Online Fraud Detection on Western Union settlement highlights risk of wire transfer scams

The median loss on frauds involving money transfers was $600 last year, twice as much as 2015, according to fraud.org.

Around 39,000 Texans will receive restitution for wire fraud scams involving Western Union in a $586 million settlement announced by the U.S. Department of Justice last month.

The settlement is on top of a $5 million settlement reached last week with Texas and 48 other states over the same issue — complaints by people who used Western Union’s wire transfer service to send money to third parties who were involved in schemes to defraud them.

In both cases, Western Union, the largest money service business in the world, has agreed to implement an anti-fraud program that includes mandatory training of its agents on fraud-induced wire transfers, heightened anti-fraud procedures and other measures to prevent scams through its wire service.

“This settlement serves as a cautionary tale that scam artists are always looking for new ways to fool people into wiring them money, including schemes purportedly involving family members, romantic interests, lotteries and contests,” said Texas Attorney General Ken Paxton in a statement. “Western Union has agreed to establish an anti-fraud program, which should help ensure consumers can safely wire funds and avoid being ripped off by crooks.”

Paxton’s office said the 39,000 Texans had previously filed complaints about being victims of a fraud-induced money transfer through Western Union. The federal government will appoint a third-party settlement administrator and send notices to eligible consumers by reviewing the complaints and Western Union’s databases.

The Department of Justice has set up a website for victims to check on progress of restitution at www.justice.gov/criminal-mlars/remission. The amount each victim receives will be based on the complaint and amount lost.

Wire transfers are still the most common form of money transfers used in scams, according to the 2016 Top Ten Scam Report compiled from complaints to the National Consumers League. Wire transfers made up 39 percent of payment methods last year, the report said.

But there are other ways scammers can get your money. According to the report, which was based on 7,000 complaints filed to Fraud.org, credit cards were used 30 percent of the time in scams and debit cards 12 percent.

Last year showed a big jump in the use of gift cards, particularly iTunes cards. In 2016, Fraud.org saw a 30 percent increase in complaints where the payment method included gift cards. In these cases, the victim is asked to load funds onto a gift card and then give the code and PIN number off the back of the card to the scammer, who then deducts funds from the card, leaving the consumer with little recourse to obtain a refund.

Fraud costs are on the rise. According to the report, the median loss was $600 last year, double the cost in 2015. Romance scams, in which victims were in a friendship or relationship with the swindler, continued to be the most expensive, with a median loss of $2,000.

For the fourth year in a row, internet merchandise scams topped the scam list, making up 30 percent of complaints reported to Fraud.org. Many consumers come into contact with these scams through merchandise advertised at deep discounts on a website, social media platform or internet forum, according to the NCL. Scammers offered the discounts on goods like iPhones, sneakers, luxury apparel, video game systems and pets.

In many cases, victims reported being contacted again after not receiving the goods and instructed to send more money to cover fake “shipping” or “insurance” charges.

Some examples of internet merchandise sales scams reported to Fraud.org:

  • Anna in California paid $3,500 for a used Honda. The seller spoofed a third-party payment site, requesting the funds in iTunes gift cards. The car was never delivered.
  • John in Indiana paid $600 for a Rottweiler puppy named Roscoe, who never arrived.
  • Jennifer in Texas bought nearly $400 worth of non-existent airline tickets through a fake site.
  • Irene in Chicago ordered NFL jerseys through a website claiming to be an official NFL gear vendor. What arrived were clearly low-quality knockoffs.

The best way to avoid merchandise scams is to shop around, said an NCL spokesman. A price far below what other merchants are asking is a red flag.

“The convenience of online shopping is simply unbeatable for many consumers,” said John Breyault, director of Fraud.org. “Obviously there are plenty of legitimate companies online, but there are also fraudulent sellers out to cheat consumers — and they are very good at what they do.”

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