In an October 27 letter, the American Bankers Association (ABA) expressed concern regarding a proposal currently being considered by the Consumer Financial Protection Bureau (CFPB) that would shift liability from consumers to banks for scams involving peer-to-peer (P2P) payments. This would include requiring banks to reimburse consumers for P2P payments made but later identified by consumers as payments to a scammer.

The ABA first emphasized the benefits of P2P payment platforms, including:

  • They are a convenient, fast, and usually free way to send money to friends and family. For example, P2P payments make it easy to pay the babysitter, send money to a college student, or to repay a friend for dinner without having to worry about having cash or locating a checkbook.
  • P2P payments are made quickly and cannot be reversed. Sellers who accept a P2P payment do not have to worry that a buyer will cancel the payment after receiving the purchased item.
  • Consumers benefit from the safety of P2P payments. Checks and cash can be stolen. P2P payments allow consumers to avoid this harm and inconvenience.

While acknowledging that scams and fraud do occur on P2P platforms, the ABA highlighted that “[b]anks have made and continue to make significant investments to thwart scams through fraud controls and consumer education.” These fraud controls include, for example: (1) pop-up warnings that require affirmative user confirmation before the transaction may proceed; (2) warnings that the consumer should send money only to people the consumer knows and trusts; (3) requirements for passcode confirmation when new recipients are added or each time money is sent; and (4) text and email verifications of transactions. Consumer education comes in many forms, including “cautions to customers at the time of a transaction and also other communications sent on a periodic basis through various media,” (e.g., warnings describing red flags that identify common and emerging scams and how to avoid them). The ABA also listed the consumer education resources the organization itself makes available to banks free of charge.

But the trade group acknowledged that even with these investments, banks cannot stop all scams as they are not the party in the best position to do so. “[C]onsumers are in the best position to know the reasons they are sending money, the circumstances of the payment, and who the recipient is.” And, according to the ABA, in some instances, even when banks do try to intervene, the consumer falls victim to the scam nonetheless. “[B]anks report cases in which bank employees have warned a customer not to send money because the transaction appears to be a scam, but the customer proceeds to send the money — and later files a claim with the bank and a complaint with the CFPB.” The ABA went on to point out that it is for these reasons that under the Electronic Fund Transfer Act and its implementing regulation, consumers are generally responsible for transactions they initiate on the basis that liability and responsibility for fraudulent transactions lies with the party in the best position to identify and prevent the fraud.

The ABA proceeded to warn the CFPB of the unintended consequences of shifting liability for P2P fraud to banks:

  • Many banks will reconsider whether to offer P2P payments, whether to be more restrictive in access and options, and whether to begin charging for the service.
  • Banks may also have to consider placing “holds” on money sent by P2P, which would lessen the appeal.
  • Some small banks may have to exit the P2P payment business.
  • Fraud will increase because consumers will have little incentive not to send money despite suspicious circumstances.

The ABA concluded by reassuring the CFPB that “[t]he banking industry shares the CFPB’s goal to protect consumers from P2P payments scams, and we understand the agency’s interest in wanting to respond to instances when consumers have suffered losses. However, any CFPB effort to shift liability for authorized P2P transactions should acknowledge the substantial benefits of P2P payments to consumers, the relatively small incidences of fraud, and how consumers are warned about and can avoid scams.”

The ABA has been vocal in its disagreement regarding the perceived prevalence of fraud on P2P platforms. As we discussed here, on October 3, the ABA joined other trade groups in issuing a statement, refuting a report issued by Senator Elizabeth Warren (D-MA) regarding that issue.

For its part, on October 31, the CFPB announced it will re-open the public comment period on this topic for 30 days, specifically seeking feedback “that will broaden our understanding of the risks consumers face and potential policy solutions. In particular, we are seeking additional public input on companies’ acceptable use policies and their use of fines, liquidated damages provisions, and other penalties.” In the coming days, the CFPB will publish a Federal Register notice with additional details on the public comment period.