Banks are working every day to protect their customers from fraud, but they cannot stop criminals by themselves, said Paul Benda, EVP of risk, fraud and cybersecurity at the American Bankers Association, during a congressional hearing on financial fraud.
Benda was one of four witnesses who testified today before the House Financial Services Subcommittee on Oversight and Investigations during a hearing on fraud. In prepared testimony, he highlighted the rise in financial fraud targeting American consumers and businesses, emphasizing the need for a coordinated, multi-sector response to combat increasingly sophisticated criminal tactics. He also said that banks are fighting fraud by investing in new technologies, launching public education campaigns and working with law enforcement.
“Yet our industry recognizes that there is more work to do, and banks cannot stop criminals by themselves,” he said. “Every player in the fraud ecosystem must play a role; from the telecommunications firms to the social media companies to the Postal Service.”
Benda called for the creation of a national strategy to prevent fraud and scams, including the establishment of an Office of Scam and Fraud Prevention within the Executive Office of the President. He also urged Congress and regulators to:
- Close loopholes that enable impersonation scams via spoofed caller IDs and fake social media accounts.
- Enhance collaboration with law enforcement and regulators to improve fraud detection and prosecution.
- Improve real-time fraud information sharing across industries and government agencies.
- Continue to enhance bank anti-fraud operations to ensure they match the sophistication of modern fraud, including interbank recovery mechanisms and customer experience in fraud resolution.
- Support consumer education campaigns to empower individuals against scams.
In addition, Benda highlighted ABA’s partnerships with the U.S. Postal Inspection Service and law enforcement agencies to combat check fraud, which has surged since the pandemic. He noted that ABA’s industry-wide consumer education initiatives, including the #BanksNeverAskThat and #PracticeSafeChecks campaigns, have reached millions of Americans with practical fraud prevention tips.
Reimbursements and check fraud
In his opening remarks, Subcommittee Chairman Dan Meuser (R-Pa.) said the Federal Trade Commission received more than 2.6 million reports of scams last year, with consumers losing more than $12 billion. Yet that is likely only the “tip of the iceberg” as only an estimated 15% of victims report they have been scammed.
“The only way to defeat criminals and defend consumers is a whole-of-society approach,” Meuser said.
Committee Republicans praised the Trump administration for taking steps they said would help fight fraud, such as new sanctions on alleged overseas cyberscam centers and phasing out paper checks for most government-related payments. Committee Democrats accused the administration of exacerbating the problem by cutting funding and staffing for the Consumer Financial Protection Bureau and dismissing enforcement actions against businesses engaged in alleged fraudulent behavior.
One proposal raised during the hearing was to require payment providers to reimburse victims of unauthorized push-payment fraud, as the U.K. recently did. However, Benda said the U.K. law has not had the intended effects.
“What unfortunately has happened is that for banks that already heavily invested in anti-fraud and anti-scam protection, scam losses only went down 1.5%,” Benda said. “The challenge it would create for banks in the U.S. is not only would it not necessarily reduce scam losses, it would put banks in the uncomfortable position of trying to tell American consumers how they can or can’t spend their money.
There are countless stories of where people tried to talk family members out of sending money to apparent scams to no avail, he added. “And now you’re going to have a bank teller who is going to be responsible for making that decision? We don’t believe Americans want banks telling them who they can or cannot send money to.”
Committee members also asked Benda about the growing problem of check fraud. He said that artificial intelligence is making the situation worse, as AI tools are being used to make convincing fake documents.
“Banks would like more flexibility on being able to hold those checks,” he said. “Certain checks have certain timelines on when they have to release the funds, such as a Treasury check. We would be very open to having a discussion on how we could increase those hold times appropriately when fraud is suspected.”
