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Zelle Fraud Protection: What You Need to Know Before Transferring Funds

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Credit cards. Debit cards. Zelle. One of these popular ways to spend money from your bank account is not like the others, and many consumers are finding out the hard way. Zelle is the big banks’ answer to Venmo  — a  consortium of heavy hitters like Bank of America and Wells Fargo lets account holders send cash to each other almost instantly via smartphones or email.

Zelle was a near instant hit: about $75 billion in transactions were made via the service last year, twice Venmo’s volume. But it’s popular with scammers, too. Criminals have flocked to the service because, like wire transfers, Zelle transactions cannot be disputed or reversed, and some consumers have been overly trusting of the service due to its affiliation with traditional banks.

Lauren Driver of Los Angeles sent $2,000 using Zelle in an effort to buy “Hamilton” musical tickets in December. When the seller turned out to be a scammer, she turned to Zelle and to Bank of America, expecting the usual fraud protections would apply to the transaction.  After all, Zelle commercials hawk the service as safe, because it’s “backed by the banks.”

No luck. Driver was told her transaction wasn’t covered by any kind of fraud guarantee.

Consumers have flocked to social media recently with similar tales of woe.  In many cases, banks are declining to help, citing Zelle’s policy. In an emailed statement, Bank of America reiterated that Zelle is intended for sending funds to friends, family and people customers know.

“Banks are saying there is no protection because the consumer initiated the payment,” Driver said.

Which bill pay services have fraud protection?

Zelle

Venmo

PayPal

Square Cash

PopMoney

Fraud policy

Limited. If you, the consumer, initiated the transfer of funds, you are not covered for fraud.
You are only covered if someone uses Zelle to hack into your account.

Venmo does not offer buyer or seller protection.

Limited. Some transactions, such as purchasing an item that was damaged or that you did not receive, are covered if you file a dispute within 180 days. Unauthorized transactions are covered, so long as you file a dispute within 60 days. Not covered: in-person transactions using PayPal are not covered by its purchase protection policy, as well as transactions involving real estate, motor vehicles, or money sent to family and friends.

Sellers protection only

Varies by state

Is Zelle unsafe to use? Yes and no.

It’s no less safe than sticking cash in an envelope and giving it to someone. If that person is someone you know, and you physically hand them the cash, that’s pretty safe. If you stick that envelope in the mail and send it to someone you don’t know across the country, that’s pretty unsafe.

Zelle should basically be handled the same way. In other words, Zelle should only be used for low-dollar, very personal transactions.

Some of the consumer confusion around Zelle was created by the product’s aggressive marketing, which initially touted its security features. In one TV commercial, performer Daveed Diggs rapped, “You can send money safely cause that’s what it’s for / It’s backed by the banks so you know it’s secure.” Citing such ads, Driver said she was surprised that she wasn’t covered for her incident.

What types of fraud are covered with Zelle?

How Zelle defines fraud

As defined by Zelle, this includes only certain kinds of fraud, such as account unwarranted transactions initiated by a hacker — similar to a criminal stealing your credit card and using it to make a fraudulent purchase. On the other hand, when a consumer initiates the transaction — such as using Zelle to send payment to an unknown seller — that is not covered.

The confusion lies in Zelle’s definition of “fraud.”

Zelle does provide some fraud protections to consumers, as required by the Federal Reserve’s Regulation E, which governs electronic transactions.

“Consumers are not liable for unauthorized activity on their accounts,” said Lou Anne Alexander, group president of payment solutions at Early Warning, the firm that operates Zelle for the banks, in an emailed statement.

“Use Zelle to split the bill with your friends for lunch… But never use it for any sizable transaction, or with anyone you don’t know.”

“Unauthorized activity” covers only certain kinds of fraud, however, such as account hacking — similar to a criminal stealing your credit card and using it to initiate fraudulent purchases. On the other hand, transactions initiated by consumers that later turn out to be fraud — when there really aren’t “Hamilton” tickets for sale — are not covered. Credit card issuers often call this “purchase protection” or “dispute resolution.” And Zelle doesn’t offer that.

“Sending money with Zelle is like sending cash, and consumers should only use the service for sending money to people they know and trust. We do not offer purchase protections available through credit cards, debit cards or available for a fee for purchase-specific payment technologies,” Alexander wrote.

