WASHINGTON–America’s Credit Unions is using a relatively quiet period in Congress this week to raise its ongoing concerns around Regulation E and the liabilities increasingly being faced or potentially faced by credit unions.
The extra attention is being paid to the issue following the filing of an amicus brief by the CFPB in a case involving wire fraud. In that case, filed in the U.S. District Court for the Southern District of New York, the state of New York is accusing Citibank of “failing to respond adequately when people promptly told the bank that scammers had stolen money by initiating wire transfers from the consumers’ accounts online.”
According to Carrie Hunt, chief advocacy officer with America’s Credit Unions, the Bureau is arguing banks have some liability relative to wire fraud because they connect the wire fraud to the banks consumer-facing online bill pay.
A ‘Different Argument’
“That is a different argument that we have not seen before,” said Hunt. “In general, we have significant concerns with the potential inclusion for certain types of fraud schemes in the provisions of regulation E. While of course we do not want consumers to be defrauded, there does need to be a limit and clear rules of the road relative to when the financial institution is responsible for some type of liability on transactions versus the consumer.
“In the simplest of terms, when the consumer actually proactively authorizes each transaction, then they are responsible for that charge,” Hunt added.
Acknowledging what many credit unions and their members are seeing, fraud schemes have gotten more sophisticated and as a result, more successful, in inducing consumers to authorize transactions that are fraudulent, Hunt noted.
Not What System is Designed For
“This type of fraud is not what our financial system was designed to cover,” said Hunt. “We have interchange that covers the cost of a lot of fraud in our card payment system--that's why we've been fighting so hard to protect that interchange fee income. If we have a continued evolution of what types of scenarios (members) can actually be ultimately reimbursed for, again credit unions won't be able to stay in business, because they won't have enough funds to cover transactions this is a bigger issue than the CFPB can weigh in.”
Ultimately, said Hunt in response to a question from CUToday.info, Congress needs to take action by clarifying that if the consumer authorizes the transaction, then the financial institution is not liable.
“There are situations where financial stations do go above and beyond and protect consumers,” said Hunt. “It's just that there has to be a limit.”
Not Doing the Math
In discussions with the CFPB on the issue of Reg E liability, Hunt said the takeaway has been that the Bureau simply does not “do the math.”
“They still look at financial institutions as having this liability. They would like to expand the provisions of regulation E, no matter what, to include every single type of a fraud,” Hunt said.
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