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Are apps like Venmo and Zelle safe? Consumre Reports says not enough.

Are apps like Venmo and Zelle safe? Consumre Reports says not enough.

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Sandy Sans had rented a ski lodge in Lake Tahoe through Craig’s List for several years and paid for it using Zelle, a digital payment app linked to his bank account.

But in 2018, as his check-in date grew closer, something didn’t feel right with the owner he was dealing with. As Sans investigated further, he discovered that it was not the owner of the cabin, but an impostor. He had sent $1,300 for rent.

Sans, who lives in Los Altos, California, tried – and failed – to get his bank to reverse the payment he sent to the fraudster. The bank also cited privacy reasons why it could not provide him with information about the person who received the money.

In his complaint to Consumer Reports, Sans said it didn’t matter that the money was obtained “through deception and lies.” I contacted the relevant law enforcement authorities, but they too were unable to do any meaningful tracing of the money or really get any information at all.”

Sans said he was amazed at “how ‘privacy laws’ protect the criminal.”

Zelle isn’t the only peer-to-peer (P2P) payment app he’s used, and even though he was scammed, Sans told USA TODAY he still uses several for business purposes. But now he only uses the apps with people he knows, he said.

Venmo, Zelle and mobile app usage is increasing

As digital payments are on the rise, apps like Zelle, Venmo, Apple Pay and Cash App say they have implemented numerous steps to protect consumers. But Consumer Reports says they’re not doing enough.

“Despite the increasing risk and harm from fraud and scams in P2P services, companies have not made consumer-friendly changes to their policies,” said a Consumer Reports report on the need for additional protections.

Consumers are increasingly using digital payment apps to pay friends and family and to purchase goods and services.

According to the Federal Reserve Bank of Atlanta’s 2023 Survey and Diary of Consumer Payment Choice, 72% of consumers used an online or mobile payment account in 2023.

But the financial losses caused to consumers by these apps – whether through fraud or scams – have also increased.

According to the Federal Trade Commission, consumers reported losing $210 million to fraud on the platforms in 2023. That’s 62% more than 2021 losses.

How are digital payment apps regulated?

Digital payment apps are less regulated than debit and credit cards, especially for payments that are controversial as fraudulent.

A key sticking point is whether the digital payment is “unauthorized” or the result of a stolen account, and whether a consumer is tricked into sending a payment to the wrong person or a fraudster.

There are fairly clear protections for unauthorized transactions that cover consumers’ losses, but “it’s fuzzier in what’s called incentive fraud,” when a fraudster convinces a consumer to send money for goods or services that are turn out to be legitimate, said Delicia Hand, senior director of digital marketplaces at Consumer Reports.

Depending on the fine print in their user agreements, consumers may not always be able to receive a refund in these cases, Consumer Reports said.

But these scams are increasing in size and complexity, and consumers should be better protected by the payment apps that are also increasingly being used for the scams, Hand said.

Consumer Reports conducted a 2022 assessment of user agreements and protections for the most popular digital payment apps. Recently, another look was taken at digital apps to see if progress has been made in protecting consumers from fraud.

According to Consumer Reports, consumers need more fraud protection

In a report released in late September, Consumer Reports said there have been some changes, but not enough. Consumer Reports is calling on payment app providers and the Consumer Finance Protection Bureau (CFPB), which oversees and enforces existing regulations surrounding payment forms, to strengthen consumer protections.

Consumer Reports recommended that the bureau “require more generous liability protection for unauthorized transactions and establish liability protection for fraudulently induced transactions.”

Consumer Reports also called on payment apps to make several other improvements, including:

  • Institute a mandatory 24-hour hold period for transactions valued at $500 to $750 or more, with the ability for consumers to override it by providing additional confirmation.
  • Establish a universal 12-24 hour window during which all consumer payments can be easily reversed, similar to the cancellation policies of other financial instruments and institutions.
  • Commit to improving the transparency and thoroughness of internal investigation processes and providing more comprehensive compensation to consumers who have fallen victim to sophisticated fraud schemes.
  • Improve user authentication methods by implementing multi-factor authentication for all transactions over $500.

Consumer Reports said it is also monitoring upcoming legislation to protect consumers from payment fraud introduced in both the Senate and House of Representatives to increase protections on P2P platforms. That passed in August by Sens. Richard Blumenthal, D-Conn., Elizabeth Warren, D-Mass., and Rep. Maxine Waters, D-Calif. Introduced law would protect consumers if they are tricked into sending a payment to a fraudster; if they lose money through fraudulent bank transfers; and if their accounts are frozen or closed for unexplained reasons. The legislation has not yet progressed.

“Currently, fraudsters are using every trick to steal money from hard-working consumers through payment apps like Zelle, Venmo or old-fashioned bank transfers. “That’s why it’s absolutely critical that we quickly modernize our consumer protection laws to reflect the realities of today’s payment systems,” Waters said in a joint statement released to mark the bill’s introduction.

Victim of a scam? Protection is different for debit and credit cards.

Payment apps are responding

In statements and interviews with USA TODAY, representatives of the P2P apps said their platforms protect consumers.

Zelle sent Consumer Reports a letter after its report was published online expressing disappointment that it was published before a meeting between the parties and saying there were inaccuracies.

In an interview with USA TODAY, Zelle’s chief fraud risk management officer Ben Chance said any unauthorized transactions where the consumer did not send the money will be 100% refunded. Payments made by an account holder to a fraudster will be investigated by all Zelle Financial Institution participants on a case-by-case basis, but fraudsters impersonating a government agency, financial institution or existing service provider will also be fully reimbursed.

In a statement provided to USA TODAY, Venmo said, “Venmo has always had a zero-tolerance policy toward attempted fraudulent activity, and we continually advance our fraud prevention capabilities and invest heavily in products, features and solutions that prevent fraud.” first and foremost, including 24/7 fraud monitoring, encryption and machine learning fraud prevention modeling to take proactive action by limiting fraud accounts and rejecting risky transactions.”

Unauthorized transactions will be fully refunded. A Venmo spokesperson also said that users are protected by Venmo Purchase Protection, which covers eligible transactions even if they are authorized by a buyer.

Cash App said in a statement that it “remains committed to building a secure platform to protect our customers. We strive to mitigate risks on the platform through a combination of preventive controls, dynamic detection and consumer education. As part of this effort.” “We are continually developing new features and updating our tools, including improving reporting workflows and improving payment alerts.”

Apple did not respond to a request for comment about its Apple Pay services.

Protect yourself

Here are some hand-held tips for consumers using P2P apps:

Only send money to people you know. “Just like you wouldn’t give a check to someone you don’t know, don’t click or swipe” to send money to someone you don’t know, Hand said.

Check the person you are dealing with. “We are moving so quickly. We could make a mistake,” Hand said. “Check the recipient’s details carefully before sending the money.”

Betty Lin-Fisher is a consumer reporter for USA TODAY. Reach her at [email protected] or follow her on X, Facebook or Instagram @blinfisher. Sign up here for our free The Daily Money newsletter, featuring consumer news on Fridays.