Helping Consumers Harmed by Payment Fraud

Criminals plot seductive fraud schemes and carefully utilize forms of payment that best enable them to receive money quickly, without a consumer being able to stop or reverse the payment. This article explains practical steps and legal rights that may allow consumers to get their money back, depending on the payment method used by the consumer. 

This article also summarizes key information for consumers harmed by payment fraud, and more detail is found in NCLC’s Consumer Banking and Payments Law.  Rights to recover on credit card payments are discussed in NCLC’s Truth in Lending. In addition, ongoing updates to this article will be found in NCLC’s Consumer Banking and Payments Law § 1.5, free to the public.  NCLC makes the first chapter of each of NCLC’s 20 treatises in the Consumer Law Practice Series free to the public.

This article’s first section summarizes several payment methods that are frequently used by criminals as part of a fraud scheme. The second section summarizes three types of payments that could point to the possibility of a fraud scheme.  The article then turns to a discussion of practical steps and legal rights to get money back for consumers based on each of the common payment techniques fraudsters use to receive the consumer’s payment.

The Basics

  —Payment Methods That Frequently Point to a Fraud Scheme

A person contacting a consumer unexpectedly and requesting or asking the consumer to transfer money using any of the following forms of payment is highly likely to be a fraudster. These payment methods are not generally used by legitimate debt collectors, government agencies, utilities, or other companies to whom the consumer may owe money. Some of these payment methods are illegal for telemarketing operations, even those that are not frauds. Practitioners should be familiar with these payment methods:

• Crypto-assets (also known as crypto-currency or virtual currency): Consumers may be asked to deposit funds into a Bitcoin ATM or to transfer funds to a crypto exchange or crypto wallet. The fraudster may claim the crypto-assets are in the consumer’s name but the fraudster quickly transfers them away. Crypto-assets, and bank transfers to crypto exchanges, are examined at NCLC’s Consumer Banking and Payments Law §§ 7.3.3.8,  7.14.
• Bank transfers through Zelle: Zelle is a service that is used to instantly transfer funds from one bank account to another. Although Zelle has many legitimate purposes, its speed and ability to be linked to fraudulent accounts make it a popular choice among fraudsters. Zelle transfers can be harder to reverse than traditional electronic payments. Zelle is discussed in NCLC’s Consumer Banking and Payments Law §§ 7.1.5,  7.3.3.1.
• Person-to-person (P2P) payment apps: Payment apps such as PayPal, Venmo, Cash App, and Google Pay are another way to instantly transfer funds from one person to another. The apps may draw on funds from a linked debit card or funds held in the app account. These apps are a popular method for people to send money to other individuals or small businesses. But they can lack the robust fraud controls that bank accounts have. Their speed and the ease of setting up accounts make them attractive to criminals. P2P payments are a type of electronic fund transfer discussed in NCLC’s Consumer Banking and Payments Law §§ 7.3.3.1,  9.3.
• Gift cards: Fraudsters may convince a consumer to go to a nearby store (e.g., Walmart, Target, Walgreens, or CVS) to purchase a gift card or to purchase one online or through a smartphone. The fraudster may even be on the phone with the consumer while the card is being purchased. The scammer then directs the consumer to scratch off the security film on the back of the gift card (if it is a physical card) and to read out the numbers to the fraudster. The fraudster can then remotely access and retrieve the gift card’s value or, more commonly, the gift card information will, with blazing speed, be sold and resold on a secondary market. The eventual buyer depletes the card of its value soon after the consumer’s gift card purchase. Gift cards are examined in more detail in NCLC’s Consumer Banking and Payments Law § 8.13.
• Cash-to-cash money transfers: The consumer is told to bring cash to a money transfer provider (such as a store acting as an agent for Western Union or MoneyGram) that transfers the value of the cash to another location, often overseas, where the fraudster can pick up the cash. Federal law prohibits telemarketers from using this type of payment.  See 16 C.F.R. § 310.4(a)(10) and defined by 16 C.F.R. § 310.2(f).  See also NCLC’s Consumer Banking and Payments Law § 9.3.
• A cash reload mechanism: The consumer pays cash and a small fee to a retailer for a card or other device that can be used to load cash onto a general-purpose, reloadable card. These reload devices (such as MoneyPak, Vanilla Reloads, or Reloadit packs) come with an access code or PIN number. When the consumer provides the access code to the fraudster, they can then immediately transfer value from the reload device onto their own prepaid card. Federal law prohibits telemarketers from using this form of transfer.  See 16 C.F.R. § 310.4(a)(10) and defined by 16 C.F.R. § 310.2(g).  Cash reload devices are a form of gift card. See NCLC’s Consumer Banking and Payments Law §§ 8.13,  9.3.3.
• Bank wire transfers: Fraudsters may tell consumers to go into their bank to make a wire transfer or initiate the wire transfer online through their banking app or bank website. Wire transfers are a common way of making large payments, such as a home purchase, but they are not typically used for ordinary payments. Wire transfers generally do not have the same consumer protections as other types of electronic transfers. Bank wire transfers are discussed in NCLC’s Consumer Banking and Payments Law § 9.4.
• Express mail of cash: Some fraudsters ask the consumer to pay in cash, mailed to the fraudster by USPS, FedEx, UPS, or similar next day or other speedy services.

