WASHINGTON, D.C. - The coronavirus pandemic has been a boom time for scammers, many of whom ply their trade through insecure peer-to-peer payment platforms that have a three to four times higher fraud rate than traditional payment methods such as debit and credit cards, expert witnesses told a Senate Banking, Housing and Urban Development subcommittee this week.
National Consumers League vice president John Breyault said fraudsters have run advance fee scams to target stimulus checks, have committed identity fraud linked to the online sharing of coronavirus vaccination cards, and even taken advantage of grieving families by targeting the Federal Emergency Management Agency’s COVID-19 Funeral Assistance Program.
Rampant misinformation about the virus has led scammers to peddle fraudulent COVID-19 prevention pills, testing kits and treatments, while widespread economic distress gave them opportunities to run imposter schemes threatening dire consequences if payments aren’t made with speed and anonymity through gift cards, peer-to-peer payment apps, cryptocurrencies and other money transfer services, said Breyault.
Heritage Foundation research fellow Rachel Greszler told the subcommittee that state unemployment agencies’ need to rapidly expand their services forced some to base payment decisions on self-certified information, enabling criminals to steal information and government benefits. She estimated that roughly $357 billion worth of taxpayers’ money went to criminals who weren’t really unemployed. Identify theft claims also soared during the pandemic, she reported, with the number of complaints filed at the Federal Trade Commission rising 23,000 a year prior to the pandemic to 637,000 a year afterward.
“Creating child payments that are worth up to $3,600 per year while eliminating the income requirements and converting them into monthly benefits will almost certainly increase errors and fraud,” Greszler warned.
Ohio Democratic Sen. Sherrod Brown said the Consumer Financial Protection Bureau and other federal agencies have reported a rise in scammers targeting student loan borrowers, homeowners and working families who are getting advance Child Tax Credit payments.
“While we all hope to avoid and must work to prevent a future pandemic, we also need to protect American families from those who would use a public health emergency, and use an economic crisis as an opportunity to defraud and exploit them,” said Brown.
Breyault told the subcommittee that many scams during the pandemic are facilitated by lax regulations on peer-to-peer payment services.
He said a loophole in the Electronic Fund Transfer Act excludes payments initiated by the consumer from protection for unauthorized charges, which allows peer-to-peer payment services and banks to avoid liability for payments consumers send scammers, even when those payments are induced by fraud. PayPal (which owns Venmo), Square (which owns Cash App), and Coinbase (a platform for buying and selling cryptocurrency), account for more than two-thirds of all digital wallet complaints to the Consumer Financial Protection Bureau through April 2021, Breyault told the committee.
“The lack of consumer protections for victims is a significant reason why fraud rates are so high,” said Breyault. who suggested the apps should face greater scrutiny from regulators to ensure they protect consumers from scams, fraud, and allow them to recall mistaken payments. “Unfortunately, thanks to the lack of legal protections, it is far too easy for the banks and peer-to-peer apps to simply tell fraud victims that they are out of luck, and we hear from these consumers with these stories every day.”
He recommended that Congress consider extending existing limited liability protections for debit and credit card transactions to cover fraudulently induced payments, requiring more stringent investigations of potentially fraudulent transactions, pushing regulators to enforce error resolution responsibilities for consumer errors and fraudulently induced payments, and mandating more responsive customer service by peer-to-peer platforms.
U.S. Sen. Elizabeth Warren of Massachusetts noted that people who mistakenly use peer-to-peer platforms to send money to the wrong person, or to scammers are unlikely to get their money back, and are vulnerable to being hounded by the apps themselves after scammers have drained their accounts.
“There’s no doubt that these apps have played an important role in our pandemic economy, but we can’t leave consumers to fend for themselves,” said Warren.
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