▶ 0:12:36The subcommittee on financial institutions will come to order. Without objection, the chair is authorized to declare a recess of the committee at any
▶ 0:12:43Today's hearing is titled Fighting Fraud on the Front Lines: Challenges and Opportunities for Financial Institutions. Without objection, all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record. I now recognize myself for four minutes for an opening statement. Good morning.
▶ 0:13:05Today's hearing continues this committee's work to combat the growing threat of financial fraud and scams harming American families, seniors, and small businesses across our country. Fraud and scam losses are not abstract statistics. They represent retirement savings wiped out, college funds drained, and small business savings accounts emptied overnight. The scope of the problem is staggering.
▶ 0:13:31According to the FBI, Americans reported 16.6 6 billion dollar in cyber crime losses in 2024, a 33% increase over the over the prior year. Criminals are becoming more sophisticated, leveraging artificial intelligence, voice cloning, spoofed caller IDs, fake investment platforms, and coordinated money mule networks.
▶ 0:13:54They are exploiting social media platforms, telecommunications infrastructure, and crossber networks to deceive Americans at scale. And yet, even as these schemes often originate outside the financial system and frequently outside our borders, banks and credit unions are often the last lines of defense. Financial institutions of all sides are devoting substantial resources to fight fraud and scams.
▶ 0:14:19They are investing heavily in data analytics, machine learning, and artificial intelligence to detect suspicious activity within milliseconds. They are deploying real-time transaction alerts and customer education campaigns to encourage their customers to remain vigilant and spot common flags before funds have left their accounts.
▶ 0:14:39Community banks and credit unions, despite having fewer resources, are stepping up with employee training, enhanced check verification procedures, and partnerships with local and national law enforcement. The Trump administration has also taken significant steps to address this escalating problem.
▶ 0:14:56President Trump's executive order modernizing payments to and from America's bank accounts directs Treasury to transition away from paper checks, which are far more susceptible to theft and alteration, and toward more secure electronic payments. This shift will help safeguard Americans tax refunds and benefits while protecting taxpayer dollars from criminal activity.
▶ 0:15:19President Trump has also removed barriers to American leadership in artificial intelligence, recognizing that innovation is essential if we are going to outpace technologically savvy criminals. But despite these efforts, serious structural challenges remain. First, our legal framework for information sharing is outdated. Fraud today isworked, cross institutional, and real time.
▶ 0:15:40Yet, privacy statutes, antitrust concerns, and uncertainty under consumer reporting laws limit the ability of financial institutions to share data in ways that could identify mule networks and coordinated fraud patterns. Second, funds availability rules under regulation CC were written for a very different era when the primary risk was banks holding checks too long, not criminals exploiting mandatory next day availability to drain accounts before investigations can detect fraud.
▶ 0:16:08Third, our financial regulators often lack robust understanding of artificial intelligence and machine learning, preventing the establishment of clear guard rails for financial institutions. With well-defined expectations, financial institutions will be better positioned to confidently adopt these technologies or partner with innovative third parties to more effectively detect and prevent fraud.
▶ 0:16:30Lastly, law enforcement faces real constraints, including insufficient penalties for fraudsters, limited resources, and lack of coordination between federal and local officials. At the same time, we must also guard against proposals that could unintentionally fuel more scams. Placing liability on financial institutions when a customer mistakenly authorized a payment or transfer, often referred to as scams, does not address the underlying root causes of scams and could worsen the problem by increasing instances of firstparty criminal activity.
▶ 0:17:00It would also impose significant financial strain on smaller banks and credit unions which lack substantial profits needed to absorb large scam related losses. Our focus today is straightforward. How do we empower financial institutions to better deter, detect, and mitigate fraud without creating perverse incentives or unintended harm? I look forward to hearing from our witnesses and working with my colleagues to strengthen our nation's defenses against financial fraud and scams. With that, I yield back. I now recognize the ranking member of the subcommittee, Dr.
▶ 0:17:30Foster, for four minutes for an opening statement.
▶ 0:17:33Thank you, Chair Bar, and to our witnesses. Uh today's hearing continues that this committee's bipartisan focus on solutions to counter the growing threat of fraud and scams facing American consumers and financial institutions. Federal agencies including the FBI and FTC and numerous non-governmental organizations have increased their focus on frauds and scams in recent years. In each report, it's made clear that scams and losses from fraud and are growing year after year. Uh scams are moving online and perpetrators are becoming more sophisticated.
▶ 0:18:03As Chair Bar noted, the FBI's last internet crime report 20 in 2024 reported losses of staggering 16.6 billion dollars from cyber enabled scams and fraud. During COVID, the the US taxpayer lost well over hundred billion dollars to um to scams and identity scams.
▶ 0:18:23uh when encompassing offline activity like check fraud, well, when en encompassing offline activity like check fraud and information from victims that choose not to report their losses, the number is actually much greater. Today, we're going to be discussing what can be done to support community banks and credit unions, which often find themselves as the last line of defense between consumers and scammers.
▶ 0:18:44We will discuss what more what more financial institutions and this committee can do to fight scams and fraud, the role agencies outside of our jurisdiction should play and actions that can be taken by other industry sectors to eliminate common vectors for these activities.
▶ 0:19:00Old school fraud persists like check fraud where scammers with while scammers are quickly adopting new tools like artificial intelligence, deep fakes and to more effectively falsify documents, impersonate consumers or create false preenses that trick Americans into sending their hard-earned money to bad actors. Specifically, I worry about the role of impersonation and identity fraud in the scam system.
▶ 0:19:22Uh, in 2024, the Financial Crimes Enforcement Network, Vincen, published a report identifying more than$ 1.6 million suspicious activity reports implicating more than 212 billion dollars in transactions as linked to concerns with identity verification.
▶ 0:19:39I I would like to thank uh Congressman Sessions for his partnership on HR7270, the Stop Identity Fraud and Identity Theft Act of 2026, which would help states build the necessary infrastructure to offer a voluntary form of digital identification for Americans that want it. Digital identity tools are proven to be more secure and privacy preserving than physical documents and in an online environment.
▶ 0:20:04and our bill would take make important steps to provide a peace of mind to Americans who worry that the person on the other end of the line may not be who they claim to be. It is essential to also recognize the role of the consumer financial protection bure bureau that it played it played I guess in countering fraud and scams particularly for our service members and older Americans.
▶ 0:20:25The CFPB long served as a resource for Americans affected by these criminals uh providing assistance in operating their consumer complaint database which provides important data regarding the types of scams and other illegal activities facing the public. This work's important and this committee should put pressure to restore the CFPB so that it can continue that important work. Many members of this committee recognize that congressional efforts to counter fraud and scams cannot stop at the walls of this committee.
▶ 0:20:54Telecom service providers, social media platforms are common avenues for scammers to reach consumers. Fighting scams requires all an all of government approach to be successful and we should recognize that many times much of the damage has been done by the time the consumer contacts the financial institution. Technological solutions, improved information sharing arrangements, and stronger federal coordination provide a start to addressing these issues.
▶ 0:21:19So, I look forward to hearing the views of our witnesses on these topics and yield The gentleman yields back. I now recognize the chairman of the full committee, Mr. Hill, for one minute for
▶ 0:21:31Thank you, Chairman Bar. And this is Consumer Protection Week, and I think I want to commend you and uh Dr. Foster for holding this important hearing. Fraud and scams are not a new challenge, but the scale and complexity of the problem, as Bill just outlined, are increasing rapidly, imposing greater costs on both American families and on the financial services arena and on our small businesses.
▶ 0:21:56Americans reported losses of 12.5 billion in 2024, a 25% increase. In communities like my own in Little Rock, I hear directly from bankers, small business owners, consumers who are grappling with check fraud, wire fraud, and increasingly sophisticated digital scams. And in our family, we've been the victim of check fraud ourselves. Our banks and credit unions serve on the front lines of this fight, working every day to safeguard their customers.
▶ 0:22:25And we need an all of government approach. And that's why I commend the work of this committee, and I yield back. Uh [clears throat] thank you, Mr. Chairman, and I commend your work as well and your focus on this issue along with uh uh Mr. Muer, the chairman of our oversight subcommittee. Today, we welcome the testimony of Mrs. Gay Dempsey, the CEO of the Bank of Lincoln County, Tennessee, uh here on behalf of the Independent Community Bankers of America, Mr.
▶ 0:22:53Patrick McDade, the senior vice president uh for fraud and technology risk management at EverBank here on behalf of the Consumer Bankers Association. Miss Kate McHune, the general counsel of Park Community Credit Union in the great Commonwealth of Kentucky here on behalf of America's credit unions. And Kate and I have been friends for a long time. So, it's great to see you in front of our committee, Kate. And Mr. Joseph Schuster, a partner at Ballard Spar Spar and Mr.
▶ 0:23:20Adam Russ, the director of the financial services at the Consumer Federation of America. We thank each of you for taking the time to be here. Each of you will be recognized for five minutes to give an oral presentation of your testimony. Without objection, your written statements will be made part of the record. Miss Dempsey, you are now recognized for five minutes for your oral remarks.
▶ 0:23:41Chairman Bar, Ranking Member Foster, and members of the subcommittee. I am Gay Dempsey, the CEO of the Bank of Lincoln County located in Favville, Tennessee. We're a $225 million bank in southern middle Tennessee bordering Alabama. I'm a member of the board of directors for ICBA and a member of the fraud and scams task force. I'm also actively involved in the Tennessee Bankers Association where I'm soon to be chairman. I testify today on behalf of ICBA and thousands of community banks across our country.
▶ 0:24:11Thank you for convening today's hearing. I'm a lifelong community banker and I have witnessed firsthand the impact of fraud on our customers and community and have seen the financial ruin that fraud can produce. Community banks like mine are on the front lines spending significant time and resources to educate customers and identify and mitigate fraud. But coordination among financial institutions, law enforcement, and government at every level is necessary to combat this urgent problem.
▶ 0:24:40My written statement contains legislative and regulatory recommendations, but I must stress that additional mandates on community banks would only harm our ability to fight fraud. I also provide a number of stories to illustrate the impact of check fraud, imposture scams, and other schemes. In recent years, we have seen a significant rise in check fraud.
▶ 0:25:00A common thread in these cases is a failure of mail security and a depositing bank that ignored red flags on account opening and accepting deposits of stolen checks for fake companies. In some cases, lost funds were recovered after much effort and delay. In others, we had to absorb the losses. We've also seen a rise in imposttor scams enabled by unregulated social media platforms and Bitcoin ATMs.
▶ 0:25:25Our bank had an elderly customer with no family who fell victim to a romance scam and sold her house for $85,000. Spotting the red flags, we refused her request to wire the money to the scammer and tried our best to convince her that she was a victim, even showing her FBI reports. In the end, we could not refuse her request to make a cash withdrawal, which she deposited in a nearby Bitcoin ATM and transferred to the scammer.
▶ 0:25:53This was heartbreaking, a preventable crime enabled by the use of fake social media accounts. The scam act introduced by representatives Muer and Koreah would begin to hold social media platforms accountable for fraud like this. Fraud losses disproportionately impact community banks relative to our asset size. For a bank like ours, fraud fundamentally impacts our ability to serve our local community.
