Sandy Sans has been renting a ski cabin in Lake Tahoe for several years through Craig’s List, using Zelle, a digital payment application connected to his bank account.

However, in 2018, as his check-in date approached, he felt uneasy about the cabin owner. Upon further investigation, Sans discovered he had been in contact with a scammer, resulting in a loss of $1,300 for the rental.

Sans, a resident of Los Altos, California, attempted to reverse the payment he made to the scammer through his bank, but was unsuccessful. The bank cited privacy laws that prevented them from revealing any information regarding the account holder who received the funds.

In a complaint to Consumer Reports, Sans expressed frustration, stating that it didn’t matter that the money was obtained through “deceit and falsehood.” He reported the incident to law enforcement, but they also couldn’t trace the funds or provide any useful information.

Sans was shocked at how “privacy laws” seemed to favor the criminal.

Even after being scammed, Sans continues to utilize various peer-to-peer payment applications, although now he restricts their use to transactions with people he knows personally.

Growing Popularity of Venmo, Zelle, and Other Mobile Apps

As digital payments become more common, platforms like Zelle, Venmo, Apple Pay, and Cash App claim to have introduced numerous measures to safeguard consumers. Nevertheless, Consumer Reports contends that these measures are inadequate.

According to Consumer Reports, “Despite the rising risk and impact of fraud and scams associated with P2P services, companies have not made any meaningful adjustments to their policies to benefit consumers.”

More people are now using digital payment apps for sending money to family and friends as well as for making purchases.

The 2023 Survey and Diary of Consumer Payment Choice conducted by the Federal Reserve Bank of Atlanta found that 72% of consumers used an online or mobile payment account during the year.

However, the financial losses experienced by users of these apps, due to fraud or scams, have also risen significantly.

In 2023, consumers reported losing $210 million to scams across these platforms, based on data from the Federal Trade Commission — an increase of 62% from the losses witnessed in 2021.

Regulation of Digital Payment Apps

Digital payment apps face less stringent regulation than traditional debit and credit cards, particularly concerning disputed fraudulent payments.

A major point of contention is whether a payment is considered “unauthorized,” typically linked to a stolen account, or if a consumer was misled into sending money to a fraudster.

While there are clear protections for unauthorized transactions that cover consumer losses, confusion arises with “fraud in the inducement,” where scammers convince consumers to make payments for fake goods or services, according to Delicia Hand, senior director of digital marketplaces for Consumer Reports.

Depending on the details outlined in user agreements, consumers may not always receive reimbursement for these types of fraudulent transactions, as noted by Consumer Reports.

Nonetheless, the frequency and sophistication of these scams are mounting, and consumers should be granted greater protection by these payment platforms, which are frequently exploited for scams, Hand emphasized.

Consumer Reports conducted a review of user agreements and fraud protections for the leading digital payment apps in 2022, and recently re-evaluated these platforms to determine if any progress had been made to enhance consumer fraud protections.

Need for Enhanced Fraud Protections, Says Consumer Reports

In a report released in late September, Consumer Reports concluded that while some changes have occurred, they are not sufficient. The organization is urging payment app providers and the Consumer Finance Protection Bureau (CFPB), which regulates and enforces existing rules around these payment methods, to improve consumer protections.

Consumer Reports suggested that the bureau should “mandate more comprehensive liability protection for unauthorized transactions and establish liability protections for transactions that were fraudulently induced.”

Additionally, Consumer Reports proposed several enhancements for the payment apps, which include:

• Implementing a mandatory holding period of 24 hours for transactions between $500 to $750, allowing consumers an option to override it for additional verification.
• Establishing a universal window of 12 to 24 hours where all payments can be easily reversed by consumers, similar to cancellation policies of other financial systems.
• Committing to enhanced transparency and thoroughness in internal investigations and ensuring consumers mistakenly victimized by sophisticated scams are fully reimbursed.
• Improving user authentication by instituting multi-factor authentication for transactions exceeding $500.

Additionally, officials are monitoring a new piece of legislation called the Protecting Consumers Against Payment Scams, which has been proposed in both the Senate and the House. This legislation aims to enhance consumer protections on peer-to-peer (P2P) payment platforms. Introduced in August by Senators Richard Blumenthal (D-Conn.), Elizabeth Warren (D-Mass.), and Representative Maxine Waters (D-Calif.), it seeks to safeguard consumers when they unknowingly send money to scammers, fall victim to fraudulent bank transfers, or when their accounts are unexpectedly frozen or closed. The progress of this legislation is still pending.

“Currently, scammers are employing a variety of techniques to deceive hardworking consumers using payment apps like Zelle, Venmo, and traditional bank wire transfers. Therefore, it’s crucial that we swiftly update our consumer protection laws to correspond with the realities of today’s payment systems,” Waters stated in a press release when the bills were introduced.

Responses from Payment Apps

Representatives from various P2P apps, in statements and interviews with YSL News, asserted that their platforms are designed to protect users.

Zelle expressed its dissatisfaction with a Consumer Reports article that ran prior to a scheduled meeting, claiming it contained inaccuracies. In a discussion with YSL News, Zelle’s Chief Fraud Risk Management Officer, Ben Chance, stated that any unauthorized transactions, in which the user did not initiate the payment, will be fully reimbursed. For cases where users unintentionally send money to scammers, all Zelle banks will investigate each case individually, with a guarantee of reimbursement for scams involving impersonators claiming to be from government agencies, financial institutions, or service providers.

Venmo, in a statement to YSL News, emphasized: “Venmo maintains a strict no-tolerance policy for fraudulent attempts and is constantly improving its fraud detection measures, investing significantly in products, features, and solutions to prevent fraud before it happens, including 24/7 fraud monitoring, encryption, and machine learning models to identify and limit scam accounts as well as block high-risk transactions.”

Venmo also guarantees full reimbursement for unauthorized transactions. Furthermore, a representative highlighted the existence of Venmo Purchase Protection, which safeguards eligible transactions even if they are authorized by the buyer.

Cash App reiterated its dedication to ensuring a secure platform for its customers. In its statement, it noted its ongoing efforts to reduce risk on its platform through preventive measures, adaptive detection, and consumer awareness. It additionally mentioned its constant feature development and improvements to reporting processes and payment alerts.

Apple did not provide comments regarding its Apple Pay services.

How to Protect Yourself

Here are some recommendations from Hand for consumers utilizing P2P payment apps:

Only send money to acquaintances. “Similar to how you wouldn’t hand a check to someone unfamiliar, avoid clicking or swiping to transfer funds to unrecognized individuals,” Hand advised.

Confirm the identity of the recipient. “Transactions happen rapidly. A simple typo can lead to mistakes,” Hand explained. “Carefully double-check the recipient’s details before sending any money.”