As peer-to-peer money transfer services (or cash apps) become more popular, there has been an increase in the number of scams enticing consumers to transfer funds to fraudsters. The law currently provides that the banks that own the cash apps are only required to reimburse transactions not authorized by the customer — meaning if a customer is tricked into transferring money to a scammer, but authorizes the transaction, the banks are not responsible for those transactions. However, this could soon change, and if it does, banks warn that the changes could harm the very people they are designed to protect.

The Bureau of Consumer Financial Protection (CFPB) plans to release new guidance in the coming weeks under which banks could face heightened requirements around certain scams that have become more prevalent on cash apps, such as when a customer is tricked into sending money to a scammer pretending to be a representative of his/her bank. The legal basis for this requirement for depositary banks is unclear.

“Reports and consumer complaints of payments scams have risen sharply, and financial fraud can be devastating for victims,” said Sam Gilford, a CFPB spokesman. “The CFPB is working to prevent further harm, including by ensuring that financial institutions are living up to their investigation and error-resolution obligations.”

However, banks argue that these proposed changes would harm consumers and the payment system. For example:

  • These changes could result in increased fraudulent activity, as fraudsters could falsely claim they were fraudulently induced into initiating a transaction.
  • In addition to potentially increased fees and cutting money transfer services, banks may place limits on transactions, which would impact consumers who use cash apps to send funds greater than the limit.
  • In response to these changes, banks may also introduce greater friction into the process as part of trying to minimize fraud, but which will discourage consumers from using the service and undermine the faster nature of these payments.

“Any actions taken by policy makers to dramatically alter the peer-to-peer payment system will have a ripple effect throughout the American economy, harming the millions of consumers, small-business owners and independent contractors who rely on faster electronic payments to pay their bills and earn their livelihood,” said Lindsey Johnson, president and chief executive of the Consumer Bankers Association.

Troutman Pepper will continue to monitor these developments and will provide further updates as they become available.

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Photo of David N. Anthony David N. Anthony

David Anthony handles litigation against consumer financial services businesses and other highly regulated companies across the United States. He is a strategic thinker who balances his extensive litigation experience with practical business advice to solve companies’ hardest problems.

Photo of Keith J. Barnett Keith J. Barnett

Keith’s experience representing clients in the financial services industry as a litigation, compliance, regulatory, investigations (internal and regulatory), and enforcement attorney spans 20 years. Keith represents clients against government regulators (CFPB, FTC, SEC, CFTC), industry regulators (FINRA), and private litigants in federal courts…

Keith’s experience representing clients in the financial services industry as a litigation, compliance, regulatory, investigations (internal and regulatory), and enforcement attorney spans 20 years. Keith represents clients against government regulators (CFPB, FTC, SEC, CFTC), industry regulators (FINRA), and private litigants in federal courts, state courts, and before arbitration and administrative law panels in the financial services industry.

Photo of Mary C. Zinsner Mary C. Zinsner

Mary focuses her practice on litigation and strategy in lender liability, check and bank operation, class action, consumer finance, fiduciary matters, and creditor’s rights disputes. While Mary litigates extensively in the federal and state trial and appellate courts in Virginia, Maryland, and the…

Mary focuses her practice on litigation and strategy in lender liability, check and bank operation, class action, consumer finance, fiduciary matters, and creditor’s rights disputes. While Mary litigates extensively in the federal and state trial and appellate courts in Virginia, Maryland, and the District of Columbia, and the U.S. Court of Appeals for the Fourth Circuit, she represents banking clients in cases of all sizes nationwide.

Photo of Chris Willis Chris Willis

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending…

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending them in individual and class action lawsuits brought by consumers and enforcement actions brought by government agencies.