On June 20, the Consumer Financial Protection Bureau’s (CFPB or Bureau) Office of Servicemember Affairs published its Annual Report analyzing complaints submitted by servicemembers, veterans, and their families in 2022. The report found that in 2022, servicemembers submitted over 66,400 complaints, representing a 55% increase from 2021, and a 62% increase from 2020. As in prior years, credit reporting remained the top issue for servicemembers, followed by debt collection and credit cards. Nonetheless, much of the report focused on the rising number of complaints from servicemembers related to payment app fraud and recommended steps the industry can take to address this issue.

Key findings of the report include:

• Servicemembers’ complaints related to payment apps are rising faster than average.
  • In 2022, servicemembers submitted more than 1,100 complaints related to payment apps, representing 2.2% of total servicemember complaints compared to 1.5% for all consumers.
• Servicemembers are more likely to experience identity theft, which can heighten the risk of fraudulent activity on their payment app accounts.
  • According to the Federal Trade Commission, servicemembers are three times more likely to report that someone used a debit card or some other electronic means to take money directly from their bank account. Frequent deployments can increase the likelihood of such incidents, due to the multiple instances of servicemembers sharing their and their family’s personal information during this time.
  • Servicemembers often report that after their personal information was stolen, fraudsters used it to gain access to their payment app accounts and/or their linked bank accounts.
• Complaints suggest that payment app providers often fail to provide timely resolutions to servicemembers.
  • Servicemembers complained that they were required to negotiate with multiple parties or deal with long waiting periods to discuss or resolve their concerns.
  • Slow response time and lack of customer support can cause servicemembers, veterans, and their families to miss payments or incur late fees.

Recommendations for the payment app industry to address these concerns included:

• Improving the safety and security of their networks to prevent fraud.
  • The CFPB recommended removing repeat fraudsters from the system and adopting tools to mitigate fraud at account opening. Where appropriate, payment app providers were encouraged to invest in technology and tools to improve the safety and security of their networks.
• Improving their responsiveness to fraudulent activity.
  • Where fraud involves multiple entities, the CFPB recommended that all parties coordinate more closely to ensure that problems related to fraud are resolved quickly.
• Tailoring reimbursement policies for servicemembers.
  • The CFPB recommended that payment apps should recognize the unique challenges of servicemembers including overseas deployments and take a comprehensive approach to reimbursement when fraud occurs.

Our Take:

The issue of payment app fraud has been a highly visible one with the CFPB, but it seems to us that the Bureau is struggling to find a legal theory to serve as a basis for its demands to the industry, since Regulation E does not treat a consumer-authorized, but fraudulently-induced money transfer as an error for which the consumer can lodge a dispute. In this report, we see a potential blueprint for an Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) claim by the Bureau, combining the series of “recommended” steps with the assertion that servicemembers are uniquely vulnerable to these types of frauds. Whether this blueprint proceeds beyond press releases and public statements, however, remains to be seen.