October 31, 2022

ABA Argues Against Holding Institutions Liable for P2P Payment Fraud Claims

Steven Lofchie Commentary by Steven Lofchie

The American Bankers Association ("ABA") warned that shifting the liability for fraudulent payments on peer-to-peer ("P2P") instant payment systems to institutions will likely have negative consequences.

In a letter to the CFPB, ABA said that instances of fraud, particularly on the P2P payment app Zelle, are few, relative to the total volume of transactions on the app. ABA noted that in the past five years, 99.9 percent of the 5 billion total transactions sent via Zelle were processed without claims of fraud. ABA argued that by offering instant, irreversible payments, P2P instant payment services offer merchants immediate access to funds without the concern that the money may be returned. These services also provide a safe alternative for consumers to send and receive money, given that instances of check theft have increased and cash can easily be misplaced, according to the letter.

ABA reviewed measures taken by banks to prevent fraud, some of which are not public to preserve their effectiveness. For example, some banks have implemented a system to warn users to only send money to known recipients, ask users to confirm recipients, and require that users enter a confirmation passcode in order to finalize payment. Other banks utilize multi-step authentication that asks the user to approve a transaction via email or text before it is processed. ABA also said that many banks have devoted resources to curbing fraud through investor education and helping consumers identify red flags for potential instances of fraud.

ABA argued that shifting the liability for fraudulent payments to institutions will harm consumers and have consequences. Institutions will either have to increase service fees to cover the costs, ABA said, or prevent the use of Zelle as an immediate payment service so that banks have time to review transactions for possible fraud. ABA also said that the potential liability for indemnity will discourage or prevent small banks from providing Zelle, as the risks will be too great. If banks were forced to provide indemnities for Zelle payments as they do for credit card payments, they may limit both who may send and who may receive such payments, so as to minimize fraud. ABA concluded that such measures would deprive individuals who are not able to obtain credit cards of an important alternative financial service.


The ABA letter serves as an immediate and direct rejoinder to Senator Elizabeth Warren's (D-MA) attack on Zelle, which she described as a center of "rampant fraud." Although the ABA letter does not directly reference the Warren letter, ABA responded effectively to her negative assertions. For example, Senator Warren said that fraud on Zelle increased year over year, but that would not be surprising given the rapid, concurrent increase in the number of Zelle transactions. Likewise, contrary to Senator Warren's attack on the banks for not repaying consumers that were tricked into making bad payments, the ABA letter makes a fairly strong argument that banks should not be liable for payments that customers have authorized.

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