  —Another Red Flag: A Request for The Consumer’s Bank Account and Routing Number

Fraudsters, telemarketers, or other callers may ask for the consumer’s bank account and routing number to debit the consumer’s bank account. Those account numbers can be used to take money out of the consumer’s account in three different ways, as listed below. Remotely created checks and payment orders are illegal for telemarketers to use and are rarely used at all except as an evasion tool. While entities other than fraudsters, such as creditors and debt collectors, may use electronic fund transfers through the ACH system, it is far safer and far less likely to be part of a fraud scheme if the caller is willing to take a credit or debit card. 

• Remotely created checks (RCCs) and remotely created payment orders (RCPOs): These are created when a fraudster obtains the consumer’s bank account and routing number and creates a check that, instead of bearing the consumer’s signature, includes language such as “authorized by drawer,” which can operate as a legal signature if it is authorized. If printed and deposited, it is an RCC. If never printed and the image is deposited electronically, it is an RCPO. Federal law prohibits telemarketers from using RCCs and RCPOs. See 16 C.F.R. § 310.4(a)(9) and defined by 16 C.F.R. § 310.2(cc). For more detail on RCCs and RCPOs, see NCLC’s Consumer Banking and Payments Law § 3.16.  
• Electronic fund transfer through the ACH system: A bank account and routing number can also be used to process an electronic fund transfer (EFT) from the consumer’s bank account. The ACH system is the primary electronic system that is used both for direct deposits to consumer accounts and for preauthorized debits from accounts (unless a debit card number is used). ACH payments are legal for telemarketers, and the ACH system has controls against fraud (albeit imperfect) that the check system lacks. For more on EFTs and the ACH system, see NCLC’s Consumer Banking and Payments Law §§ 7.1.3,  7.5.2. 

  —Payment Was Sent—Now What? The Cardinal Rule: Complain Everywhere, ASAP, with as Much Documentation as Possible

Most payment methods used by fraudsters cannot be reversed (but some can be). While the fraudster is legally liable to the consumer, they are usually long gone or are bankrupt when found. Finding a fraudster, bringing a lawsuit, and recovering a judgment are generally not practical for an individual consumer harmed by payment fraud. With the exceptions, described infra, a consumer’s attempt to stop payment or reverse the payment is often too late or not possible.

Instead, a consumer’s best hope may be to file a complaint in as many places as possible, including with the bank or company involved with the payment system and with government authorities. The payment provider may be able to provide help, and an eventual government enforcement action (against the fraudster or even against a complicit payment provider or other facilitator) could result in an eventual recovery for victims.

