Prepaid cards are increasingly used in scams

Criminals are persuading people to load cash onto prepaid debit cards that are easily bought at retailers.

Americans are loading billions of dollars a year onto prepaid cards to pay their bills, buy groceries, and fill up on gas. But these cards have also become popular with scammers, replacing wire transfers as the go-to vehicle for bilking consumers and governments out of money.

Instead of asking victims to send money via Western Union or MoneyGram, scammers are persuading people to load cash onto prepaid debit cards that are easily bought at retailers and neighborhood drugstores, but difficult to track after purchase.

The Federal Trade Commission reported nearly 85,000 complaints nationally about fraud involving prepaid cards in 2013, totaling almost $43 million.

In Massachusetts, authorities began receiving fraud complaints linked to prepaid cards in 2010, but three quarters of the nearly dozen complaints came to the office in the past year.

“Complaints about this issue have increased,” said Jillian Fennimore, a spokeswoman for Attorney General Maura Healey. “If someone you don’t know seeks payment through the use of these prepaid cards, that should be a red flag.”

Similar warnings from utility companies and police departments are on the rise. Earlier this month, following widespread reports of fraud involving state tax filings, Vermont went back to writing checks for refunds to some filers instead of sending the money electronically. The reason: to prevent money from being direct-deposited to prepaid cards that might belong to fraudulent users.

“It’s a real avenue for criminals,” said Mary Peterson, Vermont’s tax commissioner. “They’re impossible to trace.”

What makes these cards, such as Green Dot, Vanilla, and the countless others issued by retailers, popular with consumers — they’re convenient and easy to use, and no bank account is required — are the same characteristics that appeal to crooks.

The schemes used to get the money fraudulently haven’t changed much. Criminals will threaten consumers about unpaid debt or entice them with opportunities to make quick cash with lottery winnings or secret shopper jobs, said John Breyault, director of the Fraud.org website, operated by the National Consumers League, a nonprofit in Washington.

Often, the thieves pretend to be debt collectors for utility companies or government agencies, such as the Internal Revenue Service, and tell consumers to make a payment by using a prepaid debit card.

Once consumers get the cards and load the money on them, they’re asked to send the card or provide the card number. Using the numbers, the thieves can gain access to the cash on the cards.

Green Dot Corp.’s MoneyPak, which acts as a wire-transfer service to move money between prepaid cards, has frequently been targeted by scammers.

Using the personal identification number on the card, thieves have been able to move money or load it from their target’s card onto their own prepaid card.

Betty Goldman, a retired teacher from Boston, thought an offer she received through the mail after Christmas to be a secret shopper was legitimate.

Goldman was asked to test out the services at several retailers by buying four MoneyPak cards and putting $500 on each of them. She received a check for nearly $2,500 that was supposed to cover the cost of the MoneyPaks and her payment for the work and transportation costs.

She deposited the check and followed the instructions she received to load the cards and then e-mail the number on the card to the man who had contacted her.

But a few days later, the check had bounced, the money was drained from the cards, and her account at Bank of America was overdrawn. In addition to the money she lost, Goldman also had to pay overdraft fees.

“I didn’t do anything illegal,” Goldman said. “I was trying to do a good job, and I was had.”

Unlike when money is stolen from bank accounts through data breaches, banks generally require consumers scammed into giving away their money to pay overdraft penalties. T.J. Crawford, a spokesman for Bank of America, said the purchase of the prepaid cards is made willingly, so what happens afterwards is between the customer and the card company.

And unlike credit and debit cards, which have limits on how much consumers can lose through fraud, prepaid cards have no such protections.

The federal Consumer Financial Protection Bureau, however, is considering guidelines for prepaid cards, including extending to them some of the fraud protections on debit and credits cards.

Green Dot, the largest prepaid card company, will stop distributing MoneyPaks, and expects them to be off store shelves in March, in part because of their popularity with scammers as a money transfer device. The company estimated in 2013 that $30 million of the $20 billion loaded on Green Dot’s cards involved fraud.

But for Goldman, these changes come too late. She’s still trying to figure out how she will pay the bank for overdrafts fees and recover from her losses.

“I’m really going to have to spend months catching up,” said Goldman who remains upset about the whole experience. “It’s wearying and tiresome.”