Capital Corner: Payment Fraud Rises to Top of the Agenda

But is the cure worse than the disease? So, if a bad bill doesn’t become a law in Congress, there’s nothing to worry about, right?

Not necessarily, as new legislation aimed at payment fraud illustrates how issues in Washington tend to percolate far beyond the halls of Congress.

Here’s what’s happening: A bill co-sponsored by consumer crusader Sen. Elizabeth Warren (D-MA) and key House member Maxine Waters (D-CA) has attracted headlines. It also has little chance of reaching the President’s desk, but still sparks worry in the credit union system.

The “Protecting Consumers from Payment Scams Act” is aimed at beefing up consumer protections in the event of fraudulent payments, allegedly initiated by a consumer through deceptive means, and sent to a bad actor through Zelle or similar platforms. The measure does three primary things:

1. Protects consumers when they are defrauded into sending a payment to a bad actor and requiring firms that facilitate these payments to share liability
   
2. Clarifies that consumers are protected when they use credit union or bank wire transfers and electronic transfers authorized by telephone
   
3. Ensures that error resolution duties apply if the consumer’s account is frozen or closed, unless access has been denied due to a legal order, or the consumer obtained the funds through unlawful means

​DCUC stands strong against this congressional overreach. In an August 20 letter, DCUC Chief Advocacy Officer Jason Stverak wrote the bill’s sponsors that “expanding the EFTA will not solve the problem of fraud and scams and may have the unintended outcome of increasing fraud and scams…our members play a crucial role in maintaining the safety and soundness of the payments’ ecosystem, but they cannot be solely responsible for preventing fraud and scams. While we acknowledge the intent behind the “Protecting Consumers from Payment Scams Act,” expanding the scope of the EFTA alone will not address the evolving nature of criminal activities and could inadvertently hinder our credit unions’ ability to offer essential payment solutions.”

Lack of time on the congressional calendar and the explicitly partisan nature of the legislation means the “Protecting Consumers from Payment Scams Act’ won’t become law. But the regulatory and judicial arenas are a different story, as CFPB is signaling an aggressive course of action in the coming months against Zelle-type payment fraud allegations.

CFPB has announced an investigation of JPMorgan Chase over allegedly improper transfers of customer funds through Zelle. According to a regulatory filing (coincidentally) revealed the same day that the Payment Scam legislation was introduced, CFPB staff notified JPMorgan that they were investigating charges against the bank that could lead to a CFPB enforcement. JP Morgan promised to contest this, saying that “CFPB is fully aware we already go above and beyond what the law requires, reimbursing for all unauthorized transactions and even for certain types of scams, so they should expect to be challenged to ensure their actions stay within the bounds of the law…JP Morgan will seek assistance from courts to uphold the integrity of these services.”

Financial institutions are required to reimburse customers for unauthorized, fraudulent transactions. But they aren’t required to reimburse customers who are duped into transferring money to scammers.

The slower, complicated congressional arena is clearly not the venue of choice for aggressive consumer advocates intent on sticking credit unions and banks with costs incurred by fraudster misdeeds and consumer naïveté. Credit unions must be active in explaining to policymakers that a more balanced, rational way forward must be found.