WSJ: CFPB working on guidance to force banks to cover more scams on Zelle and similar apps

by Jeff Sovern

Here, behind a pay wall. Excerpt:

At present, banks generally are only required to repay consumers for payments they didn’t authorize. The coming regulatory guidance could change that threshold by maintaining that fraudulently induced transactions, even those approved by the consumer, are considered unauthorized. That could require a bank to conduct more investigations of such transactions—and to compensate more customers for their losses.

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 * * * A key concern: so-called “me-to-me” fraud, or when a scammer tells the consumer that his or her bank account was compromised, and persuades the person to send money to what appears to be himself or herself using Zelle. In reality, the scammer has linked the consumer’s cellphone to a fraudulent account.

“Scams have become widespread on Zelle, a money-transfer platform owned by the largest banks in the nation,” [Senator] Menendez said at an April 26 hearing with Mr. Chopra, citing media reports. “The banks are well aware of these scams but have done little to enhance Zelle’s security or reimburse defrauded consumers.”

One advantage to putting the burden on the bank is that it gives the bank an incentive to adopt safeguards against such frauds. That is exactly what happened when Citibank was held liable for ATM frauds. Citibank and other banks responded by changing the architecture of their ATMs to prevent such frauds. Consumers can't do that but banks can.

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