▶ 0:26:18Beyond the significant dollar losses, fraud is increasingly absorbing focus and attention, stealing valuable time that we should be spending with our customers. But maybe more dangerous is the intangible impact, the erosion of consumer trust in all banks. This, ironically, leads consumers to seek out unregulated non-bank alternatives that put them at even greater risk. Community banks are built on strong relationships.
▶ 0:26:44This sets us apart from larger transactionoriented banks and fraud jeopardizes these critical Given these high stakes, how are community banks responding? First, we are investing significant amounts in technology, including AI, to detect fraud. These tools, which are important but not foolproof, add significant costs for our bank.
▶ 0:27:06One of the draft bills before this committee, the Bank Fraud Technology Advancement Act, would require a comprehensive agency study of the use of AI and fraud prevention. This study would be valuable. Second, we train our staff to spot fraud and report suspicious activity. Our staff are the point of contact and position to detect fraud early and intervene. Their training is critical, but so are the personal relationships and the knowledge they have.
▶ 0:27:33In our close-knit community, they are truly the first line of defense. At the industry level, ICBA created a fraud and scams task force that shares information and best practices, meets with regulators, and develops resources for our peers. My statement also contains recommended changes to Fed Regulation CC, which governs check clearance. This along with the draft stopped fraud act would help community gate banks mitigate check fraud by providing more flexible hold times.
▶ 0:28:04Finally, a third draft bill before this committee, the trace act would expand critical information sharing while providing safe harbors. Thank you for your work on the draft.
▶ 0:28:20Thank you. I now recognize uh Patrick McDade for five minutes.
▶ 0:28:28Chairman Bar, Raiki Member Foster, and members of the subcommittee. Thank you for the opportunity to testify. My name is Patrick McDade, and I am the senior vice president for fraud and technology risk management at Everbank. Before joining Everbank, I spent over a decade as a state federal prosecutor. I also serve as the chair of the Consumer Banking Association's Fraud Management Committee.
▶ 0:28:49The CBA's broad membership has long been raising the alarm about the rise in fraud and scams that are in inflicting deep financial and emotional harm on American consumers and small businesses. Banks invest billions of dollars and millions of hours to combat fraudsters and scammers each year. However, banks cannot face this growing threat alone.
▶ 0:29:09In 2024, the FBI received more than 850,000 IC3 complaints involving losses of over$16 billion, which was a 33% increase over 2023. However, while consumers expect a meaningful response to these complaints, go reports have revealed a lack of coordination among federal bodies to assist victims and prevent frauds and scams.
▶ 0:29:34Meanwhile, the criminals behind these frauds and scams are using AI, social media, and dark web platforms to coordinate with each other and improve their attacks and techniques. Historically, fraudsters have attacked the financial services industry through traditional bank fraud methods, identity theft, forgery or altering checks, wire fraud, etc.
▶ 0:29:57More recently, these criminals have focused on emerging digital bank platforms, fraudulently accessing accounts online and making unauthorized payments. Banks hardened their digital controls, develop data focused fraud tools, and strengthen digital security to combat these emerging threats. In response, today the criminals are for are focused on a new tactic, scams directed at our customers. Frauds and scams are often conflated as both use complex schemes and deceptions to steal.
▶ 0:30:27However, it is important to understand the differences between fraud and scams. The key differences are who is being deceived and who is authorizing the transactions. As I described in bank fraud, the criminals are trying to deceive the bank and fraudulent transactions are sent. With scams, however, the criminal is not deceiving the bank. They're deceiving the customer. The customer believes they urgently need to move money to invest, to help a loved one, or to avoid a penalty.
▶ 0:30:57The customer then contacts the bank and authorizes a transaction to move money. Banks work hard to protect their customers in the main street communities they serve from these scams. Banks monitor unusual activity, educate customers about fraud and scams, and train their staff to recognize red flags that indicate a customer may be a scam victim. Banks are doing what they can do to stop scams, but there are several important steps that policy makers can take to help.
▶ 0:31:26First, the federal government should establish a national strategy to combat fraud and scams. Because so much of the activity involving scams originates from social media, telecommunications, and other places outside the financial se sector, this strategy must include crossindustry engagement. One step towards accomplishing this could be an executive order that includes unified coordination with the private sector.
▶ 0:31:52While my written testimony provides more detail, such an order could establish a centralized inter agency reporting and data sharing infrastructure to streamline complaint intake and response. This would provide immediate structural alignment across agencies while longerterm legislative reforms are To that end, CBA strongly supports many bipartisan and biccameal efforts, including the leadership of Representative Nun through the guard act and the traps act,
▶ 0:32:22Representative Muser through the scam act, and other efforts such as rep representative Kim's no more scam scams act represent important steps in inter cross agency coordination. Congress should also expand safe harbor protections so financial institutions can share real time fraud and scam threat intelligence without undue legal risk. Federal regulatory frameworks must also be modernized, including REGG CC. Customer education is equally vital.
▶ 0:32:52Banks commit significant resources to educate their customers about fraud and scams, but a national fraud and scam awareness campaign would make a substantive difference. Finally, fraud and scams are currently reported to the government through Fininsson suspicious activity reporting process. Transition to a modern fraud signal report would lead to more valuable and actionable data gathering by the government. The frauded scam ep epidemic confronting American consumers is not a series of isolated incidents.
▶ 0:33:19It's a rapidly evolving technologically stellar global threat that inflicts billions of dollars each year and affects millions of Americans in every district and main street consumer across the country. Thank you. And I look forward to your
▶ 0:33:34You uh Miss Mchune, you're now recognized for five minutes.
▶ 0:33:39Good morning, Chairman Bar, Ranking Member Foster, and members of the subcommittee. I'm Kate McHune, general counsel of Park Community Credit Union in Louisville, Kentucky. I'm pleased to appear before you today on behalf of America's Credit Union unions, where I serve on the fraud task force and the association's advocacy policy committee. We applaud the subcommittee for holding this important hearing today. Financial institutions operate in an environment where fraud and scams are becoming increasingly more prevalent.
▶ 0:34:07Fraud encompasses a wide range of criminal tactics. Scams, as a subset of fraud, often involve an element of impersonation or trickery. Both ultimately harm the consumer and the financial institution and fall under the broader scope of fraud being examined at this hearing today. Credit unions like mine must contend with a fraud environment where a large share of fraud and scams originate outside of the financial sector and criminal sophistication continues to grow.
▶ 0:34:34Credit unions are the original consumer protectors and that fact puts us at the forefront of looking out for our members. At the same time, consumers increasingly demand speed and convenience as a core part of their banking experience. Sometimes the only viable defense against fraud is preventing it before it occurs.
▶ 0:34:53A process that can be technologically demanding, expensive, and dependent on timely information sharing between law enforcement, federal regulators, and other payment system Despite significant investments in fraud detection tools, consumer education, and data security, credit unions report each year that fraud remains a top concern. For smaller credit unions, a significant fraud loss could impact the financial health of the institution.
▶ 0:35:21As a not-for-profit cooperative, if regulatory standards on liability for fraud were to shift the costs further to the institution, our members would ultimately bear the burden. Credit unions regularly work to adapt, innovate, and educate their members about the variety of fraud and different scams that can target them. Although oftentimes no amount of security investment or or intervention can fully compensate for a consumer's decision to trust a scammer.
▶ 0:35:48One of the biggest challenges in in combating fraud is that it can come in so many different forms. Romance scams can be difficult for a credit union to detect and prevent because manipulation of the victim can take place over a long period of time. Often victims of romance scams will genuinely believe that their online friend is a person they can trust and no amount of circumstantial evidence will change their mind. Fraudulent advertisements for fake goods and services are another common vector for defrauding consumers.
▶ 0:36:18Unfortunately, financial institutions have minimal control over how online or social media entities manage their advertising policies. As a result, we must resort to simply warning consumers that completely anonymous online site unseen purchases of goods could mean losing their money. Investment scams and business impersonation scams have also contributed to abnormally high fraud losses among consumers.
▶ 0:36:43Often, these scams can involve cryptocurrencies or impersonators pretending to work for crypto companies. Check fraud has also increased in recent years. One way to combat this would be to modernize the funds availability rules under regulation CC and create flexibility in the length of time funds may be held if there is concern about a check.
▶ 0:37:02While the NCUA also provides resources to assist credit unions and their members in the fight against fraud, America's credit unions supports greater inter agency coordination, expanded information sharing authority, and close collaboration with law enforcement to address fraud. We believe a national strategy to mitigate fraud should include several key elements. First, improving in information sharing and coordination.
▶ 0:37:27Bills such as the Traps Act and Trace Act are important steps in this area that would improve cooperation between public and private sectors and law enforcement. Second, a national consumer education campaign and program from the federal government that partners with industry. Third, modernization of funds availability rules. Legislation such as the Stop Fraud Act would begin to make improvements in this area. And fourth, promotion of the use of technology, including AI, to help combat fraud.
▶ 0:37:56The Bank Fraud Technology Advancement Act is an important first step. We also support the creation of technical assistance and grant programs to help smaller financial institutions access best-in-class In conclusion, there's no magic bullet to stop fraud and scams. At Park Community, we're on the fright front front lines trying to fight trying to fight it and help our members. But the challenges are complex. Often criminals seek to manipulate the system and prey on human nature.
▶ 0:38:26There's only so much one institution can do alone. What is needed is a commitment at the federal level to work with credit unions and other financial institutions to help combat fraud and scams by using an all of government approach as outlined in my testimony. Thank you for holding this important hearing and the opportunity to appear before you today. I welcome any questions you may have.
▶ 0:38:48Thank you, Mr. Schustster. You are now recognized for five minutes. Thank you and good morning. Chairman Bar, Ranking Member Foster, and members of the subcommittee. Thank you for the opportunity to testify today. My name is Joseph Schuster and I'm a partner in Ballard Spar's consumer financial services group where I advise banks, credit unions, payment companies, and technology providers on federal and state consumer finance laws.
▶ 0:39:16A substantial portion of my practice focuses on fraud and scam related matters including payments fraud, identity based fraud, account takeover, check and wire fraud, scam topologies, loss allocation, and legal and operational frameworks governing fraud detection and response. Throughout my testimony, two themes are going to be per pervasive. The first is the challenge of sharing information effectively to prevent fraud.
▶ 0:39:47The second is the constraints financial institutions face when deploying new tools to combat rapidly evolving fraud schemes. Fraud prevention today is inherently collaborative. It depends on coordination among financial institutions, their service providers, law enforcement, and in many cases crossindustry information sharing Yet these efforts take place within a layered legal and supervisory framework.
▶ 0:40:17Fraud mitigation is shaped not only by statutory regimes such as the Fair Credit Reporting Act and the Expedited Funds Availability Act, but also by regulatory guidance, supervisory expectations, and the practical realities of examinations and investigative oversight. Financial institutions must navigate federal and state compliance expectations and requirements while simultaneously responding to increasingly sophisticated and fastm moving fraud threats.
▶ 0:40:46The interaction between federal and state law can create uncertainty in areas such as information sharing, funds availability practices, fraud related holds, consumer dispute handling, and the use of advanced analytics.
▶ 0:41:01Institutions operating nationally must reconcile these overlapping regimes while responding to fraud schemes that do not respect jurisdictional My testimony today reflects a legal practitioner's perspective across institutions of varying sizes and business models. Fraud has evolved rapidly in recent years. At the same time, many elements of the legal and supervisory framework were developed in an era when fraud was slower, more siloed, and certainly less technologically advanced.
