FIs Point to Law Enforcement for Solutions in Combating P2P Fraud

Source: American Banker

Financial institutions want law enforcement agencies to commit more time and resources to help combat fraud in real-time payments even as the Consumer Financial Protection Bureau is looking into holding banks and payment processors liable for errors made by consumers. 

Amid a massive increase in fraud, banks and payment processors claim they cannot be held liable when a consumer is tricked into sending a payment that later turns out to be a scam.

CFPB Director Rohit Chopra has sounded the alarm by calling the amount of fraud in the payments system "frightening," though he has not stated whether the bureau plans to issue guidance to address it. In the meantime, financial institutions want law enforcement to prosecute scams that have grown dramatically in the past two years. 

"There are things that banks have no control over, and it is vitally important that the government commit the resources and the time to combat fraudsters and scammers that are hurting both consumers and banks," said Rob Hunter, deputy general counsel at The Clearing House, a payments company that operates the private sector's real-time payments network, RTP.   

The issue of fraud in payments is complicated because the 1970s-era law governing electronic payments — the Electronic Fund Transfer Act of 1978 — was written before cellphones, digital wallets and real-time payments existed. Lawmakers apparently never envisioned that consumers would transfer money to criminals or someone they do not know in response to an unexpected text or phone call.

Moreover, the implementing law, Regulation E, specifically defines an unauthorized transaction as a transfer that was not initiated by a consumer. Banks and payment processors are required under Reg E to investigate and reimburse consumers for so-called "unauthorized" transactions.