Sophisticated bank fraud uses apps, such as Zelle and PayPal, to trick you
Many consumers enter the new year dealing with a holiday hangover, thanks to a flurry of scams and banking scams.
In some cases, cyber crooks targeted checking and bank accounts during the turn of the year by impersonating the so-called fraud department of banks and credit unions. Scammers hope to catch you off guard. Then they weave a story about how quick action is needed to prevent crooks who had already allegedly hacked into your bank account, perhaps by making a Zelle transfer, from draining even more money.
“The scammers are perfecting their scripts,” said Mark Fetterhoff, senior counsel for the AARP Fraud Watch Network.
More and more sophisticated phishing attempts are ultimately trying to trick consumers into using person-to-person payment apps to transfer money to the crooks. The apps include Cash App, PayPal, Venmo and Zelle.
In 2021, the Federal Trade Commission received nearly 70,000 complaints from consumers who sent money to fraudsters via payment apps or similar services totaling $130 million in losses, according to the Consumer Financial Protection Bureau, which sought to address payment fraud. Consumers can file complaints at www.consumerfinance.gov/complaint.
I wrote about several types of scams in 2022, including how scammers impersonated a DTE Energy representative and drained $1,324.85 from a Rochester Hills woman’s bank account via a Zelle app, and how scammers will impersonate Amazon to claim that there is fraudulent activity with your account.
And many times scammers will pretend to be from your bank.
“If you get an alert whether it’s a text or a phone call or an email that something is wrong with your bank account, you’re obviously on alert right away,” Fetterhoff warned.
People feel a sense of urgency if they think their savings are disappearing. Being on edge makes them react faster than they otherwise would.
Unfortunately, scammers often spoof email addresses and phone numbers on caller ID to make it look like it’s from your bank or a payment app, when it’s not.
Many times, Fetterhoff said, people are used to being contacted by their banks anyway, perhaps signing up for alerts about large purchases or activity. People can be misled when scammers sound official, using bits of data about what they have obtained, including information that is now available after major data breaches.
The big problem: Consumers are unfortunately finding that their bank isn’t going to reimburse them in many cases if they lost money to fraud.
Banks pressured to change system
Will things get better in 2023? One can hope that the pressure placed on banks and payment apps will trigger improvements in consumer protection. Right now, much of the risk is being shifted to the consumer – who bankers say must be careful.
While it’s fine to tell people to never give access to payment apps to strangers — kind of like telling people to lock their doors — I’d argue that more needs to be done to stop criminals and protect consumers from losing money.
U.S. Sen. Elizabeth Warren, D-Massachusetts, has waged a war against the Zelle scams, calling for tougher regulation. Warren noted, “Not only is fraudulent activity growing on the platform, but banks are not refunding the vast majority of defrauded consumers.”
Zelle says protecting consumers is a top priority. But consumers must realize that there are differences between how fraud and fraud are defined. If you authorized a payment — for example, if you paid for a puppy you never received as part of a pet scam — you may not be able to get the money back, according to Early Warning Services, a fintech company owned by seven of the country’s largest banks and the parent company of Zelle.
Early Warning also argues that “Zelle scams and fraud have declined substantially over the past five years relative to the network’s growth.” Zelle usage reached 1.8 billion transactions in 2021, totaling more than $490 billion. That’s up from 247 million transactions at launch in 2017, according to an Early Warning 16-page report posted online Dec. 16.
Of course, consumers who get caught only care about what happens next to their money.
Warnings help, but more is needed
Too often the narrative is that the consumer should have known better when crooks exploit the system. Do we just tell someone it’s your fault that you stopped for gas at night and got carjacked?
We have reached a point when it comes to financial fraud and scams where simply informing consumers about how to avoid fraud is not enough. Fix the damn financial holes.
The reality is that someone worked years, maybe decades, to save up the $3,000 or $30,000 that crooks were able to easily transfer into their own hands.
“Consumer education is not a panacea for regulation,” said Ed Mierzwinski, PIRG Education Fund’s senior director of federal consumer programs.
Without a doubt, consumers should avoid talking to anyone who texts, emails or calls, even if they claim to be from a reputable institution, such as your bank or the Internal Revenue Service. Hang up, Mierzwinski said, and call a number on your bank card or the number listed on a bank statement or previous paperwork.
At the same time, he said, more regulations are needed to protect consumers from being taken advantage of by fraudsters.
