27 THE NAFCU JOURNAL NOVEMBER–DECEMBER 2022 There is no doubt that consumer behavior changed over the course of the last two years, with more people becoming comfortable with app-driven financial transactions, online banking and digital communications. Along with the convenience of innovative ways to conduct financial business, technology also provided another avenue for fraudsters to take money from credit union members. While Regulation E provides a basic framework that establishes the rights, liabilities and responsibilities of participants in electronic fund transfer systems, it was not designed with some of the new technologies in mind. “The regulation was passed in the 1970s to protect consumers and financial institutions as relatively new technologies like credit cards and ATMs gained prominence,” said Andrew Morris, senior counsel for research and policy for NAFCU. Although interpretations of the Regulation have been updated through FAQs to address questions related to new technologies, the speed and dynamic nature of peerto-peer (P2P) transactions via thirdparty platforms poses new challenges, he said. “We are also hearing that the Consumer Financial Protection Bureau (CFPB) is working on new interpretive guidance that could place a greater burden on credit unions by requiring them to assume an even greater share of the liability associated with fraudulent transactions.” Existing Regulation E guidance already presents its own set of challenges in the P2P context. “Under the current CFPB interpretation of Regulation E, a depository institution can be responsible for pass-through transactions, even if another company’s platform—such as an app-based P2P service—was used by the consumer to withdraw funds from their credit union account,” said Morris. “In these pass-through situations, a consumer can choose which organization to contact in case of error or fraud.” This is problematic for credit unions because members may find it more difficult to receive human assistance from a large technology company, and the credit union’s commitment to relationship banking often means members rely on their credit union to untangle the error. Credit unions will do everything they can to help the member, but they might not have detailed transaction information to investigate error or fraud involving P2P services because relevant information resides with the P2P service’s platform, explained Morris. “Our advocacy efforts are focused on encouraging the CFPB to explore a hierarchal response to consumer reports of error or fraud in “ Our advocacy efforts are focused on encouraging the CFPB to explore a hierarchal response to consumer reports of error or fraud in the pass-through transactions by requiring P2P providers to respond first since they have the information necessary to investigate. This issue needs to be resolved as soon as possible because more consumers are joining these P2P platforms and the opportunity for fraud or error increases with volume. ” ANDREW MORRIS, SENIOR COUNSEL FOR RESEARCH & POLICY, NAFCU pass-through transactions by requiring P2P providers to respond first since they have the information necessary to investigate,” he said. “This issue needs to be resolved as soon as possible because more consumers are joining these P2P platforms and the opportunity for fraud or error increases with volume.” New Technology; New Challenges Emerging innovations in payment options, such as the FedNow Service, present new opportunities for credit unions to deliver faster payments, but also present additional challenges related to managing fraud risk. One recent survey of NAFCU members revealed that a majority of respondents expected future availability of FedNow to “accelerate adoption” of faster payments. However, the irrevocable nature of real-time settlement could mean that early engagement with the service may correspond with conservative transaction value limits, and focus—at least initially—on business use cases.
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