Speed is of the essence: The consumer’s chance of recovering money is stronger if the consumer complains quickly, both to payment providers and to law enforcement such as the police and the FBI’s Internet Crime Complaint Center (IC3) at ic3.gov. Include as much documentation as possible as to the method of payment, but do not wait for that documentation before filing a complaint.

ReportFraud.FTC.gov is a one-stop website for any form of fraud through any method of payment. The website takes the necessary information from the consumer, provides guidance about next steps depending on the nature of the fraud and the consumer’s payment, and shares the information with more that 2,800 law enforcers. 

For legal aid and other consumer organizations looking for a data-driven way to track fraud reports that the organization files on behalf of consumers, contact [email protected] to get a dedicated link to ReportFraud.FTC.gov.

In addition to ReportFraud.FTC.gov, consumers should consider filing complaints directly with the following entities:

• The bank and any other payment provider or store;
• The police;
• The FBI’s Internet Crime Complaint Center (IC3) at ic3.gov;
• The Consumer Financial Protection Bureau (CFPB) at https://www.consumerfinance.gov/complaint/;
• The state attorney general;
• The AARP Fraud Hotline, 877-908-3360, (available to anyone regardless of age).

A recovery for the consumer can come from surprising places. Sometimes, even cash can be recovered by intercepting mail deliveries to the fraudster. Gift card companies, money transmitters, the FBI, the FTC, the US Postal Inspection Service, and others are looking for fraudsters and may have methods to block the consumer’s payment to the fraudster or otherwise assist the consumer in recovering the consumer’s payment. But this may not benefit a consumer harmed by payment fraud unless the consumer files a complaint with the appropriate entity.

For bank-to-bank wire transfers, the FBI’s Recovery Asset Team (RAT) may recover a complaining consumer’s money by contacting both banks and the fraudster. The RAT team focuses on larger losses.

The FTC, CFPB, and the Department of Justice have also recovered hundreds of millions of dollars from fraudsters and intermediaries such as Western Union, payment processors, voice over internet providers, and others that facilitate fraud schemes. When the CFPB pursues an enforcement action, it may be able to use its victim recovery fund to compensate consumers even when a fraudster is in bankruptcy. 

The best way for a consumer to be included in the list of restitution recipients in actions brought by these agencies is for the consumer to file a complaint and identify themselves as a victim, especially because the fraudster or payment provider’s records may not identify the victims. Filing a complaint is also important because an accumulation of complaints can lead to law enforcement actions against either the fraudster or complicit intermediaries that may lead to restitution.

Best Practices Involving Thirteen Different Payment Situations

  1. Payments Directly Out of the Consumer’s Bank, Prepaid, or Payment App Account

When payment to a fraudster comes from a consumer’s bank or prepaid account—such as by Zelle, a debit card, an ACH transaction, a bank-to-bank wire transfer, or by check—the consumer should immediately contact their financial institution to see if it can stop the transaction or otherwise return the money to the consumer. If the payment was initiated from Venmo, PayPal, Cash App, or another payment system, the consumer should complain there too.

Even if the payment cannot be stopped and there is no legal right to reverse it, the consumer should insist that the bank take a complaint, investigate it, and forward the complaint to the bank or payment provider where the payment was sent. While the money may not have gone directly into an account owned or controlled by the fraudster (it could go into a “money mule” account owned by another defrauded consumer), the receiving institution should be told that the account is being used for fraudulent purposes. That institution has obligations to prevent its customers from engaging in unlawful activities and may have ways of freezing or recovering funds. See NCLC’s Consumer Banking and Payments Law § 2.3.

In addition to complaining to the bank, especially if the loss is large, the consumer should immediately file a complaint with the FBI’s Internet Crime Complaint Center (IC3) at ic3.gov. The center will refer the matter to the appropriate agency. If the consumer transferred a large amount of money and provides full financial transaction information, the FBI’s Recovery Asset Team (RAT) may be triggered. According to the FBI, in 2023, the RAT assisted with 3,008 incidents involving losses of more than $758 million. The RAT helped freeze more than $538million, a 71% success rate. The consumer should also submit a complaint to the CFPB at https://www.consumerfinance.gov/complaint/.