It’s understandable that consumers might miss that critical distinction — after all, whether their accounts are hacked or a scammer lies to them, the end result is the same. With credit and debit cards, and even PayPal, consumers can get their money back in most cases by disputing the transaction. But not with Zelle, or its rival person-to-person payment system, Venmo.

Zelle said it is aware of the complaints, and is “working to improve our service, including requiring some consistent (user interface) changes that will help consumers confirm that they are sending to intended recipients.” Those changes might take some time, however.

The bottom line

So what should consumers do? It’s simple, really. Don’t trust Zelle any more than you trust the $20 bill in your pocket. Use Zelle to split the bill with your friends for lunch; it’s perfectly safe for transactions like that. If you’re afraid a hacker might break in and raid your bank account using Zelle, relax. You’re covered for that kind of fraud.

But never use it for any sizable transaction, or with anyone you don’t know. If you do, the banks won’t have your back.

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5 Ways the Opioid Crisis is Hurting the U.S. Economy

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On March 6, the CDC released data showing incredible spikes in opioid-related emergency room visits since July 2016: in Wisconsin, they were up 109 percent; in Illinois, up 66 percent; Delaware, 105 percent, Pennsylvania, 81 percent.

These are just some of the devastating numbers behind the growing health crisis. The CDC says 64,000 people died from drug overdose in 2016, roughly three-quarters from opioids alone. That rate has risen fivefold since 1999. For comparison, about 37,000 Americans died in automobile accidents in 2016 and 58,000 died during the entire Vietnam war.

Meanwhile, addiction impacts far more than mortality counts.

About 2.4 million Americans have some kind of opioid-use disorder, including prescription drug abusers of OxyContin and Vicodin and illicit users of heroin and fentanyl. A recent Trump administration report found that when the various costs are piled up — with treatment, lost productivity, judicial procedures — the annual price tag is an estimated $500 billion or 2.8% of GDP — that’s $2,000 per U.S. adult. This is over six times larger than the most recently estimated economic cost of the epidemic.

That includes cost of long-term care, opportunity cost, emergency room visits and many other factors. Those costs include about 45,000 emergency-room visits for opioid patients in 2017, and costs associated with making naloxone, an antidote for overdoses, available.

Understanding the depth of the crisis, and its widespread cost, is critical to attracting the focus it will need to repel it.

The economics of the opioid crisis

1. Opioid addiction is so prevalent, it shows up in unemployment data.

Economists have been struggling to understand the stubbornly low workforce participation rate, particularly among men, for some time. An aging population and other demographic factors explains a lot of the trend, but that explanation seemed incomplete. Princeton’s Alan Krueger filled in the blanks by examining county-level opioid prescription rates and labor participation rates, and discovered that higher prescription rates correlated with higher dropout rates. He estimated that about 20% of the reduced rate among men ages 25-54 can be blamed on opioid use. His research also found that two-thirds of prime-age men who aren’t working take prescription pain medication on a daily basis.

Federal Reserve researchers have found that at least some employers are struggling to find workers because potential employees can’t complete drug screening programs.

“Manufacturing contacts in Louisville and Memphis reported difficulties finding experienced or qualified employees, with some citing candidates’ inability to pass drug tests,” stated the St. Louis Fed in its July 2017 “Beige Book” report on regional economic circumstances.

Former Federal Reserve Chair Janet Yellen addressed the issue directly during a July U.S. Senate hearing.

“I do think it is related to declining labor force participation among prime-age workers,” she said. “I don’t know if it’s causal or if it’s a symptom of long-running economic maladies that have affected these communities and particularly affected workers who have seen their job opportunities decline,” she said.

2. Addiction is fueling poverty.

The Federal Reserve Bank of Boston found that the 20 New England counties that had the highest overdose mortality rates have several economic characteristics in common — poverty, disability and unemployment rates that exceed New England averages. These areas also have seen above-average declines in manufacturing and manual-labor occupations since 1970. Meanwhile, a paper by the National Bureau of Economic Research published last year found a pretty dramatic correlation between unemployment and drug abuse: For every single percentage point increase in county unemployment rate, the opioid death rate rises 3.6% per 100,000, and the opioid overdose emergency room visit rate increases by 7.0%.

