Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.
Comments are moderated and will not appear until the moderator has approved them.
Please submit appropriate comments. Inappropriate comments include content that is abusive, harassing, or threatening; obscene, vulgar, or profane; an attack of a personal nature; or overtly political.
In addition, no off-topic remarks or spam is permitted.
May 2, 2022
Taking the Long View: A Visit with Retail Payments Risk Forum Founder Rich Oliver
Rich Oliver, the founder of our Retail Payments Risk Forum (RPRF), paid a visit to our team recently and shared his vision when creating the forum, the challenges facing the payments industry, and the future direction our team could consider as the payments landscape continues to evolve.
In addition to founding our RPRF, Rich's payments expertise goes back to the 1970s when he led the effort to utilize the fledgling US Automated Clearing House (ACH) system to electronically deliver the first government payrolls and social security payments.
Drawing on his expertise, Rich wrote a book with George Warfel Jr. about the payments industry, The Story of Payments: How The Industrialization of Trust Created the Modern Payments System, that "tells the story of how payments—between people, merchants, employers, and governments—emerged from the ancient system of barter and grew, through various technological implementations ranging from coins and paper money to checks, wire transfers, and credit cards, to today's entirely electronic local and international payment systems."
In a wide-ranging conversation about the history of payments and Rich's role in many areas with the Fed, each of us in the RPRF took away some highlights to share with you.
Scarlett Heinbuch: Rich reminded us of the need to be bold in our thinking about the future of payments. We discussed advances in biometrics and how these initiatives could address identity and security concerns and make payments easier for all while also presenting other risks and challenges.
Nancy Donahue: One comment that made me go "hmm" was: "Do we have too many retail payments products that are trying to solve the same problem? Do they all make money? Do they all need to?"
Catherine Thaliath: What resonated with me was when Rich talked about potential risks of Buy Now Pay Later (BNPL). While viewed as a credit offering, it is nevertheless using a payment instrument in ways not previously done.
Claire Greene: "When it comes to product design, you can't assume you know what someone wants without doing the work." This was a humble statement from an innovator that applied in the 1970s and remains relevant today.
Dave Lott: Rich discussed the evolution of the current consumer banking product market where many of the explicit services (on-us ATMs, online banking, mobile banking, pay wallets, etc.) are provided free of charge.
Sally Martin: It resounded with me how much collaboration went on with the payments players in the industry. Also, the amount of time spent brainstorming on what the needs were and how to fill them, and in moving toward new offerings rather than replays of existing products. Rich's talk focused on moving into new territory—he was "agile" before it was cool.
Jessica Washington: We still need to collaborate on fraud mitigation at the strategic level. In the United States, we implemented chip credit cards but not so much chip-and-pin, plus we still have the magstripe, which is a major source of weakness, and we still have much work to do on card-not-present transactions.
As the RPRF founder, Rich challenged each of us to remember its mission: to be a source for non-biased thought leadership, to do original research, challenge norms, and push the envelope to move the payment system forward. Sometimes looking back at history can bring the future into sharper focus, which is what our chat with Rich did for us. As you look to the future of payments and payments risk, what stands out to you?
By the Retail Payments Risk Forum Team: Jessica Washington, Dave Lott, Scarlett Heinbuch, Claire Greene, Nancy Donahue, Catherine Thaliath, and Sally Martin.
November 8, 2021
An Update on UK Consumer Payment Protection
In 2020, approximately 150,000 fraudulent advanced push payments (APP) cases in the United Kingdom resulted in the equivalent of US$660 million in losses, according to a report from the UK's financial services regulator, the Financial Conduct Authority (FCA). The report also notes that 81 percent of these losses were on personal accounts. APPs are the equivalent of peer-to-peer payments and, for the most part, are irrevocable.
We ran a post in June last year about steps the FCA had taken to address the growing incidence of consumers falling victim to scams and sending funds to the scammers through APPs. As I discussed in that post, one step the FCA took was to initiate the Contingent Reimbursable Model (CRM) Code, which specifies the extent to which a consumer might be liable for financial losses from an APP scam. Under the provisions of the code, according to a press release from UK Finance, "any customer of a bank or payment service provider (PSP) which is signed up to the Code will be fully reimbursed if they fall victim to an APP scam, provided they did everything expected of them under the Code." Although the CRM Code is considered voluntary, the major UK banks, representing 85 percent of all APPs, have adopted it. The CRM Code applies to push payments between UK-domiciled accounts handled by the PSPs.
The code requires that the originating and receiving PSPs provide educational programs to consumers to alert them to such scams and to investigate claims by consumers alleging they were victims of a scam that was beyond their control. Importantly, it also gives the financial institution the authority to delay or stop transactions that it believes are fraudulent to allow for additional investigation. Pay.UK, the industry’s retail payment operator, has also implemented a program that requires the originator to check that the transaction’s payee name matches the name on the account receiving the funds.
So how has the CRM Code worked so far in addressing the APP scam fraud problem? While the 150,000 cases in 2020 represented a 22 percent increase over the previous year, the value of APP losses in 2020 increased only 5 percent. This small increase is attributed to PSPs' efforts to implement more effective monitoring software to detect money mule accounts and other suspicious transactions.