▶ 0:41:34The result is a growing tension between the speed and scale of emerging fraud trends and the structure of the regulatory architecture governing prevention efforts. I appreciate the committee's attention to these issues and I look forward to discussing how policymakers can support effective fraud mitigation while preserving consumer protections, privacy, and fair access to financial services. Thank you.
▶ 0:42:01Thank you. The gentleman yields back. And last but not least, Mr. Rust, you are now recognized for five minutes.
▶ 0:42:08Chairman Bar, Ranking Member Foster, and members of the committee, thank you for the opportunity to testify today. My name is Adam Rust. I'm director of financial services for the Consumer Federation of America. CFA is a nonprofit organization dedicating to serving the consumer interest with 250 nonprofit coalition members across the country. And we house veteran saves and military saves to help approximately 240,000 individuals build wealth.
▶ 0:42:36Today, I want to talk about scams which are among the most serious threats facing consumers today. You've heard about the large numbers of losses. The numbers are truly much larger because so many scams are never reported. Scams affect people in every congressional district of every age, young, old, urban, rural, civilian, and service member. I want to focus my testimony on five things con Congress can do.
▶ 0:43:06First, attacks on the CFPB must end. The CFPB is the primary federal agency with the mandate and expertise for consumer financial protection and authority for EFA and UDAP. Its complaint database receives complaints from harmed consumers. This information can be shared with law enforcement and other concerned parties. When consumers are harmed, the CFPB has sent a clear signal.
▶ 0:43:34When when companies offer unsafe products, there will be consequences. But that signal has been silenced by dropping enforcement, gutting supervision, and firing staff. The consumer champion has been taken off the beat, and Congress overturned the rule requiring supervision of payment apps and digital wallets. Consumer relief rates have dropped precipitously from approximately 50% two years ago to now less than 1%.
▶ 0:44:04Second, FA is broken for scam victims. EPA was written in 1978 when electronic theft meant a stolen ATM card. Today's criminals coerc victims into authorizing transfers where there is little recourse under the law. CFA supports the protecting consumers from payment scams act which would expand coverage to wires, call for shared liability and protect create protections against induced transfers.
▶ 0:44:31The bill will modernize F E F E F E F E F E F E F E F E F E F E FA to actually address how scams work. Now third, every company across the payment journey should be accountable and a part of the solution. For every scam, there is a destination, a bank or a payment app of the criminal. Criminals deliberately target FIS with weak fraud detection to help them find ways to open accounts and receive funds and then later move it on for funnel accounts.
▶ 0:44:58SAR filings on funnel accounts have increased four-fold since 2020 and bank fintech partnerships such as the example of the Synapse case are a critical point of True sendside FIS don't have the full picture. Receive side FIS and payment networks have a unique line of sight with directory information as well. Let's connect those sight lines.
▶ 0:45:25More use of real-time AI, better information sharing, and possibly the expulsion of stubbornly riskleaning FIS would improve the ecosystems safety for everyone. The UK has shown that shared liability works. The problem has many surfaces and every actor, banks, non-bank apps, networks, platforms, telos, all must have skin in the game. Fourth, we must bridge the the gap between illicit finance enforcement and consumer protection.
▶ 0:45:56The types of criminal organizations that have historically been the subject of BSL and AML violations are now open for a new line of business, scamming Americans. Yet, BSL enforcement actions and consumer protection work have been in silos. That should change. The CFPB should be in the room. And penalties resulting from violations should include remedies for scam victims. Fifth, we should make efficient use of SARS.
▶ 0:46:23Much of the most useful information in the SAR is buried in narrative fields where law enforcement have difficult times to access it at scale. To help law enforcement, Fininsen should migrate more data to structured formats at a scam checkbox with device and account identifiers to permit appending and tracking across financial institutions. The dark web is not calling for higher reporting thresholds. Neither should we.
▶ 0:46:51It would be blind for law enforcement to many transactions, including some that affect lower dollar transactions such as teen sextortion. The tools to fix this problem exist. Restoring the bureau, sharing liability, removing silos, and making better use of SARS will strengthen our defenses. Thank Gentleman's time has expired and we will now turn to member questions. I recognize myself for five minutes for questioning and I'll start with Miss Dempsey.
▶ 0:47:22Um the uh recommendation of the Stop Fraud Act or updates to REGG CC uh to allow for um exceptions in terms of u uh holds allowing more holds for scrutinizing wire transfers or or uh or or suspicious checks. Um, you know, we we hear a lot about um uh especially from uh community banks concerns about rewards in um payment stable coins.
▶ 0:47:52This is seems to kind of go in the opposite direction. But I think banks will always and credit unions, frankly, all community financial institutions will always be here even with the advent of blockchain technology and and and stable coins because of the fraud prevention that you all and the trust that you all create and and and why are even more important in the ecosystem with the advent of stable coins.
▶ 0:48:17Can you can you talk about that and and does this I I think it's a good idea to give you more flexibility on holds but does that work across purposes in terms of the concern about disintermediation?
▶ 0:48:33It's a broad question on on the regcc side for holds. Uh yes, definitely giving more more leeway there for the banks. the language right now is a little vague on if you have a reasonable cause to place a hold for longer a longer period of time.
▶ 0:48:48And so when you get and so a lot of banks are not apt to to use that um to extend their hold times when they they see those fraudulent checks when they come in and you know with um check 21 years ago, everybody thought checks were just going to clear instantly and that you would be able to catch you know those fraudulent checks that were presented into the system.
▶ 0:49:06But we still see that it can take several days sometimes for a check to clear and also it takes a lot of time especially when you're talking about altered checks that have occurred in the mail um for the small businesses that they may have been stolen out of the mail and then come out of their account. I would love for them to check those accounts every single day and to you to make sure that the pay matches who they sent it to but unfortunately they just don't. and even with the education that we provide to those small businesses.
▶ 0:49:32We host small business lunchons to try train on fraud and scams and to show them what to look for. But when you extend that hold time, it gives that customer even more time to check their online banking to look at those accounts and then for us to return those because that's one of the hardest things is the midlight midnight return that we have with checks and dealing with trying to mitigate those and and to solve those.
▶ 0:49:55No, we're we're we're just to sum up, we we are embracing the innovation of moving towards a more frictionless payment system, obviously with the Genius Act, but banks and credit unions will always be needed, I think, to build in wanted and needed friction to prevent fraud. Mr. Schustster, I've heard from financial institutions that when they implement robust fraud controls, they can face allegations of unfairness or abusiveness under CFPB's UDAP authorities, especially when interventions might create necessary friction for customers.
▶ 0:50:22My rectifying UDAP act requires the CFPB to provide clear standards for what constitutes a UDAP violation, giving financial institutions the clarity they need to serve customers, including protecting them from fraud and scams. From a legal perspective, how does UDAP risk currently influence institutions willingness to deploy proactive riskbased fraud controls?
▶ 0:50:44And do you think that greater clarity uh in the form of my bill, the rectifying UDEP act would reduce hesitation around reasonable good faith fraud Thank you. It's a great question and yes, your act would certainly uh help financial institutions.
▶ 0:50:59They right now face the decision of am I going to address this fraud or scam as it currently exists under existing statutory law but risk being criticized from an unfairness or an abusive perspective from their regulators and supervisors. and they will many times look at the the potential financial impact to them of a compliance rating versus providing money to uh an individual who's been taken advantage of by a scam.
▶ 0:51:29Um and when they're implementing tools, it's the same thing that there are regulators are not looking at how artificial intelligence works, advanced technologies work and they have an aversion to doing that and they there was a belief that that is unfair that that is abusive and they need to look at that and your bill would certainly help.
▶ 0:51:48Miss McHune uh and your testimony was that Park Community Credit Union prevented more than a million in fraud losses for your members. Uh that's fantastic. Can you describe in more detail what those fraud attempts look like on a day-to-day basis and the staff time, compliance, oversight, and technology investment that's required to manage all of this?
▶ 0:52:06Thank you, Chairman. We work every day to run investigations quickly. We have full-time fraud staff. We have deployed technology to catch and alert and indicate to us where there might be suspicious activity. We have obviously a compliance team that works handinhand with the fraud team to ensure that we're meeting our compliance and regulatory obligations in that regard.
▶ 0:52:30But there's a sign in our fraud department that says how many days since the last fraud incident and it never leaves zero because what we do every day is keep vigil and work to investigate to see whether we are having an individual problem, whether we are seeing multiple members affected by a scam. And so we're very conscientious of balancing their needs with the burden on our side to ensure we're protecting them.
▶ 0:52:55Thank you. I know it's a very costly enterprise. Uh my time is expired. Um Dr. Foster is recognized for five
▶ 0:53:02Thank you, Mr. Chair. Um Mr. McDade or Mr. Russ, as I mentioned in my testimony, identity fraud and impersonations are really the the they're crucial to every one of these of these scams, and they're becoming a greater threat to American consumers, particularly with the uh proliferation of artificial intelligence and deep fakes. Um, not only are the scammers able to reach more potential victims by automating these, but their scams are much more more sophisticated.
▶ 0:53:31you know, the old um schemes of having typor emails claiming you're the beneficiary from a distant relative have sort of been replaced by very sophisticated impersonations which can be um you know online videos, things like that and and it's only going to get worse.
▶ 0:53:47Um, the rise of Agatic AI is going to generate a huge new wave of these frauds where you're, you know, when my agent starts talking to your agent to do a business deal or to just communicate, um, the very first question is going to be, "How do I know you are who you say you are and and not some scammer?" And so, I think that that having a secure digital identity that for Americans that want to be able to to prove they are who they say they are, it's going to be a crucial tool.
▶ 0:54:15I worry that America is falling behind the rest of the world in this because by the end of this year, every citizen of the EU, if they wish, will have a tool to get out their cell phone, smile at it, do the biometric login, present a identity app that proves they are who they say they are. Um that in in the absence of any action by the by the federal government, states are rolling out digital drivers licenses.
▶ 0:54:39You know, sort of ironically, it is the National Institutes of Standards of Technology, the US standards that are being deployed all around the world. They're in every iPhone and every Android, but we're not using them uh federally to prevent identity scams. And so I think that's a real missed opportunity that we'd like to um also um Miss Dempsey, you you highlighted um Bitcoin ATMs.
▶ 0:55:02And I would urge every member of this committee to just go look at their hometown and then do on Google Maps and then go do a search for Bitcoin ATMs. Then maybe do a search for um where all the nearby fentanel deaths have been and see if it the maps look kind of similar. These are these are tools by drug dealers. They're tools by scammers. and uh and we have to do something about that.
▶ 0:55:24Uh during the previous Trump administration actually, Secretary Minutuchin had the simple suggestion that why don't we have mandatory KYC on all crypto wallets which I think would uh you know solve a big part of this problem. Uh anyway, so I any thoughts do you have on that M Dempsey? What what should we do about the Bitcoin ATMs because they're not a small problem? Yes, I the Bitcoin ATMs, in my opinion, are just nefarious and there's nothing good in our community taking place at a Bitcoin ATM. There's no need for them.
▶ 0:55:54Um, and to your point, once they enter that, they're gone. There's no tracking there. For where we stand, there's no getting that back. And so, I know there are several states that have enacted laws. Our state is currently entertaining some laws um dealing with Bitcoin ATMs um and placing limits on them and placing warnings on them to help educate the consumers and to protect them.
