I recently blogged about the rise of Approved Push Payment (APP) fraud.  APP fraud occurs when a consumer or business sends a credit using one of the faster payment solutions, such as Zelle, RTP or FedNow, and ultimately does not get the goods or services they paid for. The receiver on the other end of the push credit is either an outright fraud or perhaps the receiver had good intentions, but the sender feels they did not get what they were signing up for.  Either way, the sender does not have a viable mechanism to recover their money.

I commiserate with those that have not received what they paid for in using a faster payment push credit, but it is not the fault of the payment mechanism nor their financial institution. There are lawmakers aggressively working to turn an unfortunate but poor experience with a receiver into an obligation for a bank to “make whole” their customers who use faster payment services.  It’s not hard to project that if customers realize that banks must make them whole if they encounter a bad receiver, they will stop trying to use good judgement in vetting those with whom they transact.

I recently was talking with an industry expert in payments who told me it was their belief that APP fraud was covered by the existing form of Reg E. Now I am certainly not going to claim any specific expertise on the Electronic Funds Transfer Act (EFTA aka Reg E), but what I do know is that Reg E was created to address unauthorized debits.  Furthermore, I know it was updated to include unauthorized credits, but I don’t see anything in the current form of Reg E that covers “Authorized” credits. However, I believe that adding coverage of authorized credits is exactly what some regulators and lawmakers would like to see occur. If they succeed, it will certainly dampen the expansion of faster payment transactions as financial institutions will restrict their use to only a select group of customers.

My opinion on this matter was further colored by a recent article in Digital Transactions, January Issue on page eighteen, author Peter Lucas’ opinion on APP fraud nearly exactly mirrors my own.  One new piece of news I learned from the article was that Zelle, bowing to pressure from certain federal lawmakers, had started providing refunds to certain customers who claimed to be defrauded when using Zelle to push a credit. The article refers to “imposter scams” but at the end of the day, there is no limit to what would be considered fraud. How would someone differentiate between someone who claimed to be someone else and committed fraud from someone who was honest about who they were but committed fraud anyway?  And what if the sender is just upset that they ordered something wrong or didn’t perform the necessary due diligence to ensure that what they were buying as described met or exceeded their expectations?

Zelle is not saying what criteria they are using to decide on when to refund a sender.  I am sure they hope that they can somehow make a determination of who might really be a fraudulent receiver versus a dissatisfied sender.  There is no question that their decision to refund anyone is an attempt to keep from a law or regulation being passed that would force their hand.  But there is a better way.  We need informed consent for all senders, meaning that a comprehensive database is kept and accessible by every vendor that enables a push credit transaction to access reported bad receivers.  By letting the customer know about the receiver’s track record with other senders, each sender can make their own informed decision about whether to push that credit and with such informed consent at their fingertips, they cannot claim they were unaware.  Placing the customer in charge of with whom they transact is a key element of services like Amazon and eBay, where reviews and customer sentiment drive whether or not one would purchase from them.

Want more information on how informed consent can remediate APP fraud? Click {here} to download my proposed solution.  Feel free to share this within your institution, payment or banking association and any banking regulators that you feel might have an interest in addressing this issue. Only by proactively addressing the root cause of APP fraud can we head off troubling regulation that would likely have devastating unintended consequences for the future of faster payments.

Resources

Imposter Scams: P2P’s Growing Problem

The views expressed in this blog are for informational purposes. All information shared should be independently evaluated as to its applicability or efficacy.  FNBB does not endorse, recommend or promote any specific service or company that may be named or implied in any blog post.