Senators Call for Increased Safeguards Against Financial Scams

Sen. Sherrod Brown (D-Ohio), delivers remarks at a hearing on Russian sanctions on Capitol Hill in Washington on Sept. 20, 2022. Kevin Dietsch/Getty Images

A bipartisan group of senators spoke to banking and consumer law experts about the increasing dangers Americans face in the area of financial fraud, pointing to a need for increased safeguards and added education to help citizens avoid falling victim to a scam.

The Feb. 1 hearing, conducted by the Senate Committee on Banking, Housing, and Urban Affairs, Chairman Sen. Sherrod Brown (D-Ohio) and Ranking Member Sen. Tim Scott (R-S.C.), began with lawmakers stating concerns about the prevalence of scams and fraud targeting consumers in the financial industry.

Mr. Brown emphasized that consumers should be able to trust that financial institutions will protect their money and assist them when issues arise. However, he highlighted a disturbing trend where scammers and fraudsters have exploited vulnerabilities in the system, with banks and payment apps seemingly inactive on the sidelines.

One of the key areas of concern raised by Mr. Brown was the rise of peer-to-peer payment apps like PayPal, Venmo, Cash App, and Zelle. According to the lawmaker, these apps have become integral to Americans’ daily lives, but they have also become prime targets for scammers. In 2022, one major payment app reported more than $100 million in unauthorized transactions, with another app experiencing losses of almost $60 million.

Types of Fraud

Mr. Brown stressed that even traditional methods of fraud, such as check fraud, have seen a resurgence, leading to more than 500,000 incidents reported by depository institutions by the end of 2022.

“They‘ll steal a check from the mail, they’ll use chemicals to wash off the key details and fill in with the details they want and deposit it,” Mr. Brown said in his opening statement.

“You might think that more people using apps would make checks less of a target, but it seems to be the opposite. Check fraud is getting worse, too … By the end of 2022, depository institutions reported more than 500,000 incidents of check fraud, more than double the year before. And scammers broke their record again in 2023, so the evidence clearly shows it’s getting worse.”

The lawmaker also offered examples of exploitation, including a retired FBI agent who wrote a check for less than $200 that was stolen from his mailbox and changed to the amount of $8,590 to cash. The lawmaker assured listeners that it had nothing to do with “savviness or intelligence or education” and that anyone could be a victim: “Just last year, a retired White House scientist was scammed out of $650,000 of retirement savings. These scams are organized.”

The panel heard testimony from Carla Sanchez-Adams, the Senior Attorney for the National Consumer Law Center, who broke down the two types of payment fraud, saying that unauthorized payments and fraudulently induced payments are viewed differently by the law. The attorney explained that someone who did not authorize a transaction has a better chance of being refunded versus someone who was fraudulently induced to send money voluntarily.

“Currently, if you’re a victim of payment fraud, your only hope of getting your money back is if it happened to an unauthorized electronic funds transfer. And that’s because of the strong protections of the Electronic Funds Transfer Act (EFTA),” Ms. Sanchez-Adams said.

“However, even if you’re in this unauthorized bucket, if it happens through bank-to-bank wire transfer through tech fraud, forgery or alteration through the theft of an electronic benefits transfer card, and you’re gonna face an uphill battle and trying to get your money back, and that’s because these are excluded from the EFTA … there are no clear protections currently under federal or state law.”

Educational Efforts

Mr. Paul Benda, the Executive Vice President of Risk, Fraud & Cybersecurity at the American Bankers Association, presented industry efforts and the importance of regulatory collaboration in combating fraud.

Impersonation scams—where criminals pose as banks to obtain critical financial information from customers—have become pervasive, according to Mr. Benda, who called for closing regulatory loopholes related to telephone number spoofing and social media account impersonation. He also emphasized the need to hold telecommunication providers accountable for knowingly allowing criminals to impersonate legitimate entities.

To prevent fraud, Mr. Benda stressed the importance of increasing consumer education and cited the success of initiatives like the “Banks Never Ask That” campaign, which has educated millions of bank customers on spotting common scams. He also underscored the need to empower consumers to protect themselves and avoid falling victim to fraud.

Education was also something Mr. Scott championed, citing a resolution to declare April Financial Literacy Month that passed last spring as an important step toward helping Americans understand how to keep their money safe.

“We must take a holistic approach,” Mr. Scott said. “Our financial institutions must do their part to protect, to serve, and educate customers. And our regulators must do their job and implement the law Congress is enacting ... We must all work together to gain a better understanding of the options before us so that we are able to best serve our community, our constituents, and our nation.”