▶ 0:56:17Yeah. Yeah. But that's not going to help someone who's been scammed and is, you know, a romance scam and there I I know familiar with a a bar owner who was given a couple hundred bucks a week to put a Bitcoin ATM in their bar and after a couple weeks he said, "Get this the heck out of my bar." because he was sick and tired of seeing elderly people pouring their life savings down the Bitcoin ATM crying as they did it.
▶ 0:56:38Yeah. If and if there were regulations, even if they did point it in the ATM where they had a certain amount of time to get it back, even things of that nature could help protect them when they fall victim to those scams.
▶ 0:56:48Mr. Russ, how would you generally rate the the position of US citizens in terms of being able to uh you know prove they are who they say they are to know that the person they're talking to is the real person in an online environment? How does that
▶ 0:57:03So this problem is is not working now and getting worse. You can imagine with deep fakes and voice cloning that fraudsters are going to gain new advantages to harm people. So that's that seems inevitable and the probably the best way Michael Sue made the point that the best way to fight AI fraud is with AI technology supervisory tech but we need to invest in that. We need to be able to buy those for regulators to have the tools that the fraudsters have.
▶ 0:57:31Anyone else have comments on where AI the thing that interests me are these personal AI assistants that everyone's going to use which could be the last and best line of defense. So when you get that first fishing scam mail, you have your personal AI assistant say, "Warn you so that your elderly parents will never even receive that that scam communication." Um, are there efforts ongoing to to make personal assistance that will filter that stuff properly or is that another missed opportunity?
▶ 0:57:59I mean, this is about having bots to stop bots and with more platform involvement, it'll be more urgent.
▶ 0:58:06Thank you. Yield back. Gentlemen, yields back. Gentleman from Arkansas, the chairman of the full financial service committee, Chairman Hill, is now recognized for five minutes.
▶ 0:58:17I thank you, Mr. Muser. Appreciate that. Let me start with you, Mr. Schustster. Um, this has been a good discussion so far, but I wanted to get into this idea of collaborating to fight fraud. So under fair credit reporting act entities that aggregate consumer information and provide outputs used to make eligibility determinants are often deemed consumer reporting agencies which carries a lot of compliance regulations and compliance burden which is probably
▶ 0:58:47right you know and including uh responsibility for accuracy and dispute resolution and things of that nature. But we also are seeing a lot of financial institutions exploring this kind of consortium based fraud fighting.
▶ 0:59:02When I was a banker, we had a phone call every Wednesday in my hometown and it was an off thereord phone call uh that probably doesn't comply with federal law or regulation, but it was essentially the ops people in every bank in town saying, "Have you seen somebody wander into the lobby that is doing this?" And it's an early warning system and it's like classic American protecting the community [snorts] working with each other in a consortium basis.
▶ 0:59:30But were we to do that on you know in an in an analytic way using uh some sort of a more formal system. Do you see that people are afraid to do that because of the falling under the that shared information falls under that uh consumer reporting agency designation? What what could we do about It it's a great question and fraud identification is inherently pattern recognition.
▶ 0:59:57The more information and data that you have, the easier it is to identify patterns that are abnormal, where there's fraudulent activity Currently, the Fair Credit Reporting Act has very broad definitions and financial institutions, their service providers, technology providers are hesitant to share data that they have that could be used for that pattern recognition, the fraud identification earlier.
▶ 1:00:21um if there were clarity or a safe harbor under the Fair Credit Reporting Reporting Act about sharing data for fraud or how that data could be shared um it would vastly improve financial institutions and all these other companies ability to um share that data and have it available to prevent fraud. Thank you. That's helpful. If you've got specific ideas of how one might craft a safe harbor like that, I hope you'd share those with the with the committee.
▶ 1:00:47Miss McHune, let me turn to you for the from an institution point of view. Uh we know that scamming, as we've all heard today, has become more sophisticated using AI and deep fakes and forge documents and and we've got people wandering in courouses and wandering in Bitcoin ATMs and wandering into banks. We know all that and we're all trying to come up with the best hole of government approach to fighting that. But a lot of it falls right back to those financial institutions.
▶ 1:01:19Um, are you trying to use these promising technologies to fight against the scammers that are using technology and do you have comfort with that? Do you have a lack of training? You have a lack of talent in your institutions? Tell me a little bit about that.
▶ 1:01:34Thank you for your question, Mr. Chairman. We certainly are trying to use technology technology prudently, cautiously, thoughtfully. We want to make sure that we are at least trying to keep pace with the fraudsters. There's always a question in small financial institutions of the cost and of the adoption and of the relative sophistication of both our members and the the fraud community that in which we sit.
▶ 1:02:00But we do want to be able to respond faster and all of those tools, the all of government approach, the regulatory reforms, possibly safe harbors would play into our layered approach.
▶ 1:02:15Technology is a piece of it, but one of the things that we try to pride ourselves on as credit unions is our ongoing memberto member our our relationship with our members and our ability to to see them and see what is an aberant an aberant transaction and try to use our judgment
▶ 1:02:31on a shared draft passing a check that's been washed for example. Are you seeing good cooperation in in for filing a police report in your area? Is are you seeing postal inspectors being helpful or local secret service? Tell me about
▶ 1:02:47We're always grateful for the law enforcement engagement that we have. We often run up against law enforcement's limitations in terms of resources and their ability to drill in on the harms that we're seeing.
▶ 1:03:00One of the things I think is really important to note is that the the amount of resources that law enforcement can invest often is tied to the amount of the loss and and the the amount of the loss could be absolutely ruinous and devastating for our individual members and not be of a size or of a frequency that that law enforcement can really lean in.
▶ 1:03:20Thank you very much. I yield back, Mr.
▶ 1:03:22Gentlemen yields back. The gentlewoman from California, the ranking member of the full committee, uh, Miss Waters, is now recognized for five minutes.
▶ 1:03:31Uh, thank you very much. Uh, absolutely delighted to be here at this hearing, and I'm so surprised, uh, that the opposite side of the aisle have decided to talk about fraud and abuse. Uh since Trump and his return to the White House, uh Trump and his family have made billions thanks to their growing meme coin schemes.
▶ 1:03:58At the same time, families are more vulnerable than ever to financial abuse. As Trump pushes a reckless deregulatory agenda, he's dismantled the CFPB, that is a Consumer Financial Protection Bureau, rolled back consumer protections, and dropped lawsuits against big banks and crypto scammers, making it easier to cheat everyone from retirees,
▶ 1:04:29students, and working families while he and his family cash in and Mr. Bar's bill would weaken uh UD UDAP that is UDAP authority to the detriment of consumers and of course we need stronger protections not less and I just want to raise a question about all of this that we see coming uh at the very top of government. Mr.
▶ 1:04:58Russ, we've been getting mixed messages from President Trump. where on one hand he claims to care about the affordability crisis and says Congress should enact a law to cap excessive credit card interest rates at 10%.
▶ 1:05:16But on the other hand, he says it's a hoax and has worked with congressional Republicans to slash the budget of the Consumer Financial Protection Bureau, the federal watchdog for consumers in the financial marketplace. They have also blocked rules like curbing excessive credit card fees. So, Mr.
▶ 1:05:38Russ, when the CFBP issued its larger participant rule to supervise big tech payment apps, banking groups were supportive of the effort as a way to level the playing field. Should Congress revisit this issue and require the CFPB to immediately begin examining the large payment apps and mobile wallets provided by big tech?
▶ 1:06:04Could this help identify payment scams happening on these apps sooner? Thank you for the question. Yes, absolutely. Congress should restore the CFPB's authority to supervise payment apps and digital wallets. This is a sort of the baseline uh way to address scams. Access to looking at the activity on these networks is how regulators can spot things, how law enforcement can spot things.
▶ 1:06:31Um UDAP is the uh tool we have if EFA isn't restored to protect consumers. UDAP was the tool used for the zel enforcement action. Again, the CFPB needs to be back in the Well, thank you very much. I'm going to go back to the CFPB because many of us have worked so hard in DoddFrank. We gave the CFPB authority to stop unfair, deceptive, and abusive acts and practices by bad actors.
▶ 1:07:01So if the Congress of the United States wanted to do something about fraud, unfair, deceptive, and abusive acts, why don't we just make sure that the CFPB can do what we organize it to do rather than being attacked constantly by the opposite side of the aisle and the president of the United States of America. Wouldn't it be just simple to allow them to do what we organized them to do? We we should immediately restore full funding for the
▶ 1:07:32Are you aware of the CFPB and how much money they have returned to consumers?
▶ 1:07:39Uh the CFPB has returned over $19 billion to consumers. That is a direct way to benefit consumers. There's I I can't think of something that makes a greater difference than when you've been harmed and an agency is responsive the way the CFPB is.
▶ 1:07:55I consider this one of the most dangerous things that have been done uh by the president of the United States of America with a clear message to consumers to say that he care about the big boys who are ripping off and who are creating this fraud and does not care about the consumers whom we on this side of the aisle have tried to protect. We've worked very very hard. I'm so pleased that you're here today that everybody's here today. Let the truth come out.
▶ 1:08:25Let the truth come out and people know where the fraud is really coming from and what the opposite side of the aisle is not doing a darn thing about it.
▶ 1:08:34Well, reforming UDEP would be helpful. The gentleman from Texas, Mr. Williams, is now recognized.
▶ 1:08:40Thank you, Mr. Chairman. Thank all of you for being here today. And I'm a small business owner in Texas, and for 57 years, community banks and credit unions have kept me going every single day. Uh many scams targeting small businesses involve criminals impersonating vendors, bankers or contractors. And these scams often start through spoofed phone calls, uh email promises, p uh PR, social media messaging before the transaction even reaches the banking system.
▶ 1:09:07Once the payment is sent through wires or peer-to-peer transfers, it be can be extremely difficult, as we've heard already, to recover these funds. So, Mr. McDate, how frequently are banks seeing this type of fraud against their small business clients like myself and what warning signs would small businesses look out for?
▶ 1:09:25Thank you for the question. Uh, banks are unfortunately seeing this very often and it's only increasing. Recently, we've seen very specific impersonation scams that are related unfortunately to the PPP loans that were taken out to help small businesses during COVID. A lot of that information is posted publicly in many places and so the scammers are able to go out on the web and locate where these small businesses bank through their PPP loans.
▶ 1:09:53They can even go so far as to get who the individuals are in many cases working at these small uh businesses their information. They can then call the banks representing that they're that person and learn who their relationship manager is. They will then spoof the bank's phone numbers and try to contact these small business people to perpetrate fraud. They'll get a text message saying, "Did you send this wire to another company?" Yes or no. They'll respond no.
▶ 1:10:23And they'll immediately get a get a call from somebody representing that they're the very bank that they bank with. Unfortunately, they're talking to a scammer. And the scammer then will tell them to make sure you are who you say who you say you are, please read back the code that I'm sending you. And that code will be unfortunately a one-time passcode as the scammer is trying to access the person's account online and do an account takeover.
▶ 1:10:50This sort of activity is becoming rampant and these impersonation scams are especially dangerous because they're also eroding the trust between the financial institutions and our own customers.
▶ 1:11:01Okay. What banks are doing in response is we're educating our customers. Our banks, our specific bank, reached out to all of our PPP customers and let them know about this scam. We encourage them if you ever get a call or a text from our bank that doesn't seem correct, call your relationship manager back directly and talk to that person. And I can tell you from my experience on the CBA's fraud management committee, it isn't just our bank. It's all the banks on the committees who have small business relationships are seeing this exact same thing. And the collaboration that the CBA brings between us is really helpful.
