Who’s liable in authorized push-payment schemes?

In late 2020, Bruce Barth was hospitalized for COVID-19. His woes multiplied when someone lifted his phone from his hospital room. A thief accessed Barth’s digital wallet on his phone and stole a total of $2,500 in credit card charges and cash from an ATM and from the Zelle electronic money transfer system app on his phone. Barth’s bank quickly refunded his cash and credit card losses but denied the Zelle losses. According to Barth’s bank, codes sent to his phone had validated the transactions even though the phone had been stolen.

“It’s like the banks have colluded with the sleazebags on the street to be able to steal,” Barth told The New York Times. The bank finally refunded Barth his Zelle losses only after The Times intervened. (See “Fraud Is Flourishing on Zelle. The Banks Say It’s Not Their Problem,” by Stacy Cowley and Lananh Nguyen, The New York Times, March 6, 2022.)

Consumer frauds like the one Barth experienced are rampant. U.S. Federal Trade Commission (FTC) data shows that consumers lost $8.8 billion to scams in 2022 — up 30% over 2021 losses. One fraud that’s grown with the rise of payment apps is the authorized push payment (APP) scam, in which a fraudster deceives a consumer or individual to send them payments under false pretenses to bank accounts controlled by the fraudster. While Barth’s experience on Zelle wasn’t an APP fraud, it raises important questions about fraud liability that we’ll address later in this column. (See “Authorized payment scams climb in US,” by Tatiana Walk-Morris, Payments Dive, Dec. 14, 2023.)