2013.

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