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A US consumer watchdog has called on regulators to introduce mandatory protections for users of peer-to-peer (P2P) payment apps, as the battle against authorised push payment (APP) fraud continues to escalate.

Following the publication of its , Consumer Reports has urged the Consumer Financial Protection Bureau (CFPB) to force payment firms to provide more protection to users against P2P fraud and scams.

The consumer advocate is calling on the CFPB to amend  to provide “liability protection” for fraudulently induced transactions.

In addition, the watchdog wants the updated rule to provide “more generous” liability protection for unauthorised transactions.

“We believe consumers should be protected from fraudulently induced payments because companies are in a much better position to put in place safeguards to address these issues than individual consumers,” said the group.

“Despite the increasing risk and harm of fraud and scams on P2P services, companies have made no pro-consumer changes to their policies.”

Proposed measures of protection

Although Consumer Reports did not specify what exactly an amended Regulation E should look like, the group did propose several measures that P2P firms could implement voluntarily ahead of statutory changes.

For example, it argued that firms should implement a mandatory 24-hour holding period for transactions of $500 to $750 or more.

It said this should include an option for consumers to “override” a previously authorised payment by providing additional verification.

Similarly, Consumer Reports called on firms to implement a universal 12-to-24-hour window during which all payments can be “easily reversed” by consumers.

Firms should commit to improving the transparency and thoroughness of internal investigation procedures, and should “more fully” reimburse victims of “sophisticated” induced fraud, it said.

Consumer Reports would also like to see enhanced controls for parents whose minor children use P2P platform Zelle.

These could include: 1) the ability to disable Zelle in their minor child’s online banking app; 2) mandatory approval or denial of transactions initiated by minors; and 3) real-time transaction notifications for parents.

Why current policies aren’t working

At present, Regulation E stipulates that banks and credit unions must reimburse customers for unauthorised electronic funds transfers. This covers unauthorised credit and debit card transactions, as well as P2P transactions.

However, authorised transactions currently have no reimbursement protection under US law. 

Zelle is currently the only P2P platform in the US that offers some form of voluntary reimbursement protection for victims of APP fraud.

In June 2023, Zelle introduced a new policy to reimburse victims of “qualifying” impostor scams. However, the P2P service does not publicly reveal what constitutes a “qualifying” impostor scam under this policy, in an effort not to incentivise future scammers.

Lawmakers have also drawn attention to the downward trend in reimbursements offered to Zelle users.

In July this year, a Senate  found that Zelle’s three largest owner banks reimbursed victims of Zelle scams just 38 percent of the time in 2023, down from 62 percent in 2019.

The reimbursement picture is further complicated by disparate user service agreements depending on whether Zelle is accessed directly via the Zelle app or via a third-party banking app.

“While Zelle has its own policies, when used through a bank’s app, the bank’s policies apply,” said Consumer Reports. “This dual nature means consumers may be subject to different terms depending on how they access Zelle.”

Potential legislation targeting P2P platforms

The latest study from Consumer Reports is not the first time the watchdog has called for regulators and lawmakers to do more to protect users of P2P payment apps.

In 2022, Consumer Reports made a  of the four largest P2P platforms in the US — Zelle, Venmo, Cash App and Apple Cash — and found that their fraud and scam protections are “not keeping pace” with adoption.

Prior to its latest study, the watchdog had also voiced support for lawmakers that are trying to pass new legislation to increase consumer protections on P2P platforms.

In August, for example, Senator Richard Blumenthal (D-CT) introduced the .

The act seeks to amend the Electronic Fund Transfer Act to treat fraudulently induced electronic fund transfers “in the same manner” as unauthorised electronic fund transfers.

The bill, which is endorsed by Consumer Reports and 48 other advocates, was read twice and referred to the Senate Banking Committee, of which Blumenthal is a current member.

Four days after introducing the bill, Blumenthal also called on the CFPB to open a formal investigation into the “mishandling” of fraud claims by Zelle and by other P2P payment services.