▶ 1:11:30Okay, thank you. Uh, community banks play an important role in protecting their customers from fraud, but they also dealing with a growing wave of check fraud, including checks from the mail, alter checks, and counterfeit cashiers checks. What when fraud occurs, smaller institutions often have to spend significant time and resources, investigating claims, navigating liability disputes between financial institutions, and attempting to recover funds. And that puts people like me in the back burner to get a loan that we may need.
▶ 1:11:57So, Miss Dempsey, when a community bank spends time and resources dealing with check fraud disputes, what does that mean for their ability to focus on serving customers like our small business people across this country and lending in their Thank you for the question. You're correct. Um, check fraud, especially in a small bank like mine, takes a tremendous amount of time.
▶ 1:12:17Um, and the majority of the check, as Miss McHune referred to, so many times the checks are of an amount that it's not going to engage law enforcement and it's also [clears throat] not going to warrant um us fighting legal battles to try and get that money back. So, it's taking all that time to work through that process. I will say for our bank, if you had had a check stolen out of the mail, we give you money, give you credit back immediately to your account when you identify that.
▶ 1:12:43So, we work really closely with our customers to not put them in a position of not having access to those funds. But you're correct, it takes a tremendous amount of my time from the CEO down to all of our operations department to our front line and dealing with that daily and then working with those customers to do that. And that is time that we could be used, working with our small business owners, showing them new um new AI, new things that they can use, new payment systems that they can use to help them be more efficient um and to grow their
▶ 1:13:10Thank you. M Miss Cun, I'm a short time to go here, but in your testimony, you you highlight the importance of consumer education. What types of outreach have credit uh unions found most effective in helping members recognize fraud
▶ 1:13:26Thank you, Congressman. We have tried to use multiple approaches to ensure that different messages are getting through and that the most important messages don't get lost in a lot of communication. So, we often will put information in our social media. We will put information about active scams as banners on our website, as landing pages on our online banking. Um, but we also do a lot of work.
▶ 1:13:50We're a community development financial institution and we do a tremendous amount of work in our communities to try to ensure that that folks understand what risks are out there and how their accounts really
▶ 1:14:01Thank you. My time is gentleman yields. The gentleman from Georgia, Mr. Scott, is now recognized for five minutes.
▶ 1:14:09Yes. Thank you, Chairman. Um, Mr. Rust, let's get to the heart of the matter. In your opinion, what is the level of damage this is doing to our overall economy and uh you mentioned a lot of this rest in what you refer to as this critical gap.
▶ 1:14:38What do you mean by that? What is the level of economic damage that our failure to address this critical gap that you talk
▶ 1:14:53So, thank you for
▶ 1:14:54address damage.
▶ 1:14:56Go ahead. Oh. Um, we see reports of$16 billion dollars in fraud losses, but research suggests that that's possibly even 20 times uh less than the actual
▶ 1:15:10Uh because people feel shame. People don't know where to go, so they don't report it. But the impact on their household is destabilizing, possibly crushing. So that affects our economy. uh the critical gap I see a critical gap between the work that's occurring to stop you know some of these overseas criminal organizations that are already working to move money move moneyaundering human trafficking they're also doing scams right that's their new line of business and we should be eliminating
▶ 1:15:41silos between consumer protection agencies and those agencies and possibly we should also be thinking about when there's enforcement penalties for BSA AML violations that if there are scam scam victims involved that that should be a way that they receive a
▶ 1:15:57And what do you uh feel we here in can do about this? I mean, are we doing Uh do we address this critical gap through legislation?
▶ 1:16:18Are is this a money problem of us not these uh uh persons who are doing this wrongness?
▶ 1:16:31Yeah. So, yes, sir. I believe this is a bipartisan uh solution. I believe there's bipartisan interest to fix this. Congress can do a number of things. They should refund the CFPB to begin with. They should restore the payment app rule.
▶ 1:16:46that would make a big difference and I think they should look at you know many of the solutions you've heard about information sharing uh and giving giving more line of sight between institutions because all of this involves networks this never is just the send side it's always receive side as well so we can make changes congress can do a lot
▶ 1:17:08yes so you feel there's nothing more that we need to do as far as dealing with the uh bank secrecy act itself. Is there things we need to do to make it stronger or do you feel that the act is enough?
▶ 1:17:34Well, there's plenty that could be done on that side because that's where law enforcement where those organizations are sharing information, receiving SARS, assessing problems and highlighting it for other organizations. So, for example, the conversation about SARS is really central here
▶ 1:17:51and providing ways for that information to highlight scams, I think, is Well, thank you very much. And I think we need to uh really focus on what we can do about this because if we can't deal with this uh the critical gaps that you're talking about here, there are things we got to do here in Congress uh to address
▶ 1:18:22this. So, I appreciate your
▶ 1:18:26Thank you. Thank you, sir.
▶ 1:18:29The gentleman yields. The gentleman from Michigan, the vice chair of the sub of the committee, Mr. Heisinga, is now recognized.
▶ 1:18:39Thank you, Chairman Bar. Um, with readily available information and images uh that are out in the general public on on internet and other places. uh there are many many people who are victims as both scam targets and as vehicles to go after those uh victims.
▶ 1:19:03A couple of years ago uh our office heard from someone whose mother was in an online relationship with an individual. I'll call that individual uh individual A. Well, using AI, uh, the scammers put individual A's face on a decorated military officer's body, uh, put that face on someone who was being cared for in a hospital.
▶ 1:19:32And it's amazing, uh, really truly unbelievable how authentic the images looked because I was individual A. Uh, to be clear, there was no online relationship. uh it was someone who had taken my readily available information and my images and had u used AI and I think it just it just demonstrates that frankly no one is above being caught up in those scams that are
▶ 1:20:02going on right now and sadly the individual's mother had sent thousands of dollars to someone in Vietnam. uh we worked with Facebook uh where the images had appeared and to have them removed but they kept reappearing and uh Mr. Schustster, I'm I'm curious how much fraud originates actually outside the banking system entirely such as with social media, telecom networks or overseeing criminal
▶ 1:20:31It's a great question. I think the majority of it uh financial institutions at the end of the day are just where the funds ultimately derive for the scams, for the fraud that originates elsewhere. what used to be in a physical place that somebody was um obtaining money is now all digital. Payments are faster than they've ever been. Um those technologies that you're talking about are what are used to start fraud and financial institutions need the abilities to do that pattern recognition.
▶ 1:21:01They need clear uh guidance. their regulators need to permit them to use these technologies from a UDAP perspective and other things so that if there is something that's happening that happened upstream from the financial institution which is where it originates they can address it a
▶ 1:21:15and if most scams originate outside of financial institutions and payment networks is it fair to place the majority of regulatory burden on those banks and payment system pay payment
▶ 1:21:27I think it would be great if we gave those financial institutions and payment providers more tools um even before we think about liability. I think that we're thinking about liability after a fraud or a scam has occurred. But if there's something that they can do to help people prevent these types of things, that would be great. But I I also think that looking at uh some of those other areas that you've been discussing, social media and elsewhere, that is where there should be focus too.
▶ 1:21:52And uh and I I do want to hear from our our bankers as well, but how do very quickly, how do you think we can improve uh consumer education and outreach on fraud and scams? Uh I think that it's something that if financial institutions are given the tools or less restraints with respect to how they can look at these items and what they can do to communicate with their customers from data that they have from other institutions from their service providers from financial institutions.
▶ 1:22:19They'll be able to share more specific uh information and education with consumers that will be extremely helpful.
▶ 1:22:25Um how about uh Mrs. Dempsey and Ms. Mchuan? By the way, Miss Mchune, I'm going to take a point of personal uh pride here. Uh my future daughter-in-law happens to be from Danville, Kentucky. Uh for those of you not aware, Danville is a quite a small town uh as I understand. So, I'm looking forward to uh to having her in the family soon.
▶ 1:22:44But what is your experience with your One of the things that we think is really key is the ability to share information more broadly when we're constrained even in just dealing with our respective um counterparts in in the banking realm and financial institutions. Um the the information we can share is limited and the information that would be helpful is often out of our reach.
▶ 1:23:11We're talking about a very time-sensitive exercise and we're talking about something that happens really quickly and with regulatory constraints on how long we can we can find a pause um that's difficult but with I think it's worth exploring information sharing that goes beyond thinking about financial institutions because so much fraud originates in spaces for which we don't have a vantage
▶ 1:23:33M Dempsey 10 seconds. I just concur. More information sharing is critical um between banks. Um we've had experience with banks where we call and they they won't give us any information just because of fear of sharing the information even though it should fall under that under the current regs now that they're able to share with us and they don't. And then just you mentioned consumer education. [clears throat] We are constantly educating whether it's through in person, whether it's through lunchons online, face to face. I've been on the radio.
▶ 1:24:02We have weekly articles in our local newspapers. So, we're doing everything that we can to make consumers aware of the frauds and scams that are out there, but they change every day.
▶ 1:24:10Thank you. I yield back.
▶ 1:24:13The gentleman from California, Mr. Sherman, is now recognized. Consumers face two kinds of ripoffs. Those from big institutions that do provide a useful service, but sometimes engage in misleading and confusing practices. The chief defense here was the CFPB, which provided almost $20 billion in return money.
▶ 1:24:38Uh f uh $5 billion in civil penalties, $363 million back to veterans. And that's just the retribution part. Think of the deterrence. Think of all the scams that never happened. Think of all the uh corporations that said we'll never never get away with that. So, we should not defund those who police our streets.
▶ 1:25:05We cannot defund those who police uh the suites, the corporate suites. But today's hearing tends to focus uh on uh the full-time criminals who provide no useful uh uh services at all, just rip people off. Uh Mr. Rust, thank you first for the work of the Consumer Federation of America uh over the many decades.
▶ 1:25:29Uh and you've uh talked about uh the suspicious activity reports that financial institutions file and the need to allow law enforcement to see patterns to look not at just one item but what's happening across uh the country.
▶ 1:25:48Um we could provide uh uh that the uh suspicious activity report include at least two identifiers uh uh both a driver's license number and a social security number or a passport number. Uh we could uh uh reduce the importance of the narrative portion of the report that can't be correlated with other reports and go more to structured fields.
▶ 1:26:14uh what can we do to make sure that a suspicious activity report doesn't just tell you about one instance but allows you to link it with what's happening elsewhere. Right? So this is about appending data and being able to see patterns. Structured information is great for searching. If you're familiar with the Home Mortgage Disclosure Act, that database, everything is searchable. It's all structured. If you're a local law enforcement agency working in a state, the ability to search for where that scam occurred, very valuable.
▶ 1:26:45The ability to see where funds have transferred across financial institutions. You need to be able to track account numbers, device IDs, things like that. Those are tools that law enforcement needs to build cases against these kinds of situations, right? So SARS are a tool that where the underlying facts can lead to subpoenas that can lead to stopping the problems. Thank you.
▶ 1:27:10And I want to commend our ranking member for his idea that we do need know your customer to apply to all of the wallets, crypto wallets. uh one issue comes up where some an entity impersonates a financial institution.
