The American Bankers Association has sent a letter to CFPB Director Chopra in which it urges the CFPB not to shift liability to banks for peer to peer (P2P) payments using an online-money transfer platform in which the consumer who authorized the payment subsequently claims it was made to a scammer.
The ABA sent its letter as a follow up to a meeting it attended with CFPB staff to discuss financial scams involving P2P payments. It references recent reports that the CFPB is considering issuing new guidance that would require banks to make refunds to victims of scammers who defraud consumers into sending money to a third party using an online money-transfer platform. Under the Electronic Fund Transfer Act (EFTA) and Regulation E, an unauthorized electronic fund transfer (EFT) is an EFT from a consumer’s account initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit. The existing Official Staff Commentary specifically states that an unauthorized EFT includes a transfer initiated by a person who obtained the access device from the consumer through fraud or robbery, stopping well short of covering transactions initiated by the consumer as the result of fraud.
Under the EFTA and Regulation E, consumers who provide a bank with timely notice of an error that the bank determines to be an unauthorized EFT are entitled to EFTA/Regulation E liability protection. If the CFPB were to issue the guidance reported to be under consideration, it would conflict with the statutory text by requiring banks to treat fraudulently induced transactions as unauthorized EFTs even when they are initiated by the consumer with the result that banks would be required to repay the amount of such transactions to consumers.
In its letter, the ABA discusses the popularity of P2P services with consumers due to the speed and irreversibility of payments and the de minimus amount of fraud relative to the transaction volume. The ABA also discusses the significant investments that banks have made in fraud controls and consumer education. In addition, the ABA points out banks’ limited ability to intervene in consumers’ payment decisions when using P2P services.
With regard to shifting liability to banks for P2P payments made to scammers, the ABA explains that if an obligation is placed on banks to reimburse consumers for such payments, banks will have to adjust their business models to reflect the risks and potential losses as well as the costs of claims investigation and compliance. This may require banks to consider whether to charge for P2P transactions, which currently are usually free, to limit access to P2P services, to reduce the frequency and amounts of P2P payments, and/or to close accounts. Other steps banks may have to consider include: placing holds on money sent by P2P, thereby fundamentally altering the value and appeal of the product; making account opening eligibility more strict to better screen out scammers, thereby preventing some consumers who can manage and benefit from a bank account from having access; and reducing competition by causing some small banks to exit the P2P payment business.
Finally, the ABA points out that shifting liability to banks will also increase scams and embolden scammers. More specifically, scammers will be able to use a federal policy stating that consumers are entitled to a refund of money sent to scammers as an inducement for consumers to send money (because scammers will assure consumers they bear no risk). In addition, fraud will increase because consumers will have little incentive not to send money despite suspicious circumstances.
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