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Financial Services Law Insights and Observations

Dem senators urge CFPB to expand Regulation E fraud protections for P2P payment service users

Federal Issues U.S. Senate CFPB EFTA Regulation E Consumer Finance

Federal Issues

On July 20, six Senate Democrats sent a letter to CFPB Director Rohit Chopra urging the Bureau to hold banks that own instant digital payment networks accountable for facilitating fraudulent payments. In the letter, the senators noted that “consumers are often on the hook because existing rules do not reflect new technological developments.” The Senators further noted that the Electronic Fund Transfer Act (EFTA) and Regulation E protect consumers “if they are tricked into handing over account information to a fraudster who then initiates a transfer.” However, the letter further explained, that consumers are not protected “if they are tricked into opening an application to transfer funds directly to the fraudster.” The senators believe consumers should be protected in both instances. In particular, the Senators suggested that the CFPB could issue guidance providing that a “fraudulently induced” transfer counts as an “unauthorized” transaction under the EFTA, which could “end up shifting liability from consumers to financial institutions.” The letter suggested, among other things, that the Bureau expand the definition of what counts as a payment “error” under the EFTA, to “clarify that, in certain circumstances, a payment is an 'error' when a consumer is defrauded into initiating a transfer to a scammer.” The letter further argued that expanding financial institutions’ potential liability for covering their customers’ losses to fraud would create “powerful incentives” for them to prevent scams on their payment platforms. The letter concludes with the senators urging the Bureau “to similarly protect banks’ customers against transfers with ‘fraudulent intent’ involving other consumers on payment services that banks themselves own, operate, and control.”

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