▶ 1:27:31Um Reuters claimed that Meta uh had 10% of its revenue roughly 16 billion derived from advertisements for scams and banned goods. credit unions came to my office and identified a system where an organiza, you know, a scammer tends to be your credit union or your bank. So, you trust them and all of a sudden you're wiring $500. Uh you're g giving out information.
▶ 1:28:01And a lot of this comes from advertisements where Meta will let you pretend to be a financial institution when you're really uh not. Uh, Mr. McCade uh uh what can be done to make sure that Meta and similar organizations aren't running ads uh in the name of a financial institution when it's really a
▶ 1:28:29Well, I would first point to the point to the scam act um sponsored by Representative Muer. And the reality is we're absolutely correct that the one of the largest threats that we have as banks is the misinformation that happens outside of our control environment and most of the scams
▶ 1:28:47and you live with know your customer and Meta doesn't know anything about its
▶ 1:28:53Well, that that's correct and and the study that you uh that you cited specifically notes that it is a situation where Meta is putting forth knowingly fraud information into the ecosystem. I want to get one other thing and that is we need pay matching so that when you w when you're scan when you wire money to account number one 12345 because it's supposed to go to Santa Barbara escrow that that is an account of Santa Barbara escrow because we have seen again and again people lose their
▶ 1:29:23down payments somebody's impersonating the escrow company the title company and all they have to do is scam you into their numbered account Britain has pay matching we needed to and uh several Fed D uh chairs of the Fed have said they'd work on it. They still haven't.
▶ 1:29:42Gentleman's time is expired. The gentleman from Georgia, Mr. Louderdermilk, the vice chair of the subcommittee is now recognized.
▶ 1:29:48Thank you, Mr. Chair. Before I my remarks, I'd like to submit uh this letter from the American Securities Association into the record. The letter stresses the importance of closer collaboration between financial institutions and law enforcement to combat fraud and scams. I'd like to submit that for the record.
▶ 1:30:06Without objection.
▶ 1:30:07Thank you, Mr. Chairman. Um, I'd be aiss if I didn't bring up something that this committee has already done to help uh reduce fraud by removing the noise of non-applicable data when it comes to looking for suspicious activities.
▶ 1:30:22And that was my financial thresholds modernization act which modernizes the uh CTR and SAR pro process to reduce the burden on financial institutions so you can focus on what is actually uh suspicious activity versus what you identify as normal activity and it reduces the proverbial haystack within the government so we can actually find the needle and so I encourage my colleagues on the other side to get on board and and and
▶ 1:30:52help us move uh through the House this important piece of legislation that I think will go a long way to help identify fraud. Um I've heard a lot about data sharing here today and that is extremely important when it comes to collaboration uh between financial institutions and and law enforcement and other entities. um especially when we live in a a day and age that the amount of data is unprecedented that is available and out there.
▶ 1:31:22When I worked in uh IT and security and in intelligence um it wasn't the thought of if the data was going to be hacked or disclosed, it was when. And the idea is to just make sure that your data is more secure than the other data so they will go after the other person. And so I think we have to be extremely v vigilant. U Mr.
▶ 1:31:47McDade, how can we strike the right balance between promoting necessary data share sharing and avoiding excessive centralization of sensitive information uh which could actually amplify the amount of sensitive data compromised in a breach?
▶ 1:32:02Uh thank you for the question. First I would uh echo some of my colleagues saying a safe harbor for banks to share this essential information. When banks are interacting in the fraud space, we're all on the same team and our fraud fighters are all working together to try and stop a fraud or scam from happening. And if we're prevented through due to the amalgam of privacy laws that are being promagated at the state level instead of the federal level, it really creates a difficult situation for us to be able to communicate with each other. Additionally, one of the recommendations that recommendations I made in my brief was to, and I believe Mr.
▶ 1:32:32Russ spoke to this as well, revise the SAR the SAR policy so we have a fraud signal report. And this would not be something that is a lagging indicator, but as soon as we're aware of fraud happened, have a concise way to get the metadata associated with that fraud reported to law enforcement.
▶ 1:32:48And if all the banks did that in the same fashion, they could immediately cross reference that essential data and see the patterns and actually reach out and warn other banks that they might have fraudulent accounts or even go upstream to the telecoms and the social media accounts and let them know, we're seeing fraud on this phone number or on this account. Please take it down.
▶ 1:33:08Well, thank you. Um, one thing that I had learned throughout my time in information technology and security is you don't have to protect data that you don't have. And so only collect and hold that which you actually need, which again goes back to the modernization of CTRs and SARS. Um, but what role can technologies such as anonymizing or otherwise protecting sensitive data play to help mitigate concerns over information sharing?
▶ 1:33:37I I think it's essential to be able to anonymize the data in a way that's that protects the consumers while still giving the key data that that is what we call in the industry fraud signals. These signals are pieces of information that if they're shared across can show a pattern of fraudulent activity and point back to the source where that fraudulent or scam activity is coming from.
▶ 1:33:57So while an anonymizing our consumer's data is very important, the IP address, MAC address, and some of the other data coming from a fraudster's computer attacking our uh resources is something that we should be able to share with law enforcement at least, if not other
▶ 1:34:12All right. Thank you. Um I don't think I have time for other questions. So m Mr. Chairman, I'll deposit my remaining time and hope that maybe I'll earn interest for a future hearing. So deposited. The the gentleman from Illinois, Mr. Casten, is now recognized for
▶ 1:34:30We may have to apply a Howie test to that deposit. [laughter] Uh thank you, Mr. Chairman. Thanks all the witnesses for being here. I want to uh I want to follow up on uh some questions that Dr. Foster raised at the start about Bitcoin ATMs. The FBI's reported that Americans lost um um a third of a billion dollars in crypto scams, crypto ATM scams in 2025. That was a 33% increase from the year before. Um, these scams, as I think many of us know, particularly target seniors.
▶ 1:35:01Um, I I actually, this became personal. I got a call from a constituent earlier uh this month whose brother had lost essentially all of their wealth to one of these pig butchering scams. I don't know the details of theirs, but you know, for people who are watching, it's more or less as you described, Mr. Schustster. starts in a social media. Maybe it's a dating app. Maybe it's your Facebook page. Um, I want to be friends. I'm really attractive. You should talk to me. I have an investment plan and you build these relationships.
▶ 1:35:30And then pretty soon you need a little help to get out of a jam or you've got an investment opportunity. Please go to the local crypto ATM and transfer me some money now that you trust me. And it's really, I think, taken advantage of the fact that social media is almost perfectly designed to make people believe impossible things. And crypto ATMs are almost personally perfectly designed to monetize that lie. Um because once you put it in there, the transaction is immediate. It's irreversible.
▶ 1:35:56It can use the ecology of the crypto system through mixers, through an through chain hopping, through anonymous wallets to make it you know, the stories are painful. And I I don't know, Miss Dempsey, Miss McHune, I'll let the two of you argue it out. Who wants to take this? But I'm I'm curious how your members are dealing with this. Um because presumably they have to come to one of your banks to withdraw real money in the first instance. Any of you want to comment?
▶ 1:36:26Yes, thank you for the question and as I mentioned in my written testimony and today um it's rampant and we deal with it on the front lines like I mentioned we have had multiple experiences where we have sat down with a customer and we've pulled up we've literally pulled up faceback book and showed them the photo and they they've told us oh they told us you were going to do that. Um we've showed them FBI reports. We do everything that we can from our end when we identify those to stop it and to inform them. I mean, as I mentioned, they're changing every week.
▶ 1:36:54And I know every one of us could tell story after story of whether it's a pig butchering, an investment, whether it's romance, whether it's your your child, your grandchild is in jail, all the things. Um, we see it every single day.
▶ 1:37:06So, you and and I don't want this to sound the wrong way. I'm sure you do that for good and ethical reasons. You also do that because you're bound by know your customer rules, right? So, if they're going to withdraw the money, you need to know something about who is the identity, what's the uh, you know, all the registration and reporting requirements. Would would you be supportive of rules that said, "Let's apply those same rules to crypto ATMs, make them go through the same KYC rules so this isn't all on you and your local
▶ 1:37:33Personally, yes. I think everyone should have to know their customers because I think if you know your customers, there's a lot of fraud that could be stopped at the point of origination.
▶ 1:37:40Okay. Um, I I want to just point out that the Trump administration has made some positive noises about this, but everything that they've done so far has been voluntary. And I think it's pretty clear that the voluntary standards aren't working. Um, we're seeing evidence that if one state has good rules and the other state has bad rules, the scammers will say, "Hey, don't do this in Illinois, but drive across to him in Indiana and maybe use the crypto ATM over there." So, I would agree we need some some policies um some federal policies. Mr.
▶ 1:38:08McDade, if you'll forgive me, I um was looking on your website before we got here and I saw that at EverBank you don't allow people to do ATM withdrawals of more than 2,000 a day. I think a bit more if it's a PIN based transaction. Is there any reason we shouldn't employ those same standards for crypto ATMs?
▶ 1:38:27Every institution has their own risk to tolerances and sets those risk tolerances appropriately for their institution. Um my view would be similar to what was just said as far as the the crypto ATMs. The difficulty is us being able to inform our customer that they're sending money to the right place and the right account and the KYC rules assist with that. So on the other end, we can see that this is going to a legitimate
▶ 1:38:49Um well, I you know just close with one last story and I would welcome any of your input. We're trying to work on some legislative fixes and if you have good ideas, please share them. I one of the smaller towns that I represent does not have a super strong local economy. The mayor struggles to come up with enough money to pay the roads and most of their tax revenue comes from a very small set of convenience stores. And one of the convenience store owners, his primary source of his biggest source of revenue was a was a Bitcoin ATM.
▶ 1:39:18And he took it out in spite of its importance that to that community because he just kept watching seniors come in every day and make deposits and then come back later and ask how to get it out. And I don't know how the people who do that look at their kids at the end of the day and say, "You can be proud of what dad did today." But, you know, as our former colleague Elijah Cummings was fond of saying, we're better than this. Uh, thank you.
▶ 1:39:43Yield [clears throat] The gentleman from Chairman Muer, who's done a lot of great work um on on this issue, is now recognized for five minutes. Thank you chairman very much and thank you certainly to our witnesses. Um the FTC reported 12 a.5 billion which was reported in fraud losses last year. We of course know the real numbers far higher [clears throat] by the way between 2021 and 2024.
▶ 1:40:15Uh CBO reported scams and fraud was up 110% under the CFPB's oversight. So doubling down on failure is pretty much the last thing that we're we're going to um to uh solve this crisis. Uh fraud and scam uh roundts have been have been held by by our committees.
▶ 1:40:36Uh telecom companies have been invited in tech platforms hosting telet town halls with community banks working with our with our our US attorney general's office as well as state uh attorney general's offices. Uh we've been we've been um working at it uh since the beginning of this Congress and we are making progress and we are as determined uh to fight this crisis situation as you folks clearly are.
▶ 1:41:04Uh Miss Mccune to start questioning with you by the way great testimony really appreciated what you had to say. From your experience, how effective is consumer education, preventing scams before money ever leaves a customer's account?
▶ 1:41:20Thank you for the question. We see this as an essential piece of how we're protecting our consumers. We absolutely have to have educated consumers because many times, as as Mr. Rust has noted, there's so much shame involved in in um admitting that you've been scammed. That's one layer of the problem. The other is that these are they they call it social engineering for a reason, right? These are manipulations of people's vulnerabilities and the things that they worry most about.
