The Consumer Financial Protection Bureau is exploring ways to fight a massive uptick in fraud in real-time payments, Director Rohit Chopra said Wednesday.
Speaking remotely at an event celebrating the nonprofit Public Citizen's 50th anniversary, Chopra said the CFPB is looking at the framework of the Electronic Fund Transfer Act to determine how it should apply to peer-to-peer payment providers such as Zelle, PayPal's Venmo and others. The law's implementing regulation, Regulation E, provides specific protections to consumers when they transfer funds electronically.
Despite the increase in fraud, financial institutions have long claimed they cannot be held liable when a consumer incorrectly sends a payment to the wrong person or is tricked into sending a payment that later turns out to be a scam.
"The level of sophistication and technology use is really frightening … because there's not really that moment to hold or freeze or take back" the money, Chopra said of the tactics used by criminals to defraud consumers. "The way in which individuals are defrauded, it's become difficult to crack down."
Banks and credit unions, and their trade groups, have said they
"We have been talking to a lot of institutions and a lot of stakeholders about how should the framework of the Electronic Fund Transfer Act apply to P2P players and payment providers," he added. "What are the differences in [how] small banks and large banks are dealing with it? What are some of the small things we can do to make sure that consumer rights, when it comes to getting an investigation into an error or potential fraud, are adhered to?"
Chopra said he didn't have an immediate answer but is very concerned about how fraud levels are increasing and whether consumers know where to get help.
Last year, the CFPB ordered several payment providers including Apple Pay, Cash App, Google Pay and PayPal's Venmo to understand what those companies are doing to protect consumers from fraud, he said.
Earlier Wednesday, Chopra addressed similar issues at the National Association of Federally-Insured Credit Unions' congressional caucus, including error-resolution responsibilities.
P2P apps often refer consumers with complaints about fraud or mistakes to their bank or credit union, which often is caught in a bind, he said.
"A lot of smaller institutions feel they can't even get answers from the P2P app, or can't figure out what they should do in this situation, and they bear the reputational harm with the customer," Chopra said. "We're looking at a whole host of things and it's going to take some time to really work through this."
The Consumer Financial Protection Bureau is expected to issue guidance soon around fraud liability on digital payment platforms, and the thorniest question concerns who pays for customers' mistakes.
At the Public Citizen event, Chopra also spoke about other priorities, including cracking down on junk fees charged by banks, repeat corporate offenders and the Big Tech firms that collect and use data without consumers' knowledge.
The CFPB is looking broadly at junk fees and trying to determine if consumers are actually receiving a service for the fees that banks and other institutions charge. He specifically cited debt collector "pay to pay fees" and credit card late fees as ripe for CFPB oversight.
Nearly all major credit card companies are bumping up against the maximum limits for late fees allowed by the Credit Card Accountability Responsibility and Disclosure Act of 2009, known as the CARD Act.
"It's critical that markets are competing on customer service and upfront price," Chopra said, noting that the Card Act requires that any fees or penalties be "reasonable and proportional" to the violation.
"Rather than [late fees] being a simple deterrent, are some credit card companies building that in as a core revenue driver?" he asked.
With rising inflation, the CFPB
Chopra said the CFPB is not going to sit on the sidelines and wait while a handful of large technology companies swoop in to control certain consumer markets.
"Whether it's tracking and surveillance of our payments data, whether it's new types of products structured in ways that remind people of more complex [products] and derivatives — that's the place where we have to make sure we're not waiting for harm to occur and have to be doing something now about it," he said, though he gave no specifics.
Institutions that repeatedly violate the law have come under renewed scrutiny from the CFPB because large, deep-pocketed banks should not view regulatory fines as "a cost of doing business," Chopra said.
"Our staff is pursuing a host of new provisions in court and in settlements that moves away from just a reliance on consumer penalties," he said. "We have refocused a lot of our enforcement on repeat offenders. What we're trying to get to is a world where it's not just cost-of-business penalties."
