The left’s regulatory assault on our nation’s financial institutions took a major leap forward last week with House and Senate Democrats introducing the Protecting Consumers from Payment Scams Act, a bill they contend will protect consumers from fraud and scammers on P2P payment platforms such as Zelle and Venmo. The sad truth is this legislation is nothing more than a transparent political attack on American banks and fintech disguised as consumer protection.
The bill sprang to life just days after a Senate subcommittee completed yet another inquisition of our nation’s banks, where the cause and the cure for online payment scams were placed squarely at their feet. Senator Richard Blumenthal’s (D-CT) misleading and heavily biased opening statement shot accusations at Zelle as a hotbed of fraud and scams, despite publicly available data showing that fewer than 0.1% of Zelle transactions in 2023 were reported as fraud or scams.
Blumenthal’s distortion deliberately disregarded Zelle having already taken proactive steps to detect and prevent fraud while also compensating victims from a variety of online scams. Zelle has further implemented robust in-app alerts that are presented to users to complement the partnerships with the Better Business Bureau and the National Council on Aging to increase awareness about would-be scammers and their tactics. Zelle’s Scam and Fraud Elimination (S.A.F.E.) Squad educational campaign has also aimed to reach younger users who are—shockingly for digital natives—three times more likely to be ensnared in an online scam than older users, according to a Deloitte survey.
The Democrats’ assault on P2P payment platforms, Zelle especially, is troubling for a number of reasons. Zelle is the byproduct of groundbreaking innovation and technology developed to meet consumers’ demand for safe and secure digital payment options, which has been accomplished by routing transactions directly between banks and avoiding third parties. It is an entirely free service that generates no revenue for participating banks. Legislation that punishes innovation that generates greater safety and convenience for consumers will lead to less innovation at a time when expanding global banking services require it most.
If Blumenthal prevails and hits the financial industry with new mandates and unnecessary regulations, expect these institutions to respond by needing to pass the costs of reimbursing scams and complying with regulations on to consumers in the form of transaction fees. Additionally, limits would be placed on users’ freedom to decide who, when, and how they pay or get paid using the service. That’s the hidden cost of regulation that punishes consumers and businesses alike while stifling free enterprise.
There’s also the grim potential for Democrats to extend reimbursement obligations to entities far smaller than the seven big banks that collectively own Zelle. More than 2,100 banks and credit unions have a presence on the platform, the vast majority of which are community banks and credit unions.
Let’s remember that as financial institutions endeavor to protect their customers, it’s the criminals who commit these crimes. Democrats ignore this fact and fail to focus on the need for increased criminal penalties for scammers and more resources for law enforcement.
Raising costs and reducing convenience for the tens of millions of daily users of digital payment platforms is the opposite of protecting consumers. A safety net of blanket reimbursement further removes user accountability and incentivizes careless behavior, which will result in a windfall for scammers. Indeed, greater consumer awareness is already taking hold, with Zelle noting that reports of fraud and scams fell last year even as the number of transactions skyrocketed.
The subcommittee’s top Republican, Senator Ron Johnson of Wisconsin, has not endorsed the Democrats’ approach. Noting that Zelle is a customer convenience that does not generate revenue, Johnson expressed his concerns about holding banks responsible for the acts of scammers. “Bottom line is a crime is being committed, it is not the bank's fault, it's not the direct payment company’s fault, it's the criminals’ fault. Unless you want to make a fee system…it’s the scams that are the difference.”
P2P payment platforms have rapidly become indispensable technologies for small businesses, especially those such as housekeepers, beauticians, landscapers, pet groomers, and many others. The existence of these tools is evidence of Americans’ knack for making things better, faster, and more convenient. Government interference into this critical and burgeoning financial sector that punishes innocent consumers and financial institutions will create far more harm than good and stifle our overall economy. That you can bank on.
