Zelle fraud, CFPB funding question: Top tech news May 2024

June 3, 2024 11:28 AM

In this month's roundup of top tech news: A firsthand look at the impact of Zelle fraud, the Supreme Court upholds the Consumer Financial Protection Bureau's funding, Walmart's split from Capital One and more.

Click here to read last month's roundup of top tech news.

A group of community bankers in Illinois is pushing regulators to get tougher on their enforcement of know-your-customer laws with big banks, which they say have done too little to combat a dramatic rise in instances of check fraud last year.

MARCOS OSORIO/OSORIOartist - stock.adobe.com

'Like wildfire': Rising check fraud pits small banks against big banks

Article by Kate Berry

Check fraud is wreaking havoc on community banks, which are urging the Office of the Comptroller of the Currency to crack down on their large bank competitors for failing to comply with rules meant to stop criminals from opening accounts.

Small banks say they're taking hits to earnings and face negative impacts on their business customers. Many bankers say that check fraud is so rampant that it is leading to a loss of faith in the banking system and the U.S. Postal Service.

"Check fraud is out of hand," said Chris Doyle, president and CEO of the $2.2 billion-asset Texas First Bank, in Texas City, Texas. "It's an all-out war and we have people fighting it every day at our bank. The capture and washing of checks is out of control. There's no security around checks. It's too easy to wash them and commit fraud."

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Workers enter Goldman Sachs' headquarters in June 2021. The investment banking giant said in a memo in 2019 that it would relax its dress code.

Michael Nagle/Bloomberg

When it comes to fashion choices, bankers get a dress-down

Article by Ebrima Santos Sanneh

WASHINGTON — Almost 40 years ago, Gordon Gekko declared "Greed is good" in the 1987 movie "Wall Street." Michael Douglas' iconic character, decked out in sharply tailored suits and slicked back hair, came to represent what many thought titans of the financial sector looked and dressed like.

But gone are the days of the suits and suspenders, power ties and polished shoes. To be sure, the financial sector is less dominated by men today than it was in the 1980s when Douglas popularized the Gekko image, and overall women's fashion has undergone its own set of changes. Instead, bankers, especially men, are now embracing a more casual style and less conspicuous consumption, while still projecting a sense of dignity and gravitas. This mirrors broader changes in social norms, corporate culture and client expectations.

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Walmart's partnership with Capital One ended after the retail giant filed a lawsuit alleging that the McLean, Virginia-based bank failed to meet certain customer service standards.

Bloomberg

Is Walmart ready to take on banks after its divorce from Capital One?

Article by Polo Rocha

The demise of the short-lived and acrimonious credit card partnership between Walmart and Capital One Financial is raising new questions about the retail giant's ambitions to compete with banks.

The two companies announced May 24 that their relationship was coming to an end, which gives Walmart options as it seeks to get better plugged into its shoppers' wallets. One potential avenue is to find a new bank for a run-of-the-mill credit card partnership.

The more aggressive route by Walmart would be to take on banks by becoming a one-stop financial services provider. It could do that with the help of an outside fintech firm, but analysts think it's more likely that it will look internally through its majority-owned fintech, called One. One runs a debit card, is testing out buy now/pay later options and, with the addition of a credit card, could be closer to becoming the financial super-app Walmart has long sought.

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Sen. Richard Blumenthal, D-Conn., chairs the Senate Permanent Subcommittee on Investigations, which started an inquiry into Zelle fraud in June 2023.

Bloomberg

Big banks face intensifying political pressure over Zelle fraud

Article by Kevin Wack

Executives from JPMorgan Chase, Bank of America and Wells Fargo are expected to testify this summer before a U.S. Senate panel that has spent much of the last year examining fraud on the Zelle payments network.

At the upcoming hearing, the big banks are likely to face one key question: To what extent, if at all, should banks be financially responsible in situations where consumers authorize Zelle payments to fraudsters?

Hundreds of millions of dollars are at stake. In 2022, customers of JPMorgan, BofA and Wells submitted claims reflecting a combined total of $456 million lost to scams and fraud on Zelle, according to Sen. Richard Blumenthal, D-Conn., who chairs the Senate Permanent Subcommittee on Investigations.

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According to the Pew Research Center, 13% of people who have ever used PayPal, Venmo, Zelle or Cash App say they have sent someone money and later realized it was a scam, while 11% report they have had their account hacked.

Daniel Wolfe

Inside a Zelle fraud that almost lost a Florida consumer $3,500

Article by Penny Crosman

Just after 8:00 a.m. on Monday, April 24, Margaret Menotti was writing a report for a client.

"I heard my phone ding, and I got a text from Bank of America saying there was suspicious fraud activity on my account," said Menotti, a freelance media relations professional who works from her home in Venice, Florida.

Immediately after that, she got a phone call from someone who said they worked in Bank of America's fraud department and they had seen suspicious activity on her account. The caller asked if she had made two Zelle transactions: a $109 payment for sporting event tickets and a one-cent transaction. Menotti doesn't use Zelle.

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Brenden Smith, FirstBank's chief information security officer, presented a case study at RSA Conference about a yearslong battle his team fought with hackers he hired to attack the bank's systems.

Carter Pape

FirstBank hired hackers to breach its systems. It took them three years.

