Banking Associations Criticize New Legislation for Financial Scams

Four banking associations have opposed legislation that would require banks to reimburse customers for electronic fund transfers made as a result of scams.

The proposed Protecting Consumers from Payments Scams Act would amend the Electronic Fund Transfer Act to mandate that reimbursement responsibilities are split equally between the customer’s bank and the institution that received the fraudulent payment.

It aims to clarify ambiguities and strengthen the law to better protect consumers from the rise in scams, particularly with the use of new payment systems like mobile wallets and payment apps.

However, the American Bankers Association, Bank Policy Institute, Consumer Bankers Association and Independent Community Bankers of America have argued that the regulation would not effectively address the rise in financial fraud and would instead encourage and increase scams.

They also argued that the legislation could force many banks, small community banks with less capacity to absorb fraud losses, and to limit consumers’ access to deposit accounts, which could harm consumers and reduce the competitiveness of community banks.

To cover expensive scam losses, banks may also have to be stricter about who qualifies for an account and increase fees for basic services, which would negatively affect financial inclusion.

Instead of this regulation, the coalition recommended a comprehensive national scam and fraud prevention strategy to develop and implement a coordinated federal approach focused on stopping scams and assisting consumers affected by scams.

The group said: “Banks work tirelessly to identify and report suspicious activity to law enforcement, to help educate and warn their customers about common scams, to detect and prevent fraudulently induced payments, and to root out accounts that have been used by criminals,”

“However, the activities of these criminals touch more than just the banking industry, and the efforts to thwart scams must similarly be cross-industry and include government support.”