▶ 1:41:46And so if we're in a position where they are not going to answer our questions, they're not going to tell us what's happening, the best tool we have, really the very first tool has to be fundamental fundamental um understanding and sophistication in consumers about the risks of fraud. And it's why we're really supportive of an all of government approach and a and a top- down consumer education um movement because we do really see it as the essential first step.
▶ 1:42:11Yes. All of government, all of private sector, ve very holistic and that's that's that is definitely the strategic plan. Mrs. Temp Dempsey as well. Uh great opening testimony. Thank you so much. When a customer walks into one of your branches uh after they've been deceived online, what options do you and other community banks realistically have to stop loss at that point?
▶ 1:42:35Well, if they've already sent it, there's not a lot that we can do at that point. It has been outside our bank. Um, and what we've done, um, to Miss McHune as well, just the education, the ongoing education of trying to inform them before, right, of when they're coming in to get the money, of being bold enough, like I mentioned, we've got really strong relationships with our customers so we know them. So, our tellers do an incredible job of really just asking questions. What are you doing with this? Why do you need to take this much out of the bank? And things of that nature.
▶ 1:43:04Um, I know we've talked too about just an overall approach. And so I want to highlight like with the ICBA, one thing we did with the US Postal Inspection Service was to come up with an inbranch handout to give to consumers to educate them um and to start a conversation on fraud and scams. And so hundreds of thousands of those have been given out at almost a thousand banks. And so anything that we can do to bring attention to it and to stop it before it
▶ 1:43:29Thank you very much, Mr. McDade. As well, excellent testimony. How important would it be for social media platforms were required to verify advertisers and quickly remove scam ads once they've been reported? A number of you have referenced the Scam Act. The Scam Act will certainly um be requiring this of of social media companies with uh penalties that are appropriate. Go ahead, please.
▶ 1:43:52I I would say it's essential. The reality is these scams originate outside of our bank's control environment. they most of them I believe there's a study out of Britain that said 80% of the scams that they were seeing in that c country they alleged came from meta as a platform so when you take a look at that we need to do something in order to have correct um accountability in those
▶ 1:44:12okay excellent you know I was in New York City we visited BNY Melon and JP Morgan's fraud and scam prevention centers spending millions if not if not with with a B billions on uh tracking and preventing scams do you believe telecom providers and social media platforms are making the same level of investment to stop the scams.
▶ 1:44:31Unfortunately, they're not. And while we do try to partner as well as we can with the telecoms in the social media, the reality is since they don't bear any of the liability, they don't they don't bear the responsibility as far as they're concerned. We've actually reached out to the telecoms and asked them to have a this is a scam email alert to on the phone just like you get this is the spam. The truth of the matter is they're regulated for spam. They're not regulated for scams and so we haven't gotten the response that we
▶ 1:44:56Thank you. I'm almost out of time. Mr. Schustster, I had a question for you on what else uh regarding preventing scam calls and texts from reaching consumers in the first place, but I am out of time. Uh perhaps we can talk about that offline. I yield back, Mr. Chairman.
▶ 1:45:14The gentleman from Massachusetts, M Mr. Lynch, is recognized.
▶ 1:45:18Thank you very much, Mr. Chairman. First of all, I want to thank the panelists. You've all been terrific and uh thank you for your work on this issue. Uh honestly, I I feel though that if this is consumer protection week, we should drape the capital in black crepe because consumer protection is dead. It really is based on what's been happening here lately.
▶ 1:45:42I I I honestly think that President Trump is ushering in the golden age of fraud uh with all the actions that that he has done since January of 2025. This is just his just his second term. We're not going to touch the stuff in his first term. The Trump administration has undertaken unprecedented efforts uh to undermine the Consumer Financial Protection Bureau uh through systematic dismantling.
▶ 1:46:10the one agency that is charged with protecting the consumer. This is the one agency that Congress has identified and structured to protect the consumer. And yet the administration moved immediately uh effectively to effectively shut down CFPB by declaring its funding structure unconstitutional, unlawful in November 2025. and it refused to seek additional funding from the Federal Reserve which just would have starved the agency.
▶ 1:46:40Uh on February 10th, 2025, acting director Russell Votsz issued a stop work order instructing all CFPB employees to stop protecting American consumers and to not perform their work tasks as the agency announced it would run out of money by early 2026. The administration also moved to terminate nearly all CFPB staff.
▶ 1:47:08This is during the the Doge uh and uh they canceled the the administration canceled about hund00 million in employment contracts for those employees whose job it was to protect consumers.
▶ 1:47:23Although a federal judge eventually ordered a pause of those actions in February, many of those employees who were very valuable, very very capable and and uh qualified employees were placed on administrative leave and were unable to perform their duties and eventually many of them left because they felt they had such uncertainty. And remember, this is the agency that CFPB returned 19.7 billion dollars from people who had scammed consumers.
▶ 1:47:51put that money back in Americans pockets. $5 billion, the amount of money the CFPB had imposed in civil money penalties on on companies and individuals that violate the law. And and especially, and this is key, we do a lot of work at Fort Hood and some of these big bases. They recovered $363 million in monetary relief resulting from 39 public enforcement actions that involved harm to service members.
▶ 1:48:16They're not being paid enough to begin with and these are a lot of young families that are that are barely making it and also veterans including six enforcement actions for violation of the military lending act. So that's what that's what Trump is eliminating that that that ability and uh this is all I'm not even going to get into what the Trump family themselves are doing. This is the same time so the Trump family launched uh Liberty Financial.
▶ 1:48:43Uh this is this is Trump's sons, all of them. Uh also uh Zack Witco, who was Steve Woodco's son, and they launched that at the same time that the Trump administration eliminated the crypto crimes enforcement unit. So he goes into business in crypto and then he eliminates the crypto crimes enforcement unit. Tell me that's not connected.
▶ 1:49:09He and he he dropped enforcement on on a ton of actions at the SEC and the CFPB. He rolled back a bunch of rules uh curbing scams at payday lenders. He delayed the implementation of the fiduciary duty rule. So, so he he's done all this to, as I say, to launch the golden age of fraud, removing enforcement. So, uh Mr.
▶ 1:49:32Rust, what do you think about our ability to conduct current enforcement actions and guard rails in order to protect consumers? Where do we stand right now given all that I've
▶ 1:49:45Well, it's true the the it's been it's been gutted right in in in so many ways. I I think in the brief amount of time I want to highlight how they're not helping service members, which is one of the things the bureau has always done. There has not been a visit to a military installation. There have been no market monitoring reports to prevent scams targeting service members and veterans. No annual report to understand priorities or complaint trends.
▶ 1:50:10The dropping of the Navy Federal Credit Union enforcement action and the money line settlement pennies on the dollar and their most recent RIFF plan would have left the Office of Service Member Affairs with no staff.
▶ 1:50:23Thank you. Thank you, Mr. Chairman. I yield back.
▶ 1:50:25Gentleman's time is expired. The g gentleoman from California, Miss Kim, is now recognized for five minutes.
▶ 1:50:31Thank you. Thank you, chairman, for holding this hearing. And I want to thank our witnesses for joining us today. You know, in when uh in California, we are in the golden age of fraud with more types of fraud than Baskin Robbins has flavors of ice cream. Sadly, our governor, Gavin Newsome, has done little to stop this crisis.
▶ 1:50:53That is why I introduced the No More Scams Act that would create a federal strike force dedicated to investigating fraud involving federal dollars, bringing fraudsters to justice and clawing back stolen taxpayer dollars for the American people. I believe that we can learn a lot from the private sector and the great tools that you have employed to combat fraud and scams to put the consumers first.
▶ 1:51:22So I want to ask the first question to you Mr. uh McDate. How do banks leverage thirdarty fraud tools to work across financial institutions and prevent scams and fraud?
▶ 1:51:37Thank you for the question. in banks the size of Ever Bank. Um we're a midsize regional bank. We do have a national presence and we do have a presence specifically in California. Um when we look at it, we don't necessarily have the resources to build our own AI constructs. The d we don't have the data scientists necessarily to do that.
▶ 1:51:56So we depend on groups like Lexus Nexus, EWS and other consortium based tools to help us find the fraud signals out in out in the environments that they touch report those signal to us so we can collaborate back and forth and risk rate transactions and risk rate potentially fraudulent customers that are trying to break into the the fraud ecosystem and they're essential partners for us.
▶ 1:52:18Sure. That's exactly why we need to do something similar at the federal level to streamline those efforts. Right. the and then there are third party fraud fighters who are successful because they can dialogue with different financial institutions and connect different pieces of puzzle.
▶ 1:52:35Similarly, the task force that I envision through this legislation no more scams act will be able to utilize the resources of the different federal agencies and combine both the manpower and the information to track down those fraud. Um Mr. IC date. How does improved coordination across agencies can stop scams in the banking
▶ 1:53:02So, we are calling for a national um task force on fraud. And we think that one of the things we need is alignment across all the different uh agencies and all the different law enforcement entities. The reality is, as I talked about in my testimony, when when a SK when a fraud report is made by a consumer, there isn't necessarily a specific agency that they can point to to pick it up because different agencies have different mandates and and then you have the local law enforcement.
▶ 1:53:26Um, I would say something that could be done that direction would be the Guard Act that's being talked about, which is similar to the Haida program that I that I worked with as a prosecutor, where we allow the federal resources to partner with the state resources for these 20 to $50,000 scams that are hitting our banks that the that don't rise to the level of federal prosecution, but are multi-jurisdictional and and so there's a difficulty with law enforcement approaching them.
▶ 1:53:51Thank you. Thank you. You know, one type of financial fraud that I've seen particularly focused on is the credit repair scams. And you know, I serve as a co-chair of the financial literacy and wealth creation caucus and I've seen the damage of those scams on consumers who are exploited by false promises involving their credit scores.
▶ 1:54:11to that and I'm co-leading the ending scam credit repair act to help end those types of scams and prevent bad actors from stealing money from hardworking American families. So, Mr. Chairman, I would like to ask for unanimous consent to submit this letter that I got from American Financial Services Association um emphasizing the need to end the need for this type of legislation.
▶ 1:54:39Without objection. And I also have another letter from SIFMA to also
▶ 1:54:44Without objection,
▶ 1:54:45thank you very much. Uh let me shift the gears now. I want to also focus on romance scams and the work that is being done to crack down on them. I was proud to lead the effort to have the Treasury Department identify romance scams uh facilitators in Cambodia as money laundering entities. And while that was a great step in the right direction to cracking down on bad actors, we must also uh focus on ways to prevent those scams at the point of attack as well.
▶ 1:55:15So, Miss McCun, how are credit unions like Park Community using methods such as consumer education to prevent romance scams before before the money gets
▶ 1:55:26This is part of our broad commu consumer education efforts. We are aware that romance scams are a problem. Um, not to make light in any way of the ways our members are victimized, but Keano Reeves might need to come before the committee. Keano Reeves is someone who um gets pulled out as um people posing as as Mr. Reeves and we've had multiple members who believed that they were in a relationship with Mr. Reeves. We know about them. We try to educate our members and we move as quickly as we can when we see the the the signs of those.
▶ 1:55:57The gentle lady's time is expired. The gentleman from Texas, Mr. Green is now
▶ 1:56:01Thank you, Mr. Chairman. Uh, Mr. Chairman, a better name, a better title for this hearing would be Fighting Fraud on the front lines, challenges, and Uh, for Trump, the Trump administration to engage in corruption. Let me start by asking unanimous consent that certain articles be introduced into the record.
