Are apps like Venmo and Zelle secure? Consumer Reports doesn't say enough.

Sandy Sans had successfully rented a ski cabin in Lake Tahoe for several years through Craig’s List, paying with Zelle, a digital payment app linked to her bank account.

But in 2018, as the registration date approached, something was wrong with the owner he was dealing with. When Sans did some more research, he realized that he wasn’t dealing with the owner of the cabin, but a scammer. He had sent $1,300 for the rental.

Sans, who lives in Los Altos, California, tried — and failed — to get his bank to reverse the payment he sent to the scammer. The bank also cited privacy reasons for not being able to provide information about the person who received the money.

In his complaint filed with Consumer Reports, Sans said it didn’t matter whether the money was obtained “by deception and lies.” I reported to the appropriate law enforcement, but they were also unable to do any meaningful tracing of the money or actually obtain any information on it. all.”

Sans said he was surprised at “how ‘privacy laws’ protect criminals.”

Zelle isn’t the only peer to peer (P2P) payment app he uses, and although he was scammed, Sans told USA TODAY he still uses several for purposes professionals. But now he only uses the apps with people he knows, he said.

Use of Venmo, Zelle and mobile apps on the rise

With the rise of digital payments, apps like Zelle, Venmo, Apple Pay, and Cash App say they have implemented numerous measures to protect consumers. But Consumer Reports says they’re not doing enough.

“Despite the growing risk and harm from fraud and scams on P2P services, companies have not made any changes to their consumer-friendly policies,” Consumer Reports said in a report on the need for additional protections.

Consumers are increasingly using digital payment apps to pay friends and family and to purchase goods and services.

In 2023, 72% of consumers used an online or mobile payment account, according to the Federal Reserve Bank of Atlanta’s 2023 Consumer Payment Choice Survey and Journal.

But financial losses suffered by consumers on these apps – whether through fraud or scams – have also increased.

In 2023, consumers reported losing $210 million to platform scams, according to Federal Trade Commission data. This represents a 62% increase over 2021 losses.

How are digital payment apps regulated?

Digital payment apps are less regulated than debit and credit cards, particularly for payments disputed as fraudulent.

A key sticking point is whether the digital payment is “unauthorized” or the result of a stolen account, or whether a consumer is tricked into sending a payment to the wrong person or a scammer.

There are fairly clear protections against unauthorized transactions, which cover consumer losses, but “where there is the most vagueness is in what is called inducement fraud”, where a scammer convinces a consumer to send money for goods or services that turn out to be non-compliant. be legitimate, said Delicia Hand, senior director of digital markets for Consumer Reports.

According to Consumer Reports, depending on the fine print of their user agreements, consumers may not always be able to receive a refund.

Still, these scams are increasing in volume and complexity and consumers should be more protected by payment apps, which are also increasingly used for these scams, Hand said.

Consumer Reports conducted an assessment of user agreements and protections for the most popular digital payment apps in 2022. Recently, it re-examined digital apps to see if progress had been made to protect consumers from fraud.

Consumers Need More Protection Against Fraud, Consumer Reports Says

In a report released in late September, Consumer Reports said there have been some changes, but not enough. Consumer Reports calls on payment app providers and the Consumer Finance Protection Bureau (CFPB), which oversees and enforces existing payment regulations, to strengthen consumer protections.

Consumer Reports recommended that the CFPB “require more generous liability protection for unauthorized transactions and implement liability protection for fraudulently induced transactions.”

Consumer Reports also called on payment apps to make several other improvements, including:

Implement a mandatory 24-hour hold period for transactions of $500 to $750 or more, with the ability for consumers to bypass it by providing additional verification.
Establish a universal 12-24 hour window during which all payments can be easily canceled by consumers, similar to the cancellation policies of other vehicles and financial institutions.
Commit to improving the transparency and comprehensiveness of internal investigation procedures and more fully reimbursing consumers who are victims of sophisticated fraud-driven scams.
Improve user authentication methods by implementing multi-factor authentication for all transactions over $500.

Consumer Reports said it is also monitoring pending legislation, dubbed “Protecting Consumers From Payment Scams,” which has been introduced in the Senate and House, to increase protections on P2P platforms. The legislation, introduced in August by Senators Richard Blumenthal (D-Conn.), Elizabeth Warren (D-Mass.) and U.S. Rep. Maxine Waters (D-Calif.), would protect consumers when they are tricked into sending a payment. to a crook; when they lose funds due to fraudulent bank transfers; and when their accounts are inexplicably frozen or closed. The legislation has not yet moved forward.

“Right now, fraudsters are using every trick they can to steal money from hardworking consumers through payment apps like Zelle, Venmo, or old-fashioned bank transfers. “That’s why it is absolutely critical that we act quickly to modernize our consumer protection laws to reflect the realities of today’s payment systems,” Waters said in a joint statement released when the bills were filed of law.

Victim of fraud? Protections are different for debit and credit cards.

Payment apps respond

Via statements and interviews with USA TODAY, representatives of the P2P apps said they believe their platforms protect consumers.

Zelle sent a letter to Consumer Reports after his report was posted online, expressing disappointment that it was released before a meeting between the parties and saying there were inaccuracies.

In an interview with USA TODAY, Ben Chance, Zelle’s director of fraud risk management, said that all unauthorized transactions, where the consumer did not send the money, are refunded 100 percent. For payments made by an account holder to a fraudster, all Zelle Financial Institutions participants will investigate on a case-by-case basis, but scams involving impostors posing as an existing government agency, financial institution, or service provider will be investigated. also fully refunded.

In a statement provided to USA TODAY, Venmo said: “Venmo has always had a zero-tolerance policy for attempted fraudulent activity, and we are continually expanding our fraud prevention capabilities and investing heavily in products, features and solutions that prevent fraud from happening around the world. first, including 24/7 fraud monitoring, encryption, and machine learning scam prevention modeling to take proactive action by limiting fraudulent accounts and declining transactions to risk.

Unauthorized transactions will be fully refunded. A Venmo spokesperson also said users have protections through Venmo Purchase Protection, which covers eligible transactions even if authorized by a buyer.

Cash App said in a statement that it “remains committed to creating a safe and secure platform to protect our customers. We work to mitigate risks on the platform through a combination of preventive controls, detection Dynamics and Consumer Education As part of these efforts, we are constantly developing new features and improving our tools, including improving reporting workflows and improving payment warnings.

Apple did not respond to a request for comment on its Apple Pay services.

Protect yourself

Here are some tips from Hand for consumers using P2P apps:

Send money only to people you know: “Just like you wouldn’t give a check to someone you don’t know, don’t click and swipe” to send money to someone you don’t know, Hand said.

Verify the person you are dealing with: “We’re moving so fast. We could make a typing mistake,” Hand said. “Check the recipient’s information carefully before sending the money.”

Betty Lin-Fisher is a consumer reporter for USA TODAY. Contact her at [email protected] or follow her on X, Facebook or Instagram @blinfisher. Sign up here for our free The Daily Money newsletter, which will include consumer news on Fridays.

Use of Venmo, Zelle and mobile apps on the rise

How are digital payment apps regulated?

Consumers Need More Protection Against Fraud, Consumer Reports Says

Payment apps respond

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