Consumer groups criticize the CRM Code for the uneven reimbursement rates (which the PSPs report anonymously). While the overall reimbursement rate in 2020 was 47 percent, the individual reimbursement rates among the PSPs ranged from 10 percent to 99 percent. The critics maintain that the criteria for determining if a customer is fully or partially at fault and ineligible for full reimbursement are highly subjective. As an example, the CRM Code says, "The customer’s capacity to protect themselves includes their knowledge, skills and capability in engaging with financial services and systems...." But how do the PSPs objectively determine the level of the customer's knowledge, skills, and capability?
In February of this year, the UK’s Payment System Regulator, commonly known as the PSR, issued a request for comment regarding three proposed changes to the CRM Code:
- Mandate that PSPs publish their APP fraud and reimbursement data publicly.
- Require that PSPs develop a standard approach to sharing information about APP scams with the intent to stop them from occurring or spreading.
- Extend the liability protection to all UK-domiciled consumer accounts operating in the United Kingdom to at least a minimal level.
The comment period for these proposals closed in April. We will continue to follow this activity and report the final outcome of this issue when it becomes available.
October 12, 2021
Scams and Student Loan Forbearance
If you are a millennial like me, sitting on a mountain of student loan debt, chances are you've probably received at least one call or letter a month with offers to suspend your student loan payments as part of the administrative forbearance set by the Coronavirus Aid, Relief, and Economic Security—or CARES—Act. In fact, I recently received a letter stating that I was "prequalified" to have my federal student loans forgiven in exchange for an upfront fee. Of course, not all of the unsolicited letters and calls are scams, but if you're asked to pay a fee to have your student loans canceled, it's a safe bet that those offers are more than likely scam tactics.
Although student loan forgiveness scams have been around for some time, fraudsters claiming to be affiliated with the Department of Education are exploiting the current economic uncertainty by creating confusion around how borrowers can qualify for the administrative forbearance program. Some fake companies will offer to work with borrowers to negotiate a lower repayment plan for free and then request that they send their payments directly to the company rather than to the lender. Furthermore, scammers may ask for personally identifiable information or the borrower's Federal Student Aid (FSA) login credentials in hopes of stealing the borrower's identity or money. In a time when unemployment is high and many are financially vulnerable, people are likely more willing to take risks if it means obtaining some desperately needed financial relief—and fraudsters are well aware of this.
So what should you do if you are contacted by a company offering student loan debt relief? The FSA recommends you look out for these red flags before you respond:
- They require you to pay upfront or monthly fees.
- They promise immediate and total loan forgiveness or cancellation.
- They ask for your FSA ID username and password.
- They ask you to sign and submit a third-party authorization form or a power of attorney.
- They claim that their offer is limited and encourage you to act immediately.
- Their communications contain spelling and grammatical errors.
The FSA also lists some examples of common phrases that scammers use in their communications:
- "Act immediately to qualify for student loan forgiveness before the program is discontinued."
- "You are now eligible to receive benefits from a recent law that has passed regarding federal student loans, including total forgiveness in some circumstances. Federal student loan programs may change. Please call within 30 days of receiving this notice."
- "Your student loans may qualify for complete discharge. Enrollments are first come, first served."
- "Student alerts: Your student loan is flagged for forgiveness pending verification. Call now!"
Although the latest extension of the administrative forbearance into early next year may be a huge relief for many borrowers, it unfortunately also means that scammers have more time to exploit the situation. I encourage you to read an FSA article that contains other helpful information on how to identify and report a student loan scam.
October 4, 2021
Webinar on Preventing Elder Financial Exploitation
Every day, nearly 10,000 adults in the United States turn 65, and every year, elder financial exploitation results in ever greater losses. In 2020, people over the age of 60 sustained more than $1 billion of losses due to fraud, an increase of $300 million over the previous year, according to the FBI's Internet Crime Complaint Center , known as the IC3. (Some estimates put the losses much higher.)
Payments-related problems are often red flags that alert bankers that fraud could be occurring. Overdraft fees due to bounced checks, unusual ATM withdrawals, utility payments for multiple properties, or payment card transactions that aren't a pattern within the customer's normal payment history are just a few examples that can be explored to protect against elder financial exploitation.
The recent public spotlight on conservatorships—consider Britney Spears, Nichelle Nichols who played Lieutenant Uhura of Star Trek fame, and the 2020 Golden Globe-winning movie I Care A Lot—has identified an until recently little-known form of potential financial exploitation. Approximately 1.3 million adults, representing $50 billion in assets , are in some form of a conservatorship today according to the most recent statistics from 2016. This number includes those who are younger and have disabilities or other issues that may require oversight, but the majority are elders.
As the population continues to age, what risks need to be exposed to protect the elderly from financial exploitation? What are the differences among guardianship, power of attorney, and conservatorship? Are women more at risk for exploitation than men? What can financial institutions do to identify their elderly customers and protect them?
Join us on October 21 for the next session of our Talk About Payments (TAP) webinar series, when two experts in elder financial abuse prevention provide insights into these and other questions. Scarlett Heinbuch, a payments risk expert at the Atlanta Fed, will lead the discussion with Naomi R. Cahn, director of the Family Law Center at the University of Virginia School of Law, and Ronald C. Long, head of aging client services for Wells Fargo.
The webinar takes place on October 21 from 1 p.m. to 2 p.m. (ET). To participate in the free webinar, you must register in advance. Register on the event page or go to the TAP webinar page, where you can also view previous webinars. Once you have registered, we will send you a confirmation email with login information.
We look forward to a lively discussion on these little-known topics. Bring your questions!