  2. Consumer Payments by Mail—Cash, Money Orders, and Similar Items

If a consumer sends cash, money orders, or similar items to a fraudster via the U.S. Mail, the consumer should immediately call the U.S. Postal Inspection Service at 877-876-2455 to report the fraud. Fraudsters often require next day or other special delivery that will involve a tracking number and providing this information to the Inspection Service can be of great help. The Inspection Service has effective ways to help consumers in mail fraud cases—but time is of the essence.

Contacting the Inspection Service is always the best approach. Consumers with the tracking information can also try to have the Post Office intercept the consumer’s mailed package, as described here. If the consumer used UPS, FedEx, or another delivery service, contact that service instead.

To stop payment on a money order, contact the company that issued the money order right away. Since the money order will have been mailed to the fraudster, see the discussion, supra, regarding mailed payments.

  3. Gift Cards

When the consumer pays a fraudster using a gift card or prepaid reload pack, the consumer’s best course of action is to report the fraud to the gift card issuer. Time is of the essence, and the consumer should provide all receipts. There are no federal protections for payments by gift card other than fee and expiration limits, but the gift card issuer may help voluntarily. In the unlikely event that the card’s value has not been depleted, the gift card issuer may be able to block value coming off the card.

In addition, gift card issuers often have anti-fraud processes monitoring for suspicious activity and may unilaterally block a gift card coming from overseas internet sites or other suspicious locations. But the gift card issuer typically will not know the consumer’s identity because it is not linked to the card. By filing a complaint with the gift card issuer, the consumer can alert the issuer about the fraud and learn whether the value of the card was redeemed. If it was not redeemed (for example, the card issuer has blocked the gift card), it may be possible to obtain a refund. The card issuer may require that the consumer produce the physical gift card, the gift card receipt, and may even require that the consumer file a police report. 

Contact information for some of the most popular gift cards is as follows:

• Amazon—online or at 1-888-280-4331.
• Apple—online or at 1-800-275-2273.
• Best Buy—online or at 1-888-237-8289.
• eBay—online or via chat with a customer representative.
• Google Play—file a report online.
• MoneyPak (Green Dot)—file a report online.
• Reloadit—online or at 1-888-633-9434.
• Sephora—online or at 1-877-737-4672.
• Steam—file a report online.
• Target—online or at 1-800-544-2943.
• Walmart—online or at 1-888-537-5503.

  4. Check Deposit Fraud and Altered Checks

Many fraudulent payment schemes begin with a check payment to the consumer. There are many varieties of these schemes, including mystery shopping, personal assistants, car wrap decals, sweepstakes prizes, and overpayments. The consumer is given a check to deposit and is told that they can keep a portion of the check and then must send the remainder to the fraudster, often by gift card, money order, or wire transfer. The consumer deposits the check, sees that the money is in their account, and then withdraws or transfers funds to pay the fraudster. But the check deposit is later reversed after the check turns out to be fake or drawn on a closed account.

The best protection against these fraud schemes is to avoid them because consumers may have difficulty recovering their payments. These check fraud schemes (when the consumer is receiving a fake check) and potential consumer remedies are examined at NCLC’s Consumer Banking and Payments Law § 4.8.6.

Another type of check fraud occurs when a consumer’s valid check is stolen, usually from the mail, and then altered to change the payee and often the amount. Consumers have the right to dispute altered checks. Those rights are discussed in NCLC’s Consumer Banking and Payments Law § 3.9.10.

  5. Rights to Stop or Reverse Payments from Bank Accounts

State or federal law gives consumers the right to stop payment of checks (including RCCs and, in practice, RCPOs) and preauthorized, recurring EFTs (including recurring ACH payments and recurring debit or prepaid card payments). There is no right to stop one-time EFTs like debit card or Zelle transactions, or to stop wire transfers. Nacha rules (the private organization that oversees the ACH system) provide a stop payment right for some one-time preauthorized ACH payments, but not for other types of EFTs. 

