Regulatory loopholes create profit for scammers

The Federal Trade Commission is proposing to ban telemarketers from cashing the “remotely created” checks. These checks are created by the seller, which then tells a bank that the customer’s signature is “on file,” according to the FTC.

“Any merchant who obtains a consumer’s bank routing and account number can print a remotely created check with the proper equipment or the help of a third-party payment processor.”

Current laws require that “verifiable authorization” is needed to accept a remotely created check as payment for telemarketing purchase, but “unscrupulous” fraudsters are getting smarter at evading those rules, the FTC says.

Banks are now also beginning to accept images of checks, “instead of sorting and transporting paper checks around the country on a daily basis,” and those forms of payment would also be included in the new regulations.

Under the proposals, which would amend and embolden the existing Telemarketing Sales Rule (TSR), consumers could also no longer pay telemarketers with traditional “cash-to-cash” money orders or reloadable pre-paid cards that are often untraceable.

In 1994, Congress passed the Telemarketing and Consumer Fraud and Abuse Prevention Act, which authorized the FTC to create sweeping TSR regulations.

The commission also collects complaint data submitted by consumers and both public and private partners – including state law enforcement and consumer protection agencies, the Consumer Financial Protection Bureau the Federal Bureau of Investigation’s Internet Crime Complaint Center, the Council of Better Business Bureaus, among others.

During 2012, consumers lodged more than 2 million complaints eventually collected by the FTC, broken down into identity theft complaints and other types of fraud complaints.

Fraud represented more than half of the consumer responses last year – resulting in scammers taking an estimated $1.4 billion or more from Americans. The median individual loss came in at $535, as reported to the agency.

Of the 1.1 million individuals who described being swindled in 2012, more than half noted the method scammers used to contact them. Email and telephone rip-offs were most common, according to the accounts.

More than 208,000 fraud victims reported being deceived by telephone, while nearly 233,000 fell victim to e-mail scams.

If an individual does become a victim of fraud, the proposed changes would also make it easier to recover funds from banks. Especially in the case of the remotely created payments, consumers are often forced to initiate lawsuits before their money is returned.

Currently, the Uniform Commercial Code, a law governing remotely created checks “provides no way for a consumer to dispute or withhold payment before the funds are withdrawn from her account,” the FTC writes in its notice.

Unlike the Truth In Lending Act regulations, which offer strict consumer protections, Uniform Commercial Code “offers no specific obligation on a financial institution to re-credit disputed funds to a consumer’s account within a particular time frame,” the FTC said.

Regulations surrounding pre-paid debit cards that route and reload funds through electronic intermediaries also have murky protections.

Unlike a name-brand pre-paid card, which brandishes a major credit logo such as Visa, these payments are “essentially equivalent to a cash payment,” regulators warn. “Once the money is picked up or offloaded from a prepaid card, there is virtually no chance for the sender to recover the money, obtain a refund, or even verify the identity of the recipient.”

The current TSRs surrounding fraud only allow victims to recoup damages from a single telemarketing con, creating a loophole for repeat offenders.

But the commission said it found “telemarketers who call consumers offering to help recover losses they suffered through an earlier fraud are often engaged in deceptive practices,” so the changes would expand consumers to recover damages on any prior transaction, not just a telemarketing scam.