Cash app scams – victims should be reimbursed by banks, watchdog says

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Banks must take more responsibility for protecting victims of cash app scams, says US financial watchdog. There have been a growing number of scams involving instant money transfer apps, like Zelle and Venmo…

Background

The use of money transfer apps took off during the height of the pandemic, when people were hesitant to use ATMs. Zelle usage, for example, reached 1.8 billion transactions in 2021, double that of 2019.

But with increased use, there have been an increasing number of scams. A common call is a phone call that claims to be from the victim’s bank, telling them that they urgently need to withdraw their money from their account after unauthorized transactions are discovered. One method used gives the impression that the victim is transferring money to their own phone number, when this is not the case.

The law currently states that banks owning these cash applications are only liable for transactions not authorized by the customer. This means that if someone is tricked into transferring money to a scammer, the victim has no claim against the apps or the banks that own them.

Victims of cash app scams should be reimbursed

The the wall street journal reports that the financial watchdog Consumer Financial Protection Bureau (CFPB) thinks that should change.

According to new guidelines the bureau is set to release in the coming weeks, banks could face increased demands on certain scams that have become more prevalent on these platforms, these people said, such as when a customer is tricked into sending money to a scammer pretending to be a representative of his bank.

The upcoming guidelines are not complete and may change. It appears to primarily target a range of Zelle-related complaints, but would likely apply to any other payment service that connects directly to a consumer’s bank account, such as Venmo.

The idea is that if banks are at risk of having to repay losses, they will put in place better protection systems to detect and block cash app scams.

This could force a bank to investigate these transactions more and compensate more customers for their losses.

“Consumer reports and complaints about payment scams have risen sharply, and financial fraud can be devastating to victims,” said Sam Gilford, spokesperson for the Office of Consumer Affairs. “The CFPB is working to prevent further harm, including by ensuring that financial institutions meet their obligations to investigate and resolve errors.”

Zelle’s parent company, EWS LLC — which is owned by seven major banks — says detecting scams is already a priority.

“As a network, we are constantly adapting consumer protection measures to address the dynamic and evolving threat of fraud,” he said in a statement. “In addition to our efforts, we encourage measures that reduce the ability of fraudsters to perpetrate these scams and arm consumers with educational resources that will help them protect themselves from fraudsters.”

Banks are expected to fight the planned regulatory change, arguing that they will be forced to raise fees to cover costs.

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