But in practice, when a consumer has been defrauded, it will usually be too late to stop the payment. And neither the EFTA nor Nacha rules provide any right to stop or reverse consumer-initiated electronic payments, such as those made through Zelle, Venmo, PayPal, the Cash App, or wire transfers. But unauthorized electronic payments can be challenged after the fact, as discussed below. 

  6. Reversing Unauthorized Transactions; Distinguishing Unauthorized Transactions from Fraudulently Induced Payments

The rights and remedies available to a consumer who is a victim of payment fraud often turn on whether the payment was unauthorized or fraudulently induced. An unauthorized transfer can be challenged and reversed, as discussed below, but a fraudulently induced transfer generally cannot be, though there are some exceptions.

An unauthorized payment is one that was initiated by the fraudster without the consumer’s authorization. The fraudster may have obtained payment credentials—such as bank account login information or the dual-factor identification code—from the consumer because of a fraud scheme but the actual payment transfer was performed by the fraudster. Consumers generally have rights regarding unauthorized transfers, and those rights will be explained in the following sections.

A fraudulently induced payment, on the other hand, is initiated by the consumer. The consumer is defrauded into sending the money—for example, by using a P2P payment app, by buying and providing gift cards, or by sending a bank-to-bank wire transfer. Fraudulently induced payments that occur over faster payment platforms (e.g., FedNow and RTP®) are sometimes referred to as “authorized push payment fraud” or “APP” fraud. The legal rights or remedies a consumer may have for unauthorized transfers do not apply to fraudulently induced transactions where payment is made by the consumer. 

  7. Unauthorized Electronic Fund Transfers: Via Zelle, Payal, Venmo, Debit Cards, and Other EFTs

  —When Is an EFT Unauthorized?

The federal Electronic Fund Transfer Act (EFTA) and its Regulation E provide dispute rights for unauthorized electronic fund transfers (EFTs). The EFTA covers a wide variety of EFTs, including those made through the ACH system, debit or prepaid card payments, and consumer-initiated “push payments” like Zelle, PayPal, or Venmo. See NCLC’s Consumer Banking and Payments Law Chapter 7.

The EFTA defines an unauthorized transfer as one “initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit.” 15 U.S.C. § 1693a(12); 12 C.F.R. § 1005.2(m). All EFTs may be disputed as unauthorized if the payment was not initiated by the consumer, for example, when someone other than the consumer accesses the consumer’s account and transfers money without authorization. It does not matter if the consumer was negligent, as in writing their PIN number on a debit card, or if the consumer provided account access information such as an access code texted to the consumer’s phone. The consumer has 60 days from the sending of the monthly bank account statement containing the unauthorized charge to dispute. See NCLC’s Consumer Banking and Payments Law § 7.5; CFPB, Electronic Fund Transfers FAQs, Error Resolution: Unauthorized EFTs Q.5, Q.6, Q.7. The amount that a consumer can be held liable for an unauthorized transfer under the EFTA is discussed in NCLC’s Consumer Banking and Payments Law § 7.7.4.

But if the consumer initiated the EFT, for example by initiating a Zelle, Venmo, or other payment (like making a debit card purchase), the EFTA does not allow the consumer to dispute the charge as an unauthorized charge, even if the payment was induced by fraud. Of course, an exception is where the consumer’s payment was obtained through force. See NCLC’s Consumer Banking and Payments Law § 7.7.2.2.

If the EFT was made through the ACH system, Nacha rules provide more protection from unauthorized transfers than the EFTA if the transaction involved telemarketers. Under Nacha rules, a transfer is authorized only as a result of a telemarketing call if the telemarketer/fraudster obtained the consumer’s written or electronic signed authorization for the transfer. While exceptions to this signature requirement apply where the consumer provides transfer information over the telephone, these exceptions do not apply where a fraudster without an existing relationship with the consumer initiates the call (a cold call). Nacha rules thus define as unauthorized an EFT initiated through a cold call without the consumer’s signed authorization. See NCLC’s Consumer Banking and Payments Law § 7.5.3.

