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SBC Financial Scams Hearing

Senate Committee on Banking, Housing, and Urban Affairs

Protecting Consumers from Financial Fraud and Scams in the Pandemic Recovery Economy

Tuesday, August 3, 2021

Witnesses

Opening Statements
Chairman Raphael Warnock (D-Ga.)
In his opening statement, Warnock explained that the economic setback caused by the pandemic is compounded by the rise of scammers taking advantage of vulnerable populations and the rise in online platforms being used to gain funds.

Ranking Member Thom Tillis (R-Fla.)
In his opening statement, Tillis stated that consumer complaints filed for identity theft rose exponentially in 2020 and explained that this rise is due to criminal actors, including individuals and companies. He also stated that Congress needs to examine government programs to ensure there is no room for fraud.

Testimony
Ms. Liz Coyle, Executive Director, Georgia Watch
In her testimony, Coyle explored the concerns of a consumer advocate in Georgia regarding the pandemic public health and economic crisis. She emphasized the toll of the pandemic on seniors, fixed incomes, veterans, lower income households and communities of color. She stated that bad actors are using emerging financial technology tools to facilitate scam-based theft. She recommended that Congress ensure state and federal regulators have the authority needed to set and enforce rules that protect consumers and keep the fintech marketplace safe for all.

Mr. John Breyault, Vice President Of Public Policy, Telecommunications, And Fraud, National Consumers League
In his testimony, Breyault stated that fraud has skyrocketed during the pandemic, citing a 45.7 percent increase in complaints from 2019 to 2020. He described the variety of scams linked to the pandemic, such as scammers targeting consumers’ stimulus checks and identity fraud linked to COVID-19 vaccination cards. He stated that scammers use peer-to-peer (P2P) payment platforms, such as Square and PayPal, to obtain funds from their victims. He recommended that the Federal Reserve ensure that FedNow, a new faster payment system, is safe for consumers before the system is launched. He suggested that new protections are created to protect consumers from fraud and errors on P2P payment platforms. He also urged Congress to enact legislation that expands the Electronic Funds Transfer Act (EFTA) definition of unauthorized electronic fund transfer to cover fraudulently induced payments   

Ms. Rachel Greszler, Research Fellow, The Heritage Foundation
In her testimony, Greszler focused on the unintended consequences of fraud and abuse in the pandemic unemployment insurance (UI) programs. She explored the unanticipated rise in fraud from UI programs. She described that some state actions to limit fraud have had the adverse effect, citing California’s efforts. She highlighted that if UI programs are permanently kept, criminals will be able to create new avenues for stealing individuals’ personal information. She recommended that Congress limit government programs to help Americans save money and limit the risk of personal information being stolen. She also advocated for the establishment of universal saving accounts, which would allow Americans to invest in a single account for any purpose with no minimum contribution required.

Question & Answer
ARP Related Scams
Warnock noted how the American Rescue Plan’s provisions will allow child poverty to be reduced by around 50 percent and that cybercriminals have been targeting this benefit via recurrent phishing scams. He then asked Breyault what lawmakers can do to help prevent this. Breyault noted that the Senate can consider legislation and other protections that would better secure the vulnerable payment technologies that scammers rely on for transactions.

Unemployment Insurance
Tillis asked Greszler if he agrees with the Department of Labor (DOL) Office of the Inspector General’s note about the unprecedented fusion of federal funds into the UI program giving criminals a high value target to exploit and allowing criminals to defraud the system. Greszler stated yes, noting that contributing factors to this issue include the nature of the program being outdated and the set of rapid expansions thrown onto the system.

Sen. Jon Tester (D-Mont.) asked for Greszler’s confidence in her reporting in her testimony that had the pandemic recovery programs provided unemployment checks to one-hundred percent of the reported population, at least 557 million unemployment checks would have been sent to those who were not unemployed. Greszler stated that she had employed rigorous statistical tabulation methods in order to figure out a conservative estimate of excess unemployment checks and thus has confidence in this value.

Identity Theft
Sen. Catherine Cortez-Masto (D-Nev.) asked what actions Congress should take to address identity theft. Breyault stated that having better data security standards for the transfer of sensitive personal information, observing money trails more intently and effectively, and working with financial institutions who facilitate such transactions to offer better security are integral to addressing these problems. Greszler stated that increasing the requirements of verification for financial transactions would help prevent scam transactions from occurring so easily once personal information has been accessed.

Financial Literacy
Tillis asked what actions Congress should take in order to address scam prevention and promote financial literacy. Coyle stated that providing states the resources to address such issues at the local level is paramount to allowing rapid and effective rectification to such scenarios. Cortez-Masto asked how much resources should be put into consumer education for such actions. Breyault stated that putting the responsibility on consumers alone to protect their information when fighting back against highly sophisticated criminals is far too much to expect out of the American population, and that having reinforcements by empowering government and financial institutions is important to successfully address the prevalence of scams.

Mobile Payment Scams
Sen. Elizabeth Warren (D-Mass.) asked whether a consumer would be likely to get back their money if they were hypothetically tricked into paying money via a mobile payment application to a scammer pretending to be a co-worker. Breyault stated no, noting how common mobile payment applications do not offer tangible levels of security for consumers who inadvertently participate in faulty or scam payments.

Scams Impacting Veterans
Tester asked how fraud during the pandemic and the economic crisis has impacted veterans. Breyault stated that members of the military, their families, and others in the military community are especially vulnerable to scam attacks due to having a guaranteed income stream and having to move around frequently between postings. He stated that the solutions to better protect this population have to be unique and have to come not only from within the Department of Defense (DOD) but also from enforcement agencies like the Department of Justice (DOJ), the Federal Trade Commission (FTC), and banking regulators to crack down on predatory lenders, fraudulent direct sellers, or other fraudsters.

Tester asked how Congress can better protect veterans and their families against scams. Breyault stated that there needs to be a layered approach requiring contributions from credit-reporting bureaus, banks, software companies, state unemployment insurance plans, etc.

Warnock stated that last year, the Consumer Financial Protection Bureau (CFPB) issued a civil penalty against a company for the inclusion and presentation of misleading and inaccurate information against veteran clients, and he asked what can be done to protect veterans and service members from such scams. Coyle stated that there is concern over scammers who are going after veterans and their surviving spouses, attempting to get their pensions and other benefits, and she mentioned that it is important that regulators provide educational resources and the ability to rapidly alert authorities in the event of such scams.

Medical Debt
Sen. Chris Van Hollen (D-Md.) asked about what programs Coyle is enacting in Georgia to address the burdens of medical debt on affected populations and what the longer-term solution is projected to be. Coyle noted that about 30 percent of adults in Georgia have medical debt and 48 percent lack access to a sustainable rainy-day fund and how Georgia Watch has put together a comprehensive guide on addressing medical debt and healthcare accessibility.

For more information on this hearing, please click here.