August 12, 2024
Dr. Edward Longe and Doug Wheeler
When it comes to addressing banking scams, our elected representatives always seem to miss the forest for the trees. They repeatedly target the symptoms of the problem rather than its root causes, allowing the issue to grow in size and scope.
Last year, Forbes placed the Sunshine State second in its most scammed states index. Eight different Florida cities rank in the top 50 for these crimes, with Miami ranking No. 1.
The problem is that lawmakers keep going after the vehicles hackers use to commit fraud rather than creating the tools needed to find and punish the perpetrators on the front end.
For example, the U.S. Senate recently held a hearing on Zelle, the popular peer-to-peer (P2P) payment network set up by the banks and used by millions of American consumers with the intent of shifting the blame for scams to Zelle for the actions of criminals. The hearing and subsequent calls for reform centered on calls to update the Electronic Fund Transfer Act to require banks that use Zelle to reimburse consumers who fall victim to scams in the same way they reimburse for fraudulent activity.
While frauds and scams may seem similar, they have important differences. Fraud occurs when criminals use deceptive means to obtain financial information from unsuspecting consumers. Under the Electronic Fund Transfer Act, banks are required to reimburse consumers who fall victim to fraud. Scams, on the other hand, occur when criminals trick unsuspecting consumers into handing over financial information or transferring money. Under the Electronic Fund Transfer Act, banks are not required to reimburse victims.
The fear is that if banks are forced to provide a blanket reimbursement for scams, criminal networks will only be incentivized to increase their work, making the problem worse at a time when Zelle usage is up but scams are down.
Over the years, many of these companies have worked to clamp down on scammers using Zelle. As Adam Vancini of Wells Fargo noted before the U.S. Senate Homeland Security and Governmental Affairs Committee, banks have “introduced alerts and other points of friction to prompt customers to slow down and think carefully before sending money” as well as reminding customers “to double-check the recipient and only use Zelle to send money to people and businesses they trust.”
The banks that operate Zelle have also been working with security professionals, federal and state law enforcement officials, and groups like the National Council on Aging and the Better Business Bureau to combat scams and educate consumers about scammers’ latest tricks.
Of course, scams follow money and consumers and are not unique to P2P platforms. It is no different than when consumers accept a fake check or get duped into sending an internet scammer a bank wire or Amazon gift card, yet no one is suggesting we ban these items from the marketplace.
History has proven that the solution to the scam epidemic doesn’t lie in banning the vehicles scammers use. It lies in strengthening and expanding upon current law to stop scammers from committing these crimes.
Many lawmakers don’t understand just how complex the organized criminal elements of this epidemic are. These scammers have numerous gangs and businesses that cross many jurisdictions and use just about every payment method in the book. Despite these scammers’ operations moving across the nation faster than rockstars on tour, there is currently no viable way for local, state, and federal officials to collaborate or share data in real-time.
Scam victims absolutely deserve empathy. Unfortunately, attempts to force banks to reimburse victims and pick up the pieces will do little to address the underlying issue. It’s long past due for Congress and local governments to work together on a streamlined electronic records system. Such a system would allow every law enforcement official to have the latest data and information available in real-time, rather than weeks and even months later. Consumers will be better off.
