FTC to Ban Remote Checks, 'Noncash' Payments Used by Fraudsters

FTC to Ban Remote Checks, 'Noncash' Payments Used by Fraudsters Remotely created checks and payment orders are byproducts of advanced technology and the creative minds of fraudsters who use telemarketing as a means to debit consumers’ bank accounts.
The Federal Trade Commission is now moving to ban such “novel” noncash payment methods by amending federal law aimed at telemarketers.
These payment methods differ significantly from standard credit card or debit card transactions.
In place of the payer’s signature, the remotely-created check bears a statement indicating that the account holder authorized the check or that the “signature is on file,” the FTC explains in its proposed rule-making that will go through the customary public comment period.
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. The remote check can then be deposited into the merchant’s bank account. This is why remotely created checks are more susceptible to fraud than paper checks.
The agency also wants to prohibit telemarketers from using cash-to-cash money transfers handled by companies like Western Union and MoneyGram, and cash reload mechanisms such as Green Dot MoneyPaks or REloadit.
These novel payment methods are “governed principally by state laws and remittance transfer regulations that do not provide consumers with adequate recourse when unauthorized transactions or telemarketing fraud occurs,” the FTC says.
Changes in banking regulations and advances in technology now enable banks to accept and exchange electronic images of paper checks, including “substitute checks.”
As a result, telemarketers, sellers, and payment processors can deposit scanned images of paper-based checks, including remotely created checks, into the check-clearing system.
The FTC’s proposed changes to the Telemarketing Sales Rule would stop telemarketers from dipping directly into consumer bank accounts by using unsigned checks and “payment orders” that have been remotely created.
The changes would also bar telemarketers from getting paid with traditional “cash-to-cash” money transfers, as well as “cash reload” mechanisms that scammers rely on to get money quickly and anonymously from consumers.

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