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The unbanked are scam targets, too

Apr 28, 2018 Philip Burgess

The unbanked are scam targets, too

Convenience is king in the consumer market, and in the name of making buying easier, Americans have a plethora of ways in which to pay for goods and services, including credit card, debit, mobile device and prepaid cards. But at the same time, transaction simplicity has created an opening for identity thieves, who now have more opportunities to steal sensitive data that can cause financial ruin.

But it's important to note that the underbanked and unbanked are also in fraudsters' crosshairs. With an estimated 34 million households not having traditional banking services, according to the Federal Deposit Insurance Corporation, it's a cause for concern for a swath of the country's consumers.

"Nearly 40% of Americans use prepaid cards."

One of the more common vehicles by which money marauders bilk the unbanked is through prepaid card fraud. Prepaid gift cards are popular transaction vehicles, because they allow users to spend freely without worrying about overdrawing. They can also add funds electronically whenever they run out. Their simplicity has led to increased usage, as 38 percent of consumers use prepaid debit cards during the typical year, according to data from Blackhawk Network, more common than mobile wallets or peer-to-peer payment systems. Back in 2009, only 9.7 percent of households used prepaid cards, based on figures from the FDIC.

Consumers to load $116 billion onto prepaid cards by 2020
Prepaid card programs and products are an industry unto itself and growing stronger with each passing year. Indeed, according to the Consumer Financial Protection Bureau, the prepaid market swelled 42 percent in a recent four-year stretch, specifically between 2010 and 2014. By 2020, consumers are expected to load more than $116 billion combined onto prepaid cards, up from $65 billion overall in 2012. Because consumers have several prepaid cards to choose from - including but not limited to debit, open-loop, travel and transit - criminals have numerous prepaid purchase vehicles they can potentially exploit. One of the more recent targets was MoneyPak, a cash transfer product accepted by tens of thousands of retailers. As noted by CBS MoneyWatch, MoneyPak cards are independently identifiable by unique 14-digit code combinations, which users type in when buying products online or cashiers may manually enter for in-store transactions.

Pickpocketing provides instant access to the funds on prepaid cards, of course, but perpetrators employ a variety of other methods to swindle consumers, such as by impersonating IRS or law enforcement officials in order to trick victims into believing they're in receivership, meaning they owe money that hasn't been paid.

Brian Ruby, spokesperson for GreenDot, a financial services firm that developed MoneyPak, told Business Insider thieves go to every length to fleece prepaid card users and consumers in general.

"Fraudsters will call or email you, saying that you won a lottery or can buy discount merchandise at their phone websites," Ruby explained. 

The growth of prepaid card fraud has elicited the ongoing attention of the CFPB, who recognized the severity of the issue back in 2014. 

"We are taking another important step to expand the Bureau's handling of consumer complaints," former director Richard Cordray said in a press release at the time. "By accepting consumer complaints about prepaid products and certain other services, we will be giving people a greater voice in these markets and a place to turn to when they encounter problems."

"New prepaid card consumer protections will go into effect April 1, 2019."

Lawmakers and consumer protection officials are still keeping tabs on prepaid card fraud with new mandates providers must implement before April 2019. According to the CFPB, free prepaid card account monitoring will be required and consumers must be afforded a compensation recourse should their cards be stolen, lost or errantly charged.

Other scams that target unbanked consumers
Prepaid card scams aren't the only tactic fraudsters utilize to hoodwink the unbanked and underbanked. Other increasingly common strategies involve so-called "phishing" emails, lottery scams, fake jury duty notifications and job offer phone calls and emails. In these instances, scammers pretend to be business owners and trick those on the employment hunt into believing that in order to take advantage of an open position, they have to provide their Social Security information, or other identifying information. The FDIC noted fraudsters may also go about this ruse by informing targeted consumers the requested data is for background screening purposes, making it seem like compliance is their aim.

Microbilt is your identity verification and background screening headquarters. Whether you're a consumer or a business owner, Microbilt's authentication tools provide the intelligence that ensures whether an offer or transaction is on the up and up.