Stronger consumer protections needed for peer-to peer payment app fraud victims

Consumer Reports testifies at Senate Permanent Subcommittee on Investigations Hearing: Fraud alert!: Shedding light on Zelle (Today at 2:30 pm ET) 

WASHINGTON, D.C. – In testimony before the Senate Permanent Investigations Subcommittee, Delicia Hand, senior director for the digital marketplace for Consumer Reports, will highlight how consumers using peer-to-peer (P2P) payment apps are at increasing risk of losing money to fraud and scams and call for a number of reforms to better protect users. The subcommittee’s hearing is scheduled for today beginning at 2:30pm ET and will be livestreamed

Peer-to-peer payment apps like Zelle have surged in popularity, with 64 percent of Americans using them according to a Consumer Reports nationally representative survey of 2,116 adults in March 2022. Hand’s testimony points out that consumers who fall victim to scams often struggle to obtain reimbursement from banks.

“The rapid growth of P2P payment apps has undoubtedly brought convenience to consumers, said Hand. “However, it has opened the door to a new wave of sophisticated scams that are leaving a trail of financial and emotional devastation in their wake.”

Hand continued, “Banks should adopt safeguards to make transferring money safer, invest in real-time transaction monitoring, and establish a streamlined process for reporting and resolving scams involving P2P services. Congress must clarify that banks are liable for reimbursing consumers who are tricked into transferring money to crooks.”

In 2022, CR conducted a comparative evaluation of four leading P2P payment apps – Apple Cash, Venmo, and Zelle – assessing their safety, privacy, and transparency policies and practices. CR found that all four services lacked clear, accessible disclosures about the availability of FDIC insurance for user balances and the full scope of their fraud and error resolution policies. Among the four apps examined, Zelle stood out for providing the least comprehensive information to users about their rights and protections.

CR’s research has documented the alarmingly high incidence of fraud and scams on P2P platforms. In CR’s March 2022 survey, 12 percent of weekly users reported sending money to the wrong person, while 9 percent said they had been scammed. The “Big Four” banks (Bank of America, JPMorgan Chase, U.S. Bank and Wells Fargo) reported a combined $255 million in Zelle-related disputed transactions in 2021 and the first half of 2022.

“With the rise of generative artificial intelligence technologies, fraudsters can create highly convincing scams that are increasingly difficult for any consumer to detect, regardless of their financial literacy or awareness,” said Hand. “Relying on consumer awareness alone is not sufficient to combat these evolving threats. As financial services grow more complex, it is banks, not consumers that are best positioned to prevent and absorb losses from fraud.”

CR is calling on Zelle and participating banks to adopt a number of reforms to ensure consumers are treated fairly when they fall victim to fraud:

• Adopt and publish a clear, enforceable policy guaranteeing reimbursement for all unauthorized transactions, as well as authorized transactions induced by fraud
• Implement stronger transaction monitoring and identity verification safeguards
• Create a streamlined, centralized process for consumers to report fraud and seek reimbursement
• Provide greater transparency about fraud trends and reimbursement rates across the Zelle network.
• Establish a robust framework for sharing fraud information across the industry

Michael McCauley, michael.mccauley@consumer.org