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Over the last several weeks, IBAT has written about the increasing concern of community banks regarding fraud on money payment platforms like Cash App, Zelle and Venmo.

In the Spring 2022 Consumer Compliance Supervisory Highlights, the Federal Deposit Insurance Corporation (FDIC) stated the following with the underlined passage added for emphasis.

The FDIC also noted instances where deceived consumers provided their account credentials for fraudulent EFTs conducted through a money payment platform (MPP) such as Cash App, Zelle, or Venmo. When an MPP entered into an agreement with a consumer, that agreement extended to the financial institution holding the consumer’s account. The financial institution, as the account holding institution, was held responsible under Regulation E. In addition, the MPP, through whose platform the EFT was made, was also held responsible, as it was considered a “financial institution” under Regulation E. Both the financial institution and MPP have investigative and error resolution obligations under Regulation E and must comply with those obligations provided the consumer gives timely notice of an alleged error under section 1005.11(b).

That passage is being interpreted to mean that an implicit agreement between the bank and the MPP does exist, and the bank can’t use §1005.14 to avoid liability for those transactions. In other words, the bank would have to limit the liability of accountholders that use an MPP for unauthorized transactions – which include fraud and deception.

This is contrary to the way IBAT (and others) had interpreted the application of §1005.14 that seems to limit liability for a bank that does not have a specific written agreement with the MPP. Unfortunately, using the 10/45/90 day time limits under §1005.11(c), most community banks will end up crediting the accountholder with hopes of recovering the funds by reversing any credit should the MPP also issue a credit to the accountholder.

At least one IBAT member bank has received indication from the Consumer Financial Protection Bureau (CFPB) that their interpretation of this issue is in alignment with the FDIC’s position above. IBAT is working on confirmation with the CFPB and will coordinate a response with ICBA and others.