EFTA liability expansion bill would harm consumers and credit unions alike
Credit unions face a growing tidal wave of fraud costs. In fact, you’d be hard-pressed to find anyone involved in the financial services marketplace that isn’t looking for a solution to combat both fraud and the rising costs of fighting it.
A recent bill introduced in both Chambers of Congress claims to tackle this problem. However, it instead threatens to upend the financial services marketplace as we know it, with community institutions like credit unions—and the people they serve—hardest hit.
The misleadingly named “Protecting Consumers from Payment Scams Act of 2024” would amend the Electronic Fund Transfer Act (EFTA) to require credit unions and other financial institutions to reimburse consumers for fraudulently induced transfers.
But let’s take a second to think about what this extreme shift in liability and costs would mean for a community-based financial institution, and more importantly, the consumers they serve.
A credit union would be responsible for losses on undelivered goods, misdirected payments due to consumer errors, and other transactions due to no fault of the credit union.
At its core, this bill fundamentally fails to recognize root causes of rising fraud costs and how to address it.
Instead, credit unions would foot the bill for fraud in areas it has nothing to do with, and this legislation would neither prevent fraud nor incentivize coordination between regulators, law enforcement, or other entities.
So, what does this actually mean? This legislation, as written, would:
- Shift losses to the very same credit unions that are spending increasingly more to fight fraud and protect their members’ data.
- Impose severe costs while dramatically altering credit unions’ ability to absorb future losses.
These unprecedented costs would dwarf the increased costs created by debit interchange caps and what proposed limits to credit interchange would do. And those two alone already represent a fundamental threat to the way card issuers serve consumers.
The proposed plan isn’t sustainable, does not tackle the heart of the problem, and it’s certainly not the kind of policy that increases financial inclusion.
Worst of all, it doesn’t even address investment scams and online shopping fraud—the two categories that a 2023 Federal Trade Commission study found were costing consumers the most money—and credit unions cannot influence either.
Credit unions’ people-first structure means they succeed when their members succeed, which is why credit unions make significant investments in security, fraud mitigation, and other technology to protect those same members.
The bottom line: This legislation would result in less protection for consumers and a very real risk of limited choice and access to service due to the sheer amount of financial losses shifted to financial institutions instead of tracking down the bad guys.
This bill is unlikely to go anywhere in the remaining months of this Congress, but it’s important for credit unions to know the stakes involved, and that this policy cannot and should not move forward an inch.
The real solution: The answer to rising fraud costs lies in solutions aimed to prevent fraud before it occurs and involve more resources for law enforcement, more education for consumers, and creating a level playing field between insured depository institutions and under-regulated companies.
Credit unions stand ready and willing to work with Congress on real solutions to stop fraudulent schemes and investing in robust programs to limit these efforts. However, credit unions cannot support this fundamentally misdirected legislation. Instead of making credit unions subsidize the cost of crime, Congress needs to stop the fraudsters in their tracks. This legislation misses the mark completely.
