Viewpoint: Montana needs real solutions to consumer fraud
Lela Graham
In February, Senator Jon Tester made an important point at a Senate Banking Committee hearing – nobody is immune to consumer fraud. He even noted his personal experience with fraud when he was younger.
In recent years, fraudsters and scammers have run rampant across the country. 2023 saw Montanans lose over $21 million dollars to criminal deceit. Just five years ago that figure was only $3.6 million.
The problem of fraud and scams has caught the attention of lawmakers and regulators in Washington, DC. Senator Tester has passed bills directing the Federal Trade Commission (FTC) to set up an office to cut down on fraud against seniors, as well as develop new consumer education programs and tools to prevent scams. This session, Senator Tester is championing legislation to give power to investment companies to stop transactions where the account owner is being defrauded.
While Senator Tester has the right approach to rooting out fraud and scams, some of his colleagues in Washington are pushing policies that will do more harm than good. Instead of trying to educate consumers and stop crooks, these Senators are pushing well-intended but misguided policies that will hurt Montana businesses and embolden criminals online.
Within the last couple of weeks, Connecticut Senator Richard Blumenthal and Massachusetts Senator Elizabeth Warren have introduced legislation that would bring new regulations to peer-to-peer platforms.
The Senate legislation would require that platforms reimburse consumers not just for unauthorized transactions, but authorized transactions as well. In the case of one service, Zelle, new liability requirements would extend to the banks that offer the product, 90 percent of which are smaller community banks and credit unions.
The press release announcing the legislation claims the bill would protect consumers online, but the text of the legislation does nothing to prevent Americans from falling victim to crooks. Instead, it tells criminals to double down on their deception, because payment platforms and banks must pick up the bill for their crimes.
Montana community banks and credit unions that offer Zelle would be hurt by this legislation. Faced with new liabilities, these institutions would likely have to make changes to the product, which is currently free. They could impose fees on consumers for this service or eliminate access entirely.
Small businesses that take advantage of peer-to-peer payments also face risks. Any new fees imposed by services in response to the bill would increase costs. Small businesses that use Zelle or other networks would be forced to accept new fees, turn to other things like credit cards, or raise prices – all of which could make them less competitive.
Some Senators suggest legislation is needed because Zelle and the banks offering the service have failed to protect consumers from fraud of scams. This accusation discounts the steps Zelle and its partners have taken to keep consumers safe.
There are rigorous safety features in place on Zelle, including repeated messages reminding consumers to only send money to individuals or businesses they know and trust. The service also exceeded their legal requirements, reimbursing for all unauthorized transactions as well as certain forms of impostor scams. If the Senate does anything regarding peer-to-peer payment platforms, it should be telling the other services to follow Zelle’s lead.
Of course, the Senate is right to focus on scams and fraud. The amount of money Montanans are losing to criminals is proof that the problem exists. The issue is some Senators’ approach. The payment services can be part of the fix, but focusing solely on the networks will not get the job done. Stopping criminals committing scams is the only way to truly protect consumers.
Rather than placing new regulations on peer-to-peer platforms, the Senate should focus on strengthening law enforcement, educating the public about financial scams, and increasing penalties to deter scammers. By doing so, they can protect communities from fraud without also hurting the Montana businesses that rely on the platforms.