While media attention is focused on the Presidential campaign, some of the most important decisions in Washington today are getting less attention. The American people need to be aware that key leaders in Congress are quietly promoting legislation that could make some consumer crime problems worse and raise costs on tens of millions of Americans.
In early August, Senator Richard Blumenthal (D-CT), Senator Elizabeth Warren (D-MA), and Representative Maxine Waters (D-CA) introduced the so-called Protecting Consumers from Payment Scams Act. In reality, the bill should be called the Paying Criminals for Payment Scams Act—because that’s what the bill would actually do.
Under current federal law, banks are already required to reimburse consumers for fraudulent or unauthorized charges. The Blumenthal-Waters bill would expand this requirement to force reimbursements for authorized payments made to scammers—i.e. when a criminal convinces someone to send them money. Requiring banks and credit unions to reimburse losses for payments initiated by their customers would guarantee a payday for criminals.
Experience tells us that incentives matter. If you force third parties to pay for losses caused by criminals, then you will probably see a lot more actions by those criminals. Just imagine if there were automatic reimbursements for other crimes, like fake telemarketers or phony rental listings. This would encourage more criminals to try these schemes, since they would be guaranteed payment.
The Blumenthal-Waters proposal would be a completely novel concept in our laws. For example, if a consumer makes a withdrawal from their account using an ATM and a scammer later tricks the consumer out of that money, the consumer’s bank is not required to reimburse the consumer.
Similarly, if someone mistakenly sends money by wire, then Western Union isn’t required to reimburse them for it. Criminals regularly pretend to be IRS agents, yet the IRS doesn’t reimburse people for the criminals’ scams. A Wall Street Journal article from this Spring detailed the high number of scammers on Facebook marketplace, but Meta isn’t required to foot the bill for people who freely choose to send them money. Yet now an influential group of Members of Congress wants to impose a unique requirement on online payment platforms used by tens of millions of people.
This will end up affecting all of us, whether we fall victim to the scammers or not—and even whether we use these platforms or not.
Zelle, for instance, is free for consumers and banks make no money off of payment platforms. But if these new reimbursements start costing large amounts of money, then the platforms will likely have to start charging fees, and some banks, especially community banks, will probably stop participating in the platform altogether. Expensive new fees would also drive millions of people to stop using the platforms. The overall result would be higher costs and less convenience for law-abiding people, secure profits for criminals, and a giant step backward in the financial services industry’s willingness to invest in innovative payment services.
The sad irony is that the fees that would result from this legislation would end up punishing low-income people the most. Zelle and similar platforms are especially popular for paying rent and in the service economy. Housecleaners, landscapers, and other small businesses often use them for their convenience. These are the Americans—not bank CEOs—who would be hurt the most by transaction fees.
The Blumenthal-Waters bill seems like a solution in search of a problem. The American people don’t show any signs of being worried about online payments. Zelle is booming in popularity, growing by 28 percent since last year, as people sent $800 billion on Zelle last year. This flawed legislation assumes the people who use these payment platforms are frequently the victims of scams, but we know that is not true because, if it were true, then people would be fleeing these platforms in droves. Yet just the opposite is the case.
Instead of securing funding for scammers, Congress should secure more funding for law enforcement. We shouldn’t punish consumers—we should punish criminals.
There are plenty of ways to do that. We should give law enforcement more tools to find the scammers and make them pay. Congress should help law enforcement in different states communicate and share information with one another. Congress could do this by creating a nationwide scam database that state, local, and federal law enforcement could update in real time.
We should not only punish crime, but also seek to prevent it. Consumer education is a far more effective way to stop scammers than government mandates to reimburse criminal acts. Instead of eliminating incentives to be careful online—like this bill would do—we should encourage people to be more careful, and to learn what scams are out there. Fortunately, federal law enforcement and the platforms themselves already promote consumer education. Zelle users, for instance, received more than 700 million warnings before sending money last year.
We all want to protect consumers and fight fraud. But Congress shouldn’t be scammed by this legislation—or else we may all end up footing the bill.
