Sandy Sands rented a ski cabin in Lake Tahoe for several years through Craig’s List and paid for it using Zelle, a digital payment app linked to her bank account.
But in 2018, as his check-in date approached, he noticed something wasn’t right with the owner he was dealing with. Upon further investigation, Sands discovers that he is not dealing with the owner of the cabin, but with a scammer. He had sent $1,300 in rental fees.
Sands, who lives in Los Altos, California, unsuccessfully tried to get her bank to reverse the money she sent to the scammer. The bank also cited privacy reasons for not being able to provide him with information about who received the funds.
Sands said in his complaint to Consumer Reports that the money was “obtained through deceit and lies.” I reported it to the appropriate law enforcement agency, but the police also said they were unable to meaningfully trace the money or actually obtain any information. all. “
Sands said she was surprised at “how privacy laws protect criminals.”
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Zelle is not the only peer-to-peer payment app (P2P) Sands has used, and he told USA TODAY that he still uses several for business purposes despite being scammed. But for now, he only uses the app with people he knows.
Venmo, Zelle and mobile app usage on the rise
As digital payments increase, apps like Zelle, Venmo, Apple Pay, and Cash App say they are taking numerous steps to protect consumers. But Consumer Reports says they’re not doing enough.
In its report on the need for additional protections, Consumer Reports notes that “despite the increasing risk and harm of fraud and fraud in P2P services, companies are not making consumer-friendly changes to their policies. No,” he said.
Consumers are increasingly using digital payment apps to pay friends and family and purchase goods and services.
According to the Federal Reserve Bank of Atlanta’s 2023 Consumer Payment Choice Survey and Diary, 72% of consumers used an online or mobile payment account in 2023.
However, the financial losses consumers incur on these apps due to scams and scams are also increasing.
In 2023, consumers reported losses of $210 million due to fraud on the platform, according to data from the Federal Trade Commission. This was a 62% increase from 2021’s loss.
How are digital payment apps regulated?
Digital payment apps are less regulated than debit and credit cards, especially when it comes to payments that are disputed as fraudulent.
The key question is whether the digital payments are “fraudulent” or the result of account theft, or whether consumers are being misled into sending money to the wrong person or fraudster.
Fraudulent transactions have clear safeguards to cover consumers’ losses, but “more ambiguous is when fraudsters persuade consumers to send money for goods or services that are not actually for them. , so-called fraud.”Delicia Hand, senior director of digital marketplaces at Consumer Reports, says this is legal.
Consumer Reports says consumers may not always be able to receive a refund in such cases, depending on the fine print of the user agreement.
But Hand said the volume and complexity of these scams is increasing, and that consumers should be better protected by payment apps, which are also increasingly being used for fraud.
Consumer Reports evaluated the user agreements and protections of the most popular digital payment apps in 2022. We recently took a fresh look at digital apps to see if any progress has been made to protect consumers from scams.
Consumer Reports says consumers need more fraud protection
Consumer Reports said in a report released in late September that there have been some changes, but not enough. Consumer Reports is calling on payment app providers and the Consumer Financial Protection Bureau (CFPB), which oversees and enforces existing regulations regarding payment forms, to provide greater protections for consumers.
Consumer Reports recommended that the agency “require more generous liability protections for fraudulent transactions and implement liability protections for fraudulently induced transactions.”
Consumer Reports also called on payment apps to make several other improvements, including:
- Require a 24-hour retention period for transactions between $500 and $750 or more, and implement an option for consumers to override the retention period by providing additional verification.
- Similar to other financial institutions and financial institutions’ cancellation policies, we provide a universal 12-24 hour window in which consumers can easily cancel all payments.
- We will strive to improve the transparency and thoroughness of our internal investigation procedures and more fully compensate consumers who are victims of sophisticated fraud.
- Improve how you authenticate your users by implementing multi-factor authentication for all transactions over $500.
Consumer Reports said it is also keeping an eye on pending legislation called “Protecting Consumers from Payment Fraud,” which has been introduced in both the Senate and House of Representatives to strengthen protections for P2P platforms. The bill, introduced in August by Sen. Richard Blumenthal of Connecticut, Rep. Elizabeth Warren of Massachusetts, and Rep. Maxine Waters of California, would protect consumers who are lured into sending money to scammers. It is something to protect. ;If you lost money through fraudulent bank wire transfers. and when your account is frozen or closed for no reason. Legislation has not yet progressed.
“Right now, scammers are using every trick at their disposal to steal money from hard-working consumers through payment apps like Zelle, Venmo, or old-fashioned bank wire transfers. It is critical that we move quickly to modernize our consumer protection laws to reflect the current state of consumer protection,” Waters said in a joint statement released at the time of the bill’s introduction.
Victim of fraud?Debit and credit cards have different protections.
Payment app responds
In statements and interviews with USA TODAY, representatives of the P2P apps said their platforms protect consumers.
Zell wrote to Consumer Reports after the report was published online, expressing regret that it was published before a meeting between the parties and saying it contained inaccuracies.
In an interview with USA TODAY, Ben Chance, Zelle’s chief fraud risk officer, said all fraudulent transactions that the consumer did not remit will be 100% refunded. Payments made by account holders to fraudsters are investigated by all Zelle Financial Institution participants on a case-by-case basis; You will also be fully compensated for fraud.
In a statement provided to USA TODAY, Venmo said: “Venmo has always had a zero-tolerance policy for attempted fraud, and we continually evolve our anti-fraud capabilities and invest heavily in products, features, and solutions that prevent fraud from occurring. First, it includes 24/7 fraud monitoring, encryption, and machine learning fraud avoidance modeling to take proactive action by restricting fraudulent accounts and rejecting risky transactions. can.”
Unauthorized transactions will be fully refunded. A Venmo spokesperson also said that users are protected through Venmo Purchase Protection, which covers eligible transactions even if authorized by the purchaser.
“We remain committed to building a safe and secure platform to protect our customers,” Cash App said in a statement. “We strive to reduce risks on our platform through a combination of preventive controls, dynamic detection, and consumer education. As part of these efforts.” , we’re constantly developing new features and upgrading our tools, like leveling up our reporting flows and enhancing payment alerts. ”
Apple did not respond to requests for comment regarding its Apple Pay service.
protect yourself
Here are some tips from Hand for consumers using P2P apps.
Only send money to people you know. “Just like you wouldn’t give a check to someone you don’t know, don’t click or swipe when sending money to someone you don’t know,” Hand said.
Please check your trading partners. “We move very quickly. We might mistype something,” Hand said. “Please check the recipient’s information carefully before sending money.”
Betty Lin-Fisher is a consumer reporter for USA TODAY. Contact her at blinfisher@USATODAY.com or follow her on X, Facebook, or Instagram @blinfisher. Sign up here for The Daily Money newsletter, free for consumer news on Fridays.
