Why your CU is not on the hook for a Venmo mistake

July 17, 2018 at 9:33 am Leave a comment

I can see why people are intrigued by Venmo, the platform which facilitates person-to-person cash transfers. With a mobile phone it makes everything from paying up after a poker game to splitting the dinner check with the friend afflicted with alligator arms when reaching for his wallet as easy as sending an email. But I amalso  inflicted with a compliance person’s paranoia about a payment system that has implications for both your members and your credit union.

My interest has been stoked by this recent article in the Wall Street Journal. The article correctly points out that users of Venmo and similar peer-to-peer platforms are discovering that they are out of luck when it comes to reclaiming funds they sent in error. Our compliance department also received a call asking if credit unions face additional liability when a member links their account to the Venmo platform. The short answer is “No:” with the usual caveat that this is one man’s opinion and not legal advice, here’s why I’m right.

The Venmo platform is remarkably simple. Venmo is a pay pal service. When you sign up for Venmo you provide a debit credit, credit card, or prepaid card which Venmo uses to facilitate account transfers. You can also sign up for a Venmo debit or credit card with either Visa or MasterCard… Once you have established an account you can simply send an email to another Venmo user who is on the platform’s directory and the platform executes the transaction. It’s a very crude example of how we are moving toward a cashless society.

The article highlights, however, the fact that this convenience comes at a very steep price for consumers looking for protection. What happens to the Venmo user who accidentally sends an email to Henry Meyer instead of Henry Meier? Well, he’s out of luck unless Henry Meyer is a very honest person. First, there is no mechanism to cancel the transaction.

Secondly as explained in the user agreement, which I’m sure everyone reads:

You acknowledge that you are responsible for the accuracy of all payments sent using the Venmo Services, including but not limited to the accuracy of the amount paid and the recipient. Company shall not be responsible or in any way held liable due to inaccurate payments, including but not limited to sending an incorrect amount of money or sending money to an incorrect recipient.

The only way your member can hope to get any satisfaction from Venmo is if she can prove that Venmo executed a transaction she did not authorize. This answer would be different if the member has a Venmo Visa or Debit card.

Is your credit union responsible? You have no obligation to reimburse a member who has sent money to the wrong person using Venmo. This is because whether she used a credit or debit card, Venmo was authorized by your member to carry out the transaction. Regulation Z defines a credit card billing error as an extension of credit that is not made to the consumer or to a person who has actual, implied, or apparent authority to use the consumer’s credit card or open-end credit plan.

The Venmo user has authorized Venmo to use their credit card. It’s no different than a member who hands over a credit card to a stranger at the bar and then complains to you that he spent too much.

A similar result is reached for debit cards. Regulation E defines an unauthorized transfer as an electronic fund transfer from a consumer’s account initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit. The term does not include an electronic fund transfer initiated by the consumer.

Again our member is out of luck. He gave Venmo authority to use his debit card.

The compliance take away is obvious. Don’t assume that just because a debit card was used you are on the hook for a Venmo transaction gone wrong. On a policy level, this is yet another great example of technology outpacing regulations. I have no doubt there will come a day when peer-to-peer consumers will, as a matter of right, be able to cancel transactions and/or have recourse against the person who was the unintended beneficiary of their transfer. But we aren’t there yet. When the consumer comes complaining to the credit union be prepared to tell them they are out of luck.

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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