Finally, the EFTA specifies what conditions must be met for a consumer to effectively authorize reoccurring payments, or preauthorized EFTs (PEFTs), which are EFTs sent to a payee that recur at regular intervals. PEFTs must be authorized in writing, signed, or similarly authenticated by the consumer, in a form that is readily identifiable as an authorization with clear and readily understandable terms. 12 C.F.R. § 1005.10(b); Reg. E, Official Interpretations § 1005.10(b)-6. In some cases, the writing requirement may be satisfied electronically or even on the phone, such as by typing a code. PEFTs are discussed at NCLC’s Consumer Banking and Payments Law § 7.9.

  —Financial Institutions Must Investigate and Reverse Unauthorized Transfers

Whatever the merits of the consumer’s unauthorized use claim under the EFTA, the financial institution (including a bank, prepaid company, or P2P provider) must investigate the claim. See NCLC’s Consumer Banking and Payments Law § 7.8.3.4.  It generally must conclude the investigation within 10 days, unless the institution gives the consumer a provisional credit. Then the institution may take up to 45 days to complete the investigation. The institution must report its findings to the consumer, and if it determines that the charge was unauthorized, it must reverse the charge within one business day of that determination. The burden of proof is on the financial institution to show that the charge was authorized. For more on the EFTA’s error resolution procedures, see NCLC’s Consumer Banking and Payments Law § 7.8.

  —Disputing Fraudulently Induced EFTs 

In some cases, the private rules of the payment network (i.e., Zelle, PayPal, Venmo) or the website where an item was purchased (eBay, Amazon) may allow the consumer to dispute a charge if the consumer did not get what they paid for. Consumers do not have the same chargeback rights for debit cards, P2P payments, and other EFTs as they do for credit cards, discussed below. However, the private rules of the payment network may give the consumer additional remedies. For example, Zelle reimburses for some imposter frauds. PayPal (for both its PayPal service and Venmo) offers purchase protection if the sender selects the “goods and services” option, triggering a fee paid by the recipient rather than the “friends and family” option.  See NCLC’s Consumer Banking and Payments Law § 7.7.2.2.

It is also possible that some fraudulently induced payments, such as those made to imposters, could be disputed as errors even if they are not unauthorized. See NCLC’s Consumer Banking and Payments Law § 7.8.1.4.

  8. Prepaid Cards

The same rules under the EFTA for disputing unauthorized charges, with some slight adjustments to deadlines, generally apply to prepaid cards as to bank accounts, described above. (Technically, P2P apps such as Venmo or Cash App that store funds are also prepaid accounts, covered by the EFTA’s prepaid account rules.) But the EFTA’s protections only apply after the consumer has registered the prepaid card or account in the consumer’s name. See NCLC’s Consumer Banking and Payments Law § 8.3.4. Unregistered prepaid cards are essentially the same as gift cards. For more on prepaid accounts, see NCLC’s Consumer Banking and Payments Law Chapter 8.

  9. Bank-to-Bank Wire Transfers 

Bank-to-bank wire transfers (a wire transfer from a bank account to another bank account) using the Fedwire, SWIFT, or CHIPS systems generally fall outside the scope of the EFTA and are instead covered by UCC Article 4A. However, wire transfers must be examined closely as some may fit within the EFTA. See NCLC’s Consumer Banking and Payments Law § 7.3.3.7.

UCC Article 4A allows consumers to request the cancellation of a wire transfer, but the consumer’s bank generally has discretion as to whether to cancel the transfer if the payment order has been accepted or if provided by the agreement. Moreover, cancellation may not be effective if the payment order has been accepted by the beneficiary bank. See NCLC’s Consumer Banking and Payments Law § 9.4.8.

