Key Takeaways
- •Rep. Andy Barr (R, KY-6) advocated for the STOP Fraud Act and TRACE Act to modernize funds availability rules and expand information sharing to combat sophisticated cybercrime.
- •Patrick McDade (Senior Vice President for Fraud and Technology Risk Management, EverBank) testified that scams increasingly originate on social media, positioning financial institutions as the final defense.
- •Rep. Bill Foster (D, IL-11) and Gay Dempsey (Chief Executive Officer, Bank of Lincoln County) discussed how Bitcoin ATMs facilitate untraceable romance and investment scams targeting vulnerable consumers.
- •Rep. Maxine Waters (D, CA-43) accused the administration of gutting the CFPB, while Republicans argued that vague UDAAP standards prevent banks from deploying proactive, AI-driven fraud detection tools.
- •Congress is considering the SCAM Act to hold social media platforms accountable for fraudulent advertisements while updating Regulation CC to provide banks more time to scrutinize transactions.
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Hearing Analysis
Overview
The House Financial Services Subcommittee on Financial Institutions held a hearing on March 5, 2026, titled "Fighting Fraud on the Front Lines: Challenges and Opportunities for Financial Institutions." Chaired by Rep. Andy Barr (R, KY-6), the hearing addressed the escalating crisis of financial fraud and scams, which resulted in over $16.6 billion in reported losses in 2024 according to the Federal Bureau of Investigation (FBI). The discussion focused on how banks and credit unions serve as the final defense against sophisticated criminal networks utilizing artificial intelligence (AI), deepfakes, and social media. The committee examined the balance between consumer protection and the operational burdens placed on financial institutions, particularly smaller community banks and credit unions.
Policy Proposals
Witnesses provided a detailed look at the evolving fraud landscape. Gay Dempsey, CEO of the Bank of Lincoln County, representing the Independent Community Bankers of America (ICBA), shared a poignant account of a customer losing $85,000 to a romance scam via a Bitcoin ATM despite bank intervention. Patrick McDade, Senior Vice President at EverBank, representing the Consumer Bankers Association (CBA), distinguished between "fraud" (deceiving the bank) and "scams" (deceiving the customer into authorizing a transfer). He argued that while banks have hardened digital controls against fraud, scams originating on social media and telecom platforms are harder to stop because the customer technically authorizes the transaction. Kate McKune, General Counsel of Park Community Credit Union, representing America's Credit Unions, emphasized that for small institutions, a single large fraud loss can be ruinous, and current funds availability rules under Regulation CC often force banks to release funds before a check can be verified as fraudulent.
Several legislative proposals were debated. Republicans largely supported the SCAM Act, introduced by Rep. Daniel Meuser (R, PA-9), which aims to hold social media platforms like Meta Platforms, Inc. (Meta) accountable for hosting fraudulent advertisements. Other discussed bills included the STOP Fraud Act, which would modernize Regulation CC to allow longer hold times for suspicious checks, and the TRACE Act and TRAPS Act, which seek to expand safe harbor protections for financial institutions to share real-time fraud data. Rep. Barr (R, KY-6) also promoted his Rectifying UDAAP Act, arguing that the Consumer Financial Protection Bureau’s (CFPB) vague "unfair, deceptive, or abusive acts or practices" (UDAAP) standards discourage banks from implementing proactive fraud controls for fear of regulatory backlash.
Key Testimony
In contrast, Democratic members and witness Adam Rust, Director of Financial Services for the Consumer Federation of America (CFA), focused on the "gutting" of the CFPB by the Trump administration. Rep. Maxine Waters (D, CA-43) and Rep. Stephen Lynch (D, MA-8) criticized the administration for firing CFPB staff and dropping enforcement actions, arguing that the agency is the most effective tool for returning money to victims. Rust advocated for the Protecting Consumers from Payment Scams Act, which would shift liability to financial institutions for "induced" transfers (scams), a move the industry witnesses warned would financially strain smaller banks and potentially encourage "first-party" fraud.
Overview
The hearing identified several sectors and organizations impacted by these policies. The Consumer Financial Protection Bureau (CFPB) was mentioned extensively as the primary consumer watchdog; Democrats criticized the Trump administration's efforts to dismantle its funding and staff, while Republicans sought to limit its UDAAP authority. Meta Platforms, Inc. (Meta) was criticized by both witnesses and members for allegedly profiting from scam advertisements and failing to verify advertisers. The Federal Bureau of Investigation (FBI) and Federal Trade Commission (FTC) were cited for their data tracking the 33 percent year-over-year increase in cybercrime losses. The Financial Crimes Enforcement Network (FinCEN) was discussed regarding the need to modernize Suspicious Activity Reports (SARs) into more "structured" data formats to help law enforcement track patterns. The Bitcoin ATM industry was highlighted by Rep. Bill Foster (D, IL-11) and Rep. Sean Casten (D, IL-6) as a vector for money laundering and elder abuse, with calls for mandatory "Know Your Customer" (KYC) rules. The United States Postal Inspection Service (USPIS) was referenced regarding the surge in mail-related check fraud and the need for better coordination with banks. Finally, the Department of Government Efficiency (DOGE) was mentioned by Rep. Lynch (D, MA-8) in the context of staff reductions at the CFPB.
Partisan dynamics were sharply defined. Republicans emphasized "all-of-government" and "cross-industry" accountability, specifically targeting social media and telecom companies as the originators of scams. They pushed for regulatory flexibility and safe harbors. Democrats focused on corporate accountability for banks and the restoration of federal oversight, arguing that the current administration’s deregulatory agenda has created a "golden age of fraud." Notable exchanges included Rep. Bill Foster (D, IL-11) advocating for a national digital identity standard to combat impersonation fraud, noting that the U.S. is falling behind the European Union (EU) in this area. Rep. Sean Casten (D, IL-6) shared a story of a constituent losing $190,000 to a "pig butchering" scam, leading to a bipartisan consensus that Bitcoin ATMs require stricter regulation. Joseph Schuster of Ballard Spahr LLP noted that the Fair Credit Reporting Act (FCRA) currently creates "pattern recognition" hurdles, as banks fear being classified as consumer reporting agencies if they share too much data.
Transcript
The subcommittee on Financial Institutions will come to order. Without objection, the chair is authorized to declare a recess of the committee at any time. Today'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. Today'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. According to the FBI, Americans reported $16.6 billion in cybercrime losses in 2024, a 33 percent increase 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. They are exploiting social media platforms, telecommunications infrastructure, and cross-border 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 sizes are devoting substantial resources to fight fraud and scams. They 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. Community 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. President Trump's executive order, Modernizing Payments to and from American 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. The shift will help safeguard Americans' tax refunds and benefits while protecting taxpayer dollars from criminal activity. President 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 is networked, cross-institutional, and real-time. Yet 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. Third, our financial regulators often lack robust understanding of artificial intelligence and machine learning, preventing the establishment of clear guardrails 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. Lastly, 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 authorizes 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 first-party criminal activity. It 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. Foster, for four minutes for an opening statement.
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