Letter to the Hon. Jerome Powell, Chairman of the Board of Governors of the Federal Reserve System - Sens. Moran, Van Hollen Lead Colleagues in Probing Fed on Efforts to Prevent Real Estate Wire Fraud

Letter

Dear Chairman Powell:

We write to you concerning the increasing problem of wire fraud through business e-mail compromise (BEC) and e-mail account compromise (EAC) in the U.S. This method of fraud poses great risks to our constituents, specifically homebuyers. Confidence in our payment system's ability to safely transfer large sums of money is an incredibly important part of the home buying process.

We are concerned that the Federal Reserve's policies on wire fraud lack the urgency of the problem. The Federal Reserve's report last fall, "Changes in U.S. Payments Fraud from 2012 to 2016: Evidence from the Federal Reserve Payments Study," does not even mention the issue of wire fraud. While other countries, like the United Kingdom, have taken proactive roles in preventing wire fraud, especially for real estate transactions, the Fed's only other substantive effort to date appears to be the Secure Payments Task Force's announcement to create and publish "recommended fraud definitions."

Last summer, the Federal Bureau of Investigation (FBI) released a public service announcement titled, "Business E-mail Compromise the 12 Billion Dollar Scam." The FBI reported that from 2015 to 2017 there was an 1100% increase in the number of real estate related e-mail compromise scams reported to the FBI. Of these scams, the amount of funds lost increased nearly 2200%. In fiscal year 2017 alone, the FBI reported that $969 million was "diverted or attempted to be diverted" from real estate purchases to "criminally controlled" accounts, an incredible increase from $19 million in 2016.

The Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB) have also taken steps to raise awareness of this issue, issuing warnings to consumers on the dangers of wire fraud while urging consumers to "Protect Your Mortgage Closing from Scammers" and "Watch out for Mortgage Closing Scams."

Given the rapidly increasing seriousness of the issue, we are interested in what efforts the Federal Reserve has underway to limit fraud and verify payee matching on wire payments.?

We would appreciate your response to the following:

1. What is the Federal Reserve doing to address criminal exploitation of weaknesses in the U.S. wire system to trick unsuspecting consumers into sending payments to the wrong financial account?
2. Is the Federal Reserve coordinating with federal agencies on addressing wire fraud?
3. How is the Federal Reserve working with financial institutions to decrease this type of wire fraud?
4. Has the Federal Reserve considered payee matching requirements when a wire transfer is initiated?
5. Does the Federal Reserve have sufficient authority to institute these protections for the U.S. wire system and the Federal Reserve's Fed Wire system? If not, what authorities are needed to institute these protections?
6. Can the wire system's current technology accommodate payee verification? If not, is there a reason payee verification was not included in the Federal Reserve's evaluation of the future of the payments system?
Respectfully,