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.