UCC Article 4A provides some protections against unauthorized transfers, but they are not as robust as the EFTA.  In particular, the bank may resist compensating a consumer if the bank verified the authorization using a commercially reasonable security procedure to which the consumer agreed. An attorney may be needed to help the consumer show that the security procedure was not commercially reasonable or the consumer did not agree to it. Article 4A provides no protection if the consumer initiated the wire transfer (i.e., a fraudulently induced transfer). See NCLC’s Consumer Banking and Payments Law § 9.4.6.

International wires, even if otherwise regulated by Article 4A, are regulated by the EFTA Regulation E’s remittances provisions. See NCLC’s Consumer Banking and Payments Law §§ 9.2, 9.4.4. The provisions give consumers the right to dispute certain errors, but unauthorized transfers and fraudulently induced transfers are not among those errors. See NCLC’s Consumer Banking and Payments Law § 9.2.4.1.

  10. Unauthorized Charges for Checks, RCCs and RCPOs

State UCC laws give consumers the right to dispute checks, RCCs, and, in practice, RCPOs that are not properly payable, such as where the “signatures” or payee on the check are forged, or the payment amount is other than it should be on the check (if, for example, the check has been “washed” and rewritten). Account agreements may provide a short time to file a dispute (typically 14 to 30 days). See NCLC’s Consumer Banking and Payments Law § 3.9.

  11. Non-Bank Wire Transfer and Money Transfer Services

Cash-to-cash money transfer services such as Western Union and MoneyGram are virtually the same as sending cash—there are no payment protections. Typically, there is no way to reverse the transaction or trace the money. When money is sent, the recipient can pick it up at one of many locations, making it nearly impossible to identify the recipient or track them down. Money transfer services are regulated by state money transmitter laws, but those laws mostly focus on ensuring that the funds make it to their destination, not on providing protections if the recipient is a fraudster. See generally NCLC’s Consumer Banking and Payments Law § 9.3.

It is illegal to use cash-to-cash money transfer services in a telemarketing transaction. See 16 C.F.R. § 310.4(a)(10). See also 16 C.F.R. § 310.2(f) (defining “cash-to-cash money transfer”). If the consumer, when initiating the transfer, informed the agent of the telemarketing nature of the transaction, the money transfer company may have liability for violating this federal requirement, even if the fine print of the agreement asks the consumer to certify that the transfer does not involve telemarketing.

A Western Union or MoneyGram wire transfer often does not involve a Western Union or MoneyGram office, but instead the consumer goes to a local store that is an agent of the wire transmitter, and the fraudster goes to a local store that also is a Western Union or MoneyGram agent. Western Union and MoneyGram may be investigating agents linked to fraudsters and may be willing to reimburse consumers where their agents participated in the fraud. 

The best approach is to immediately contact the company that transmitted the wire transfer to file a fraud complaint and ask for the transfer to be reversed: MoneyGram at 1-800-926-9400 or Western Union at 1-800-448-1492. As with other types of payments, the consumer should also file a complaint with ReportFraud.FTC.gov and other government authorities.

  12.  Crypto-Assets

Crypto-assets have become an increasingly popular way for fraudsters to receive funds. There are several different ways in which fraud schemes may involve crypto-assets:

• Funds may be transferred from a bank account to a crypto exchange or crypto bank, with or without the consumer’s authorization.
• Funds at a crypto exchange may be initially held in dollar-based accounts, before being transferred to purchase crypto-assets.
• Accounts holding crypto-assets may be hacked and the assets transferred elsewhere.
• Fake crypto-asset accounts may also be created, designed to create the illusion that funds are generating returns that can be withdrawn before the entire account is stolen.
• Fraudsters may ask consumers to deposit money into a crypto ATM (most often a bitcoin ATM or BTM), converting deposited cash to crypto and transferring to a fraudster’s wallet.

The EFTA might provide protection for unauthorized transfers in some of these situations, but the issues are complex. EFTA coverage may turn on (1) whether the transfer falls within the exception for transfers to purchase or sell a security or commodity, (2) whether an account at a crypto exchange, even if held in dollars, is an “account” within the meaning of the EFTA, and (3) whether crypto-assets are “funds” and thus meet the definition of an “electronic fund transfer.”  See NCLC’s Consumer Banking and Payments Law §§ 7.3.2.10, 7.3.3.2, 7.3.3.8. 