▶ 1:56:26The first is styled Melania Trump's memecoin architects accused of pump and dump fraud and lawsuit. The second one is styled Trump memecoin down 96% as Bitcoin and meme coins slide. And then I have a third. The third one has to do with uh Christine Gnome.
▶ 1:56:49Firm tied to Christine Gnome secretly got money from 220 million DHS ad contracts. Allow me to uh go through these articles very quickly. I think they paint a picture of corruption. The first is in the Guardian, the one styled Did I get unanimous consent, Mr. Chair, to introduce my articles? Mr. Chairman, Mr. Chairman. Without objection. Thank you.
▶ 1:57:18Uh the article from the Guardian styled uh Melania Trump's meme coin architects accused of pump and dump fraud and lawsuit. Reading it in various portions, we find the language, the dollar sign millennia coins were released for just a few cents each on 19th January.
▶ 1:57:44the day before Donald Trump was I'm paraphrasing. And then it goes on to say, within this coin uh price soared to $13.73.
▶ 1:58:03Uh then it goes on to read, however, it then collapsed almost as quickly and is now worth about 10 cents, less than 1% of its peak Goes on to add that at its peak it was worth $4547. goes down to $5.79.
▶ 1:58:34Article goes on to indicate the Trump family has pocketed more than $1 billion more than $1 billion in pre-tax profits from several cryptocurrency related products over the past 12 months. Then we have the second one.
▶ 1:58:59Trump mean memecoin down 96% as Bitcoin and meme coins slide. Reading in part from the article, last February, the coin's market capitalization stood at 3.5 billion, already well below its 14.5 billion peak on the eve of his second inauguration.
▶ 1:59:26Today, it has fallen to 1.78 billion. And then it reads in part that um the uh scale we're talking about a pump and dump scheme here.
▶ 1:59:44It talks about the scale of this pump and dump scheme involving at least 15 15 included the dollar millennia currency and uh it indicates that of course the coin has down 96% uh in this scam.
▶ 2:00:12Uh, now let's move over to Secretary Secretary Gnome article styled firm tied to Christine Gnome secretly got money from 220 million 220 million DHS ad contracts.
▶ 2:00:34143 million has gone to a mysterious LLC Delaware company created just days before it was awarded a deal. The corruption that this administration has imposed upon the public, pocketing big money from pump and dump schemes is When you read it, it's almost like reading a corruption story in some magazine.
▶ 2:01:04I'm going to yield back the balance of my time, Mr. Chairman, but I think that these things have to be further investigated.
▶ 2:01:09Gentleman's time is expired. The gentleman from South Carolina, Mr. Timonss, is now recognized.
▶ 2:01:15Thank you, Mr. Chairman, and thank you to the witnesses for being with us today. Financial fraud and scams are becoming one of the fastest growing financial crimes facing Americans. Increasingly, these schemes are carried out by large-scale criminal networks operating overseas, often using sophisticated technology, coordinated infrastructure, and social engineering tactics to target Americans at scale. As these operations evolve, financial institutions are often the first line of defense.
▶ 2:01:40Banks and credit unions are responsible for detecting suspicious activity, protecting their customers, and coordinating with law enforcement. But as fraud networks grow more complex and increasingly operate across borders, it raises serious questions about whether our current legal and regulatory frameworks are fully equipped to support the institutions working to stop these crimes. Uh Mr. McDade, in your testimony, you noted that the FBI received more than 850,000 IC3 complaints involving over $16 billion in losses last year alone.
▶ 2:02:09Uh based on your experience both in the banking sector and as a former prosecutor handling complex fraud cases, would you agree that a significant portion of these modern scams are being conducted by large organized criminal operations operating in foreign jurisdictions?
▶ 2:02:24Uh yes, that the evidence is very clear that that's happening. We get uh phone spoofs that are coming from overseas phones. Our bank is a primarily digital bank and we're able to often detect whether or not things are coming from overseas. And a large number of the fraud accounts that we see attempting to be open are from overseas. Um, and there's been some very strong media coverage about that. The New York Times and The Economist showing scam compounds is massive organized crimes larger than in some cases the drug trade in Southeast Asia and Africa.
▶ 2:02:55Thank you for that. How do these operations differ from the more traditional fraud schemes we saw a decade or two ago? Well, the reality is they're able to leverage um its scale some of the techniques that used to be done peacemeal. Um they're gathering data from data breaches.
▶ 2:03:11They're gathering data from as I said earlier publicly available resources such as the PPP lending site and they're cross-referencing those we believe using artificial intelligence and machine learning in order to create profiles that they're able to know a great deal about the individual c customers they're approaching and take a focused effort with knowledge of how that customer normally transacts in order to fool them into believing that they're a trusted source as they approach them.
▶ 2:03:39So technology is largely to blame for the more sophisticated version of scams and
▶ 2:03:44I the scammers and fraudsters are using technology at scale is what we're
▶ 2:03:49And is it fair to say that 20 30 years ago if you were to engage in this it's going to be on a small scale and you're going to have a higher propensity of getting caught by law enforcement.
▶ 2:03:59I I would say that there it is much easier for them to avoid law enforcement because they can have an anonymity online as they're doing this work. Well, it's not that they have anonymity. It's that we don't have the jurisdiction to pursue criminal charges and hold them accountable. Is that fair?
▶ 2:04:14That is fair to say. When the when they're a multinational, it's much more difficult to have prosecution.
▶ 2:04:19So, but we can use the resources that we have to address attribution. It's not easy, but we have the ability to figure out who is engaging in certain scams. Is that correct?
▶ 2:04:30At time, it is possible that we can point to specific areas and specific individuals overseas. Do you know of any other area of crime that the United States government just doesn't enforce? I mean, we have the ability to hold these people accountable in foreign jurisdictions. We just don't do it. I mean, it it is that fair to say.
▶ 2:04:48I mean, we could figure out who is engaging in $16 billion worth of fraud and we could hold them accountable, but we choose not I can't really speak to the specific efforts that are happening there, but I would agree that everybody agrees that more attention to fraud and scams and in a more significant approach is absolutely necessary. Obviously, education to uh make the make Americans protect themselves better is huge, but I mean, everyone is susceptible to a certain degree.
▶ 2:05:14And I just feel like the federal policy should address that and should say if you're engaging in organized crime, we're going to attempt to arrest you and we're if you're in a non-extradition country, we actually have other tools in our toolbox. The president's favorite word is tariffs.
▶ 2:05:30and he could say, "All right, we're going to make the victims whole and then we're going to impose tariffs to uh recoup our losses, or you can just give us the person that committed the crime." I mean, so we do have the ability to hold these people accountable and to make the victims whole, but we choose to not do that. I mean, we could hold organized crime accountable in Eastern Europe and Southeast Asia, but we choose not to. Is that fair?
▶ 2:06:00I I would just say that uh banks would welcome any resources the federal government wanted to bring to bear to help stop this epidemic of fraud and
▶ 2:06:08Well, I I couldn't agree uh we we need to get our act together and um I appreciate all being here today. With that, I yield back.
▶ 2:06:15Thank you.
▶ 2:06:15The gentleman yields. The gentleman from Wisconsin, Mr. Fitzgerald, is recogn uh for being here today. I know it's been a couple hours, so I appreciate that. Um, so I was at a bank in my district last week, a prominent bank in southeastern Wisconsin, and we had a a very good discussion with staff at that bank about uh fraud. And then uh we had credit unions this week in DC.
▶ 2:06:43So we I talked to a number of people about I don't think this topic came up. Maybe it did. Maybe it touched on it this morning. I've got judiciary going on as well. But um uh in both of those instances, there was a component of this which is related to family members that actually are part of the fraud or sometimes biling for the most part. the targets are adults.
▶ 2:07:08Um, and it's uh, you know, another family member is having a discussion about one of their accounts and it's not until kind of the front line, which is often times uh, the person working at the credit union or the bank that's that's in a teller position that kind of realizes something isn't right. So, I was just wondering if I could just get a a thought on the family aspect of this and certainly law enforcement.
▶ 2:07:34I mean, they don't want to get involved in any of these uh fraud related scams that are nationwide, but when it includes a family member, it's even more handsoff is what I'm being told. I'm wondering if that if you believe that is the case. And uh Miss Dempsey, Mrs. Dempsey,
▶ 2:07:51not in our community. And that falls for us, it sounds like more under adult protective services. um when we see family members that are taking advantage um of an elderly grandparent or aunt or uncle of things of that nature. I'm not sure if that's what you're implying that's what the discussion
▶ 2:08:06or or a caregiver you know that it's gotten control uh as an authorized signer on their account or something of that nature. So for us and in Tennessee we've also got very good laws to help us with elder abuse and prevention and protection. So we have a good relationship with our law enforcement and with adult protective services when we um recognize that and see it
▶ 2:08:25Very good. Mr. McDade,
▶ 2:08:28I I would echo the fact that we would approach uh adult and family services within our elder care program and we do detect something that could indicate that someone's being uh taken advantage of by somebody close to them. Uh there are processes to do that. It's usually through the state's attorney general's office in the various states that we do business in and we regularly make those reachouts when it's appropriate.
▶ 2:08:48Very good. Miss,
▶ 2:08:52I want to note that one of the things that I think can give law enforcement some trepidation is how very complex these situations are. The they rely heavily on us to try to unwind and figure out what's going on. We lean into our tellers and our branches when they have good relationships and and know some of the some of the dynamics.
▶ 2:09:14But it's unquestionably true that vulnerable folks are vulnerable and and that that can be family members, that can be people they've designated as powers of attorney, etc. And so we do as much as we can to package the information to say this is why we believe this is what's going on.
▶ 2:09:32Very good, Mr. Schustster.
▶ 2:09:36Thank you. It's it's a great question and I think you're hearing that financial institutions are doing a lot to identify these frauds. They're many times on the front lines identifying where there is family fraud, potential elder abuse, and reporting that and that helps. This is not something that the CFPB is doing. This is financial institutions themselves and having laws that restrict their ability to stop these types of things are where there's um impediments to continuing to help
▶ 2:10:02Very good. Mr. Rust, I don't know if you have a comment on that topic. I agree with much of what's been said, but I also want to emphasize that uh the size of reporting, you know, if an if the amount is only $2 or $3,000, which is still plenty, that needs to be routed up to law enforcement. Um I think a whole of government approach to public infrastructure surrounding complaints, people shouldn't have to know which agency they should complain to, right?
▶ 2:10:32That information should be if it ends up in the wrong agency, shared with the correct agency with with the kind of customer service relationship work that the bureau has always shown.
▶ 2:10:43Very good. Thank you so much. I yield back, chairman.
▶ 2:10:48Gentleman yields back. I would like to thank all of our witnesses uh for their testimony today. We've come to the end of this hearing. Uh without objection, all members will have five legislative days to submit additional written questions for the witnesses to the chair. The questions will be forwarded to the witnesses for the response. Witnesses, if you could please respond no later than April 9th. Uh if you do get uh such uh uh written questions and again I want to thank all of our witnesses for your excellent testimony and contributions.
▶ 2:11:18I think we heard a lot of good recommendations here to deal with this uh this multibillion dollar uh problem for the American people and and and hopefully we can make progress and thanks for all the great work that you all do protecting your customers and the American people. This hearing is now