Article by Carter Pape

SAN FRANCISCO — Brenden Smith, the chief information security officer of FirstBank, hired a group of professional hackers to try to break into his bank.

Over the course of three years, the attackers made numerous attempts to sneak their way in. At first, the attacks were difficult for FirstBank staff to detect; the hackers largely exploited previously undiscovered vulnerabilities in the software and devices used by FirstBank, which is headquartered in Lakewood, Colorado, and had $28 billion in assets at the end of 2023.

In one case, Smith said during a panel at the cybersecurity-focused RSA Conference, the hackers made an initial breach into FirstBank's systems that took 102 days for his team to detect.

"The good news," he said, "is that they didn't accomplish any of their objectives."

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Lighted exterior of the Rockefeller office of the new J.P. Morgan Private Client unit

The exterior of a J.P. Morgan Private Client office in New York City, which will open this summer. J.P. Morgan Private Client will be delivered at some JPMorgan corporate offices as well as at 22 ex-First Republic branches.

JPMorgan Chase

JPMorgan borrows from First Republic playbook to add affluent clients

Article by Allissa Kline

One year after acquiring the failed First Republic Bank in an emergency deal, JPMorgan Chase is launching a new tier in its affluent-consumer wealth management services that marries its own brand, scale and distribution channels with First Republic's single-point-of-contact, concierge servicing model.

The new offering, known as J.P. Morgan Private Client, fits between the existing Chase Private Client, which generally serves mass affluent clients, and J.P. Morgan Private Bank, which caters to high- and ultrahigh-net-worth clients. Announced May 20, J.P. Morgan Private Client will be delivered through two channels — at some JPMorgan corporate offices as well as at 22 ex-First Republic branches that are being converted into "J.P. Morgan financial centers."

Two of those offices — one each in New York City and San Francisco — will open this summer, Mark O'Donovan, CEO of Chase Home Lending, told analysts during JPMorgan's 2024 investor day in New York City. O'Donovan has been leading the integration of First Republic into JPMorgan since May 2023 and overseeing the formation of the new affluent-consumer tier.

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TD Bank Group has disclosed that it's invested more than $500 million to enhance its anti-money-laundering compliance efforts. It has also taken a $450 million provision for a potential regulatory penalty, while also implying that there are more fines to come.

James MacDonald/Bloomberg

'Tougher before it gets better': TD faces a long road on AML woes

Article by Catherine Leffert

It's unclear how much damage TD Bank Group will suffer from its institutional failure to control money laundering, but the results of other companies' previous missteps in this area illustrate the spectrum of potential consequences that could come down on the Canadian company.

The Toronto-based bank said last fall that it was cooperating with a U.S. Department of Justice probe related to anti-money-laundering issues. Since then, TD has disclosed that it's invested more than $500 million to enhance its compliance, been slapped with a $6.7 million fine from a Canadian regulator and taken a $450 million provision for a potential regulatory penalty, while also implying there are more fines to come.

These actions suggest that TD could take one of the most expensive hits in recent U.S. history for AML deficiencies.

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The Supreme Court held in a 7-2 ruling on May 16 that the Consumer Financial Protection Bureau's funding structure — whereby their operating costs are paid by the Federal Reserve subject to a cap — complies with the Constitution's Appropriations Clause, reversing an opinion by the 5th Circuit Court of Appeals.

Eric Lee/Bloomberg

Supreme Court upholds CFPB's funding in 7-2 decision

Article by Kate Berry

The Supreme Court ruled on May 16 that the Consumer Financial Protection Bureau's funding is constitutional and satisfies the requirements of the Appropriations Clause.

The majority 7-2 opinion by Justice Clarence Thomas was joined by Chief Justice John G. Roberts Jr. and Justices Elena Kagan, Brett M. Kavanaugh, Sonia Sotomayor, Amy Coney Barrett and Ketanji Brown Jackson. A dissenting opinion was filed by Justice Samuel A. Alito Jr., who was joined by Justice Neil M. Gorsuch. A separate concurring opinion was filed by Justice Kagan, joined by Justices Sotomayor, Kavanaugh and Barrett. Justice Jackson filed a separate concurring opinion.

For most federal agencies, Congress provides funding on an annual basis, which forces the agencies to ask Congress for renewed funding every year.

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Visa aims to bridge gaps between in-person and digital payments with a range of new consumer card enhancements available to issuers in various global markets.

Andrew Harrer/Bloomberg

Visa blurs line between debit, credit cards in new 'flexible credential'

Article by Kate Fitzgerald

Visa today announced new digital capabilities for its credit and debit cards, including the ability for users to tap their own card on their own device to instantly provision a new card in a digital wallet; pay via credit or debit from a single account; and use facial identification for one-click checkout more broadly.

The product updates, more than a decade in the making, come after Visa has worked for years to streamline e-commerce checkouts amid rising card fraud trends. The changes also represent a broad modernization that will bring certain digital payment shortcuts and funding options pioneered by fintechs within reach of banks and help Visa drive new revenue streams.

One of several new product features is the Visa Flexible Credential, which enables banks to issue a single card that toggles between payment methods. This enables consumers to choose to pay via credit or debit, spread payments out in four equal installments, assign payment to a virtual card with custom controls or pay with points.

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