Fraud rate declines yet costs consumers more

While there has been a plateau in the overall number of reports of fraud victimizing both banks and consumers, the number still remains far higher than pre-pandemic norms, and some fraud costs are still increasing.

That's according to data from the Financial Crimes Enforcement Network, or Fincen, which tracks suspicious activity reports, or SARs, filed by financial service companies about fraud, and the Federal Trade Commission, which tracks consumer reports to various government agencies and consumer advocacy groups about fraud and identity theft.

The data indicates that the sheer number of reports of fraud slightly decreased at the beginning of 2024 compared to the previous year. But, the total cost of fraud that consumers have reported is still increasing, and fraud against both consumers and banks is still worse than it was in 2019.

Consumer fraud reports declining, but getting costlier

In the first half of 2024, consumers reported $5.4 billion in losses, compared to $4.9 billion in losses in the first half of 2023. In other words, fraudsters are on pace to steal more money from consumers this year than they did last year.

So, even as the total number of reports has decreased compared to last year, the total dollar amount lost to fraud is increasing. It's a continuation of a trend that dates back two years.

As for the cost of fraud against banks and credit unions, Fincen does not release monthly data on how much money banks and credit unions report losing to fraud.

Banks and lenders "share a significant amount of blame" for the increasing losses, according to John Breyault, vice president of public policy for telecommunications and fraud at the National Consumers League. "It's clear to me that criminals are exploiting vulnerabilities in the financial system" to take increasing amounts of money from victims, he said.

Breyault pointed to what he calls a "loophole" in the Electronic Funds Transfer Act, which Congress passed in 1978 to limit customers' liability from fraudulent card purchases, ATM withdrawals and other online transactions. The law does not limit consumer liability for losses to wire fraud.

This liability is the subject of a lawsuit that Letitia James, the New York state attorney general, brought against Citigroup in January. James has argued that the bank should be liable for fraud cases involving consumer wire fraud. Citi said James' view would bring about "a sea change in banking law."

Improvements to consumer protections would help reduce consumer losses to fraud, Breyault said. He specifically mentioned a bill introduced by three Democratic lawmakers that looks to expand the number of instances where a consumer is protected from fraudulent or scam activity, such as wire fraud.

"I think that bankers need to reconsider their opposition to common sense consumer protection legislation like the Protecting Consumers from Payment Scams Act that would align incentives for financial service providers to invest in securing their systems with the scope of the threat to consumers," Breyault said.

During a hearing in August, bankers warned of unintended consequences of putting wire fraud liability on the banks. Melissa Feldsher, managing director and head of commerce enablement at JPMorgan, said a change "is actually not going to do anything to actually solve the problem, which is we actually need to prevent, identify and prosecute the criminals who are taking advantage of innocent Americans."

Pre-pandemic norm still looks preferable

Even as the number of fraud reports by consumers and banks has decreased, they're still more numerous than they were before the pandemic.

The most stark example of this is in check fraud. In the 12 months preceding and including February 2020, banks and credit unions filed 240,000 SARs related to check fraud. In the 12 months ending in July of this year, they filed 520,000 check fraud-related SARs.

In other words, check fraud continues at more than double the pace it had before the pandemic. The increase relative to before the pandemic also applies to overall fraud against banks, credit unions and lenders, even as it has decreased slightly in the last year.

"Check fraud continues to be a significant concern for community banks and their customers," according to Scott Anchin, vice president of operational risk and payments policy at the Independent Community Bankers Association. He pointed to Fincen analysis that shows small- and medium-size banks file more mail theft-related check fraud SARs than larger banks.

"While we have seen some encouraging signs, including positive engagement from regulators, a significant amount of work remains before we see a real, sustained reduction in check fraud," Anchin said.