In a way, P2P payments have become a scammer's paradise. Once scammers figured out how to manipulate consumers into authorizing fraudulent payments, it was off to the races. P2P fraud has quickly become a big issue.
In March 2022, the New York Times wrote a piece chronicling the problems faced with P2P fraud. Fraudsters are finding it fairly easy to trick consumers into authorizing payments. They pose as the consumer's bank, asking the consumer to authorize a payment. Once the consumer authorizes the payment, the fraudster nabs the money.
P2P payments are processed in real-time. Credit cards, ACH, and debit cards all have settlement periods. This can allow time for the bank to perform fraud checks and for the consumer to cancel a payment. P2P payments have no settlement period and currently very little in the way of fraud checks.
Traditional payment methods protect consumers from unauthorized charges through the Electronic Fund Transfer Act (EFTA). However, because fraudsters are tricking consumers into authorizing payments, Regulation E comes into play and does not protect payments in these cases.
Because consumers have authorized fraudulent P2P payments, in many cases, banks have been unwilling to credit these payments back. Consumers have little recourse because the payments are gone instantly.
If the consumer did not authorize the P2P payment, they are protected, and the Consumer Financial Protection Bureau (CFPB) has reiterated this. An expansion of Regulation E is being considered for those cases where consumers unknowingly authorize fraudulent payments.
Ultimately, this can lead to fraudulent chargebacks with P2P payments, as is the case with traditional payments such as credit and debit cards. If Regulation E is expanded and consumers know they are protected no matter what, they can simply call up their bank and deny the charge, creating a chargeback for the merchant. While some of these chargebacks won't be fraudulent, others will, as consumers bypass working with merchants, leading to friendly fraud chargebacks.
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