Hsu suggests banks should be liable for authorized transactions

Acting Comptroller of the Currency Michael Hsu indicated he supports requiring banks to reimburse customers tricked into sending money to fraudulent accounts.

Hsu Remarks: In a speech on artificial intelligence and fraud, Hsu said:

  • Under a new policy in the United Kingdom, the customer's bank and the receiving bank must reimburse defrauded customers for losses, with the reimbursement cost split 50-50 between each bank.

  • This arrangement incentivizes banks to develop and implement effective fraud controls.

  • This liability model deserves greater discussion in the United States.

  • In cases where AI plays a role in the fraud, splitting the liability evenly among the customer’s bank, the receiving bank, and the AI platform is worth considering.

Fraud Liability Debate: Hsu’s remarks are the latest salvo in the debate over who is liable for customers duped into authorizing payments to scammers, which has largely been centered on fraud conducted via peer-to-peer payments apps.

  • Sen. Elizabeth Warren (D-Mass.) in 2022 issued a report calling on the CFPB to strengthen Regulation E to require banks to reimburse customers who authorized fraudulent payments.

  • In response, ICBA said it opposes unlimited liability for P2P fraud and encouraged policymakers to focus on the fraudsters themselves.

Outlook: ICBA will continue raising concerns with policymaker calls for expanding legal liability to reimburse consumers for authorized transactions.