Even if the EFTA applies in theory, it may be difficult to find an entity to hold responsible, given the purportedly decentralized nature of crypto-assets. Moreover, as described above, the EFTA likely does not protect consumers from fraudulently induced transactions that the consumer initiates (as opposed to unauthorized transactions).

As with other frauds, the consumer’s best option may be to complain to as many enforcement agencies as possible in the hope of eventually benefitting from a restitution or victim recovery fund. In addition to complaining to the FTC, the FBI, the crypto exchange, the CFPB, and any bank involved, consumers should also complain to the Securities and Exchange Commission using this complaint form, the state attorney general, and the state money transmitter regulator. 

  13.  Credit Card Payments

Unlike most other forms of payment, the consumer has a good chance of reversing a credit card payment to a fraudster, and the consumer need not act immediately. While most fraudsters do not take credit cards, credit card rights are useful for resolving any problematic transaction where a credit card was utilized. 

Three independent federal rights protect consumers paying by credit card. Far more detail than the following brief summary on these three federal rights is found in NCLC’s Truth in Lending §§ 7.9, 7.10, and 7.11.

The first federal right makes a card issuer subject to all claims the consumer can raise against the fraudster. See 15 U.S.C. § 1666i. The consumer should not pay the disputed amount while asserting this federal right. There are three limitations to this right: (1) the matter must be over $50, (2) the consumer must have tried to resolve the matter with the fraudster (unsuccessfully reaching the fraudster should satisfy this requirement), and (3) the transaction must have occurred in the consumer’s home state or within 100 miles of the consumer’s address (state law will typically find the transaction occurred where the consumer was contacted, not where the call was initiated). See NCLC’s Truth in Lending § 7.11.2. This federal right applies to almost any claim the cardholder has against the scammer.

The second federal right relates to unauthorized use of the card, defined as “a use of a credit card by a person other than the cardholder who does not have actual, implied, or apparent authority for such use and from which the cardholder receives no benefit.” 15 U.S.C. § 1602(p). Unauthorized use protections may not apply where the consumer provides the card number for the specific use, such as in response to a fraud scheme. But if the fraudster or anyone else charges the card for something else, the use is unauthorized. Maximum liability for unauthorized use is $50 and in most cases the consumer will have zero liability, either by operation of law or by the card issuer’s policy. See NCLC’s Truth in Lending § 7.10.4. There is no written notice requirement or a deadline to make the claim of unauthorized use.

The third federal right relates to billing error resolution. See 15 U.S.C. §§ 1666–1666j. A billing error includes an unauthorized charge, a charge in a higher amount than authorized, or charges for goods or services not delivered, delivered late, or different from that agreed upon. Quality disputes are not billing errors. See NCLC’s Truth in Lending § 7.9.4. Federal law requires billing error notices to be submitted in writing, at the specified address for billing errors, and within 60 days of the card issuer sending a credit card statement that includes the disputed charge. The consumer’s notice to the card issuer should identify the consumer and the account number and state in general terms why the consumer is seeking a chargeback. For more information about billing error notice requirements, see NCLC’s Truth in Lending § 7.9.5.

The consumer’s initial notice to the card issuer will be sufficient to start the process, without the need to specify which of the three federal rights mentioned above is being asserted.  This initial notice can be done by calling the card issuer or often can be done through a consumer’s online account with the card issuer. The card issuer may provide a form for a written confirmation—otherwise the consumer should confirm in writing the request to cancel the charge. The Federal Trade Commission provides a sample dispute letter, but it may not be appropriate in all cases.

Thanks

Special thanks to Monica Vaca, Associate Director, Division of Consumer Response & Operations, Federal Trade Commission, for responding to our many questions in aid of the first version of this article published in 2020. NCLC is solely responsible for the content of this article, and it does not necessarily reflect the views of Ms. Vaca or the Federal Trade Commission.