’Tis the season for a surge in financial frauds and scams, a huge and growing problem that caused about US$500 billion in losses globally last year, along with untold human suffering. Here is hoping policymakers resolve to bring together the resources of government and industry to finally fight back.
Confusingly, US law distinguishes between fraud and scams. Financial institutions generally must reimburse customers for unauthorized payments, or fraud, if the error is reported quickly. After all, a customer who did nothing wrong should not be liable. However, there are no such protections when customers authorize transfers to con artists. The latter crime has been growing fast, with losses from one type — investment scams — jumping 38 percent last year, to about US$4.6 billion.
Some lawmakers have been sounding the alarm, in particular about the rising number of scams using irreversible real-time payment networks such as Zelle. A US Senate subcommittee report in July called for a new requirement on banks to reimburse customers who can show they were tricked into authorizing payments to criminals. The idea was that banks would do more to prevent scams if they were on the hook for losses.
It is good that the US Congress is taking the issue seriously, but such a plan is unlikely to work. For one thing, banks already bear the costs of many types of fraud, from checks and ATM skimmers to identity theft, and have not been able to stop them. Globally, banks’ losses from such fraud total US$442 billion, about 10 times as much as consumers and businesses lost to scams. Nor would anyone expect banks to reimburse a customer who regretted giving cash to a con artist on the street. Surely the principle is the same if a payment is made with bits and bytes.
Rather than expecting the banks to police all varieties of human weakness, officials should focus on two things: sharing information and busting crooks.
One promising effort is a partnership started in July called the National Task Force on Fraud and Scam Prevention. It aims to convene experts from the US government and the private sector to devise a national strategy for addressing the problem. The idea is to find ways to improve information-sharing to offer consumers and businesses up-to-date insight about emerging scams and frauds and to assist law enforcement in taking them down and recovering lost assets.
Policymakers should build on this incipient effort. First — perhaps a job for US president-elect Donald Trump’s new department of government efficiency — they should create a single repository for frauds and scams instead of spreading information among entities such as the US Federal Trade Commission, the Consumer Financial Protection Bureau and the Federal Bureau of Investigation. If well-designed and transparent, such a portal could provide banks and businesses — as well as regulators and law enforcement — with a one-stop shop for information on evolving crime trends.
Perhaps more important, federal prosecutors need to make frauds and scams — which, among other things, help fund international criminal organizations — a real priority. Working with allies to arrest and prosecute more high-profile perpetrators would be a good start. No effort would end such crimes completely, but authorities must show they are not helpless in the face of proliferating spam texts, spoof e-mails and other cons. Identity theft and financial scams are the two crimes that Americans say they worry about most.
Contrary to the old idiom, crime does pay — in many cases, all too well. Unless the US changes the cost-benefit equation for fraudsters and scam artists, victims would continue to proliferate. A crackdown is long overdue.
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