Prepared Remarks of CFPB Director Rohit Chopra, Vice Chair of the Financial Literacy and Education Commission, on Fraud in Consumer Payments

Thank you to everyone for joining for our discussion on fraud in consumer payments. Fraud losses in the financial system have serious repercussions for public safety and household financial stability. Since late 2021, the CFPB has been analyzing the various vectors where fraud is being perpetrated today and is identifying the new ways where we expect fraud to be perpetrated in the future. Addressing these will require a range of policy tools and private-sector action. I want to briefly touch on some of the major vectors of fraud to help us in our discussion today.

Scam compounds and pig butchering

Billions of messages sent to our phones, through texts, messaging apps, and social media messages sometimes start with a simple opener, like “hi!” or “hey!” Often, this invites a reply by the recipient of wondering who it is. These simple messages often turn into extended conversations where senders are building trust ultimately to perpetrate pig butchering scams that collectively lead to billions of dollars in losses.¹

The senders of these messages are often not here in the United States. Many of the senders are victims of human trafficking and kidnapping, imprisoned and forced to scam, often using crypto-assets. In recent years, we have come to learn that there are large-scale scam compounds, often operating in Southeast Asia.² Many of the individuals in these compounds answered job ads and now find themselves trapped.³ One estimate suggests that these compounds have 120,000 people in Myanmar alone who are forced to perpetrate scams.⁴ The sheer scale and volume of these scam compounds is alarming.

Data brokers and generative AI

While most people think that they would never be taken by a scam, it can be difficult to spot scams due to the enormous amount of personal data that is now available for sale to target individuals,⁵ along with technology that facilitates the cloning of voices and biometric indicators,⁶ which has made the ability to impersonate and microtarget easier and easier. Data brokers can even facilitate knowledge about whether individuals are newly widowed or suffering from a personal tragedy, exposing them to more vulnerability.

Vulnerabilities in payment mechanisms

As the U.S. adopts new ways to move money in real time through new apps and services, we must also catch up when it comes to stopping fraud on both the old and the new ways to pay. The CFPB observes a number of challenges when it comes to the incentives at play in stopping fraud on paper checks. Unfortunately, our existing paper check system includes a printed sensitive account identifier and multiple attributes about an individual. We are also concerned about the slow pace of change on network rules, such as those administered by Nacha, which governs the ACH network.⁷

Federal government actions to combat fraud in consumer payments

On each of these fronts, the United States government is taking action. On scam texts, last May, the FBI formally alerted the public about these scam compounds and the human trafficking abuses.⁸ In December, the United States, United Kingdom, and Canada sanctioned multiple entities and individuals linked to forced labor in Southeast Asia.⁹ Many agencies are looking at scams and fraud that rely on crypto-assets.

The Federal Communications Commission voted to issue new rules and orders that will facilitate the blocking of scam texts by mobile phone carriers.¹⁰ The Federal Trade Commission has finalized its Impersonation Rule which took effect in April.¹¹There is also much more work to be done to ensure that there is greater accountability for platforms that have allowed fraud to flourish through online messaging.

On data brokers and generative AI, agencies are working together to combat these harms,¹² and the CFPB is actively working on rules to ensure that data brokers do not misuse or abuse data.¹³

On payment apps, the CFPB is engaged in significant research, regulatory, supervisory, and law enforcement work with respect to widely used consumer apps.¹⁴

We know that there is an enormous shame in our society for those who are the targets of scams, and we need people to come forward. We all need to work together on this to tackle this problem together.

Thank you and I look forward to the discussion.