Mierzwinski noted that PIRG has been pushing for improved toy safety for years when some in the industry accused parents of not watching their children play or not teaching a child how to use a toy properly. “What if the product was designed incorrectly?” Mierzwinski said.
He maintains that the peer-to-peer apps are designed to make it easy for payments to be made quickly, making it all too easy for fraudsters to take advantage of that system.
Consumers have limited liability when it comes to credit or debit card fraud, and Mierzwinski said more consumer protections are also needed in the peer-to-peer space.
More clarity may be forthcoming. Banking insiders leaked information to the Wall Street Journal that America’s largest banks are discussing new reimbursement rules that could take effect this year. The effort appears to try to address cases where fraudsters pretend to be from the bank’s customer support department and then persuade a Zelle customer to send money to what appears to be the customer’s own bank account. The scammer connected the person’s phone number to a fake account.
Just hang up
The banks’ major focus has been to tell the consumer to be vigilant. Stop the scam before it starts. Don’t use a person-to-person payment app to send money to strangers — or to fix suspected fraud.
“As the popularity of P2P payments increases, so does the threat of fraudsters targeting consumers,” an American Bankers Association spokesperson told the Detroit Free Press in an email.
The banking industry, she said, has stepped up its anti-fraud efforts, including increased behind-the-scenes security checks and warnings to only send money to people you know.
“Scammers posing as your bank may call to notify you of ‘suspicious activity’ on your account,” according to an alert from the American Bankers Association.
The scammers, according to the alert, may direct you to send money to yourself via a payment app or send it to your “bank’s address” in order to somehow reverse a transaction. Yet this is how the crooks get access to your cash.
“Your bank will never tell you to send money to anyone, not even yourself,” according to the American Bankers Assocation. “Criminals try to trick you into thinking you’re sending money to yourself, but you’re actually sending money to the fraudster.”
More:DTE impersonators tapped Rochester Hills woman’s checking account using the Zelle app
Those impersonating a bank or merchant may ask you to verify your bank account username and password, credit or debit card account numbers, or social security number. Don’t do that either. The criminal can use this information to create a Zelle account or other peer-to-peer account with your information and access funds in your bank account.
In early December, a Troy resident reported that someone she did not know opened a Chime bank account in her name and transferred $4,700 from her checking account to Chime, according to the Troy Police Department.
The banking industry is running a “Banks Never Ask That” campaign. A bank will not ask you for a password, PIN code or login information. Tips include: “Whether it’s a scammer pretending to be your bank or a genuine call, stay safe by ending unexpected calls and dialing the number on the back of your bank card instead.”
Consumers do not have as much protection as they think
What many consumers don’t realize is that they don’t have the same protection when using a peer-to-peer app as when using a credit card. You may have better luck with one bank than another with getting a refund if you were tricked into sending money into someone else’s account, for example when someone pretends to be a customer service department.
Consumers may encounter roadblocks when they claim to have authorized the transfer of funds, even if they were tricked into doing so. Then a fraud is often treated as an “authorized” transaction where the consumer often does not end up being protected.
Carla Sanchez-Adams, associate attorney at the National Consumer Law Center, said consumers should not be solely responsible for detecting fraud, or bear the burden of loss due to fraud, especially when they fall victim to sophisticated fraudsters. Financial institutions, she said, need to do more to spot red flags early in the fraud process to prevent the loss of money. If an account has been around for 10 years and has never had a series of quick transfers out of it via a payment app, she asked, shouldn’t the bank slow down the process and put a stop to it?
Banks that receive fraudulent payments should do more to prevent fraudsters from opening accounts and using the products they offer, such as access to a payment app, to steal money, she said.
These banks at the other end of the transaction receive huge transfers of money as part of these fraudulent transfers and need to be held more accountable and face more responsibility, she said. Congress should act to offer more protections to consumers who are victims of payment fraud, she said, and the Consumer Financial Protection Bureau should clarify the responsibility that banks have to correct erroneous transfers.
Consumers who end up being victims should contact their bank immediately when they suspect problems or discover the fraud and dispute it. File a complaint with the Consumer Financial Protection Bureau. Sanchez-Adams said it is also possible that consumers may want to contact an attorney if the transaction was unauthorized and the bank does not refund the account.
“The problem is that a lot of people get startled and respond immediately, gut reactions, when they get the call. It’s always after the fact that, ‘Wait, that’s just scary. What did I do?” she said.
Contact Susan Tompor: [email protected]. Follow her on Twitter @empty stomach. To subscribe, please go to freep.com/specialoffers. Read more on business and sign up for our company newsletter.
