WASHINGTON–Members of the Senate from both sides of the aisle called on financial institutions and other payments providers to significantly improve their efforts in preventing fraud.
During a hearing by the Senate Committee on Banking, Housing and Urban Affairs titled “Examining Scams and Fraud in the Banking System and Their Impact on Consumers,” Chairman Sherrod Brown (D-OH) said “today everyone has been scammed or knows someone who has been scammed” as the result of banking or payments fraud.
“Today so-called peer-to-peer apps like PayPal, Venmo, CashApp and Zelle are now part of most Americans day-to-day lives,” said Brown. “Seventy-five percent of adults have used at least one of them, and 40% of Americans report using them at least once a month.”
As a result, Brown said, scammers “see an opportunity,” and in 2022 the major apps had more than $100 million in “unauthorized transactions.”
Other Scams Rampant
But it isn’t just new technologies leading to scams, Brown added, citing the considerable amount of check fraud that continues to take place. The problem has gotten so bad, he noted, he has called on the American Bankers Association to create an informal directory providing contact information for banks to resolve check fraud claims.
Wire transfer scams also remain a big problem, according to Brown, who said scammers posing as a real estate agent or title company who targeted down payments in 2023 led to $270 million in such losses.
And, of course, Brown noted, AI and the ability to clone voices and overcome security systems is a threat that is only going to get worse.
“No one should have to go through this distress because banks’ payment apps and other financial institutions can't get their acts together to protect their customers,” Brown said. “When these incidents happen people lose their hard earned money they're often made to feel ashamed and embarrassed.”
Fin Ed Isn’t the Answer
Brown said that while better financial education helps, it is not the answer.
“It's on the companies that allow the scam,” the senator said. “People should be able to have an expectation that their money is safe when they have a reputable bank. People lose their money because payment apps and banks don't put enough measures in place to protect their customers.”
Brown expressed support for efforts undertaken by the CFPB to fight fraud.
View from Other Side of Aisle
Meanwhile, Sen. Tim Scott (R-SC), said the scams are killing “hopes, dreams and the sense of financial security,” especially when seniors are targeted and they lose their retirement savings.
“The devastation is so real and so often goes unreported, and the investigations leave many wanting,” said Scott.
Scott added, however, that regulators are too focused on “political grandstanding” and that “instead of focusing on real crimes this administration seems determined to ever increasing amounts of red tape.”
The Testimony
Among those testifying before the committee were Carla Sanchez-Adams, senior attorney with the National Consumer Law Center; Paul Benda, EVP, risk, fraud and cybersecurity with the American Bankers Association, and John Breyault, VP-public policy, telecommunications, and fraud with the National Consumers League.
“Our members know that fraud takes a financial and emotional toll on their customers, and banks are making extraordinary efforts to protect and safeguard customer accounts as fraud has become more sophisticated,” said Benda in his prepared testimony. “Unfortunately, however, the fight against these criminals is one that the banking industry cannot win on its own. We believe that a unified, cooperative effort between banks, law enforcement, regulators and other stakeholders offers us the best chance to fight back against fraud and protect consumers.”
Four Key Areas
In his written testimony, Benda described the current fraud landscape targeting banks and their customers, and outlined four key areas that will enhance banks’ anti-fraud efforts and reduce losses.
Those four areas include:
- Increase Consumer Education. “Securing someone’s account doesn’t help if they can be convinced to willingly hand over their money or their login credentials.”
- Close Loopholes to Stop Impersonation Scams. “Too many loopholes, such as phone number spoofing, exist allowing criminals to impersonate legitimate businesses and agencies.”
- Improve Information Sharing. “Criminals have an active information sharing ecosystem that banks and the public sector must match to try to slow the flow of illicit funds.”
- Enhance Collaboration with Law Enforcement and Regulators. “Law enforcement plays a critical role in stopping fraud and ensuring perpetrators are prosecuted and prevented from further activity.”
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