3. The individual expense of dealing with opioid addiction is skyrocketing.

One of the more depressing economic facts you’ll find about opioids: The street price of heroin can be less than the cost of a pack of cigarettes in some places. Meanwhile, curing addiction is costly. The Trump administration report calculated that “total nonfatal cost” of fighting addiction among prescription opioid abusers is about $30,000 per patient. Individual costs are rising fast. Between 2009 and 2015, the average cost of an opioid admission increased from $58,500 to $92,400, according to a study of 162 academic hospitals led by Beth Israel Deaconess Medical Center in Boston. Why? Patients are arriving in worse condition, and require longer stays, the authors speculate.

4. Public money (i.e., you) is paying for most of this.

A 2016 report published in the Medical Care journal authored by experts from the National Center for Injury Prevention and Control, estimated that one-fourth of the costs from the opioid crisis are paid for by public sources like Medicare and Medicaid. That might understate the cost, however. Krueger, exploring the problem of labor force participation, found that two-thirds of men not in the labor force and taking pain medication used programs like Medicaid and Medicare to buy their prescription opioids for daily use. And there are plenty of hidden costs. As just one example: There are an estimated $7.7 billion in criminal justice-related costs to opioids, pushing addicts through the court systems and into incarceration. Nearly all of the costs are born by state and local governments; that’s funds which can’t be spent on schools or roads or parks.

How to find help

Start with your insurer. If you or a loved one is suffering from an opioid addiction, there are plenty of ways to get help. For starters, the Affordable Care Act (Obamacare) forced health insurers to cover substance abuse and addiction treatment the same as other treatments, through a concept known as “parity.” Combined with the expansion of Medicaid, and removal of the pre-existing condition rules, the ACA made addiction treatment coverage newly available to millions of Americans.

Private plans must cover addiction treatment as other diseases, too. Coverage amounts and deductibles can vary, but some plans will cover all or most of the cost.

Choose your treatment center carefully. Patients need to choose carefully, however. There are 14,500 addiction treatment centers, according to The National Institute on Drug Abuse. Not all of them are covered equally, or by every insurance plan.

Some addiction treatment centers have been criticized for putting profits above treatment, using brokers to find would-be patients with the most generous benefits — and sometimes, committing fraud to insure patients.

Medications can help. Some medications, such as methadone, buprenorphine and naltrexone, have been found to help wean patients off their addiction. These drugs are only covered under certain circumstances, however. Meanwhile, fewer than half of private-sector treatment programs offer medications for opioid use disorders, according to the National Institute on Drug Abuse.

Family members concerned about loved ones should know about naloxone, the life-saving drug that can reverse the potentially deadly impacts of an overdose long enough to get a patient to the hospital. In some states, it can be obtained without a prescription. A new nasal spray called Narcan® is now also available. Use this site to find a location where naloxone can be obtained. Have access to this before an overdose occurs; there may not be time during an incident.

Ask for help. Family members and those in need of treatment can learn more at Substance Abuse and Mental Health Services Administration, which has a 24-hour hotline at 1-800-662-HELP (4357), or at their website at http://www.samhsa.gov/find-help

The National Council on Alcoholism and Drug Dependence and has a 24-hour hotline at 1-800-622-2255, and information is always available at http://www.ncadd.org/

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It’s Now Easier for Millions of Student Loan Borrowers to Get a Mortgage

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Student loan borrowers who are making reduced income-driven repayments on their loans will have an easier time getting mortgages under a new policy announced recently by Fannie Mae.

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Nearly one-quarter of federal student loan borrowers benefit from reduced monthly student loan payments based on their income, Fannie Mae says. However, there’s been some confusion about how banks should treat the lower monthly payments when they calculate a would-be mortgage borrower’s debt-to-income ratio (DTI): Should banks consider the reduced payment, the payment borrowers would have to pay without the income-based “discount,” or something in between?

It’s a tricky question, because student loan borrowers have to renew their qualification for the lower payments each year, meaning a borrower’s monthly DTI could change dramatically a year or two after qualifying for a mortgage. The banks’ confusion over which payment amount to use can mean the difference between a borrower qualifying for a home loan and staying stuck in a rental apartment.

There’s even more confusion when a mortgage applicant qualifies for a $0 income-driven student loan payment, or when there’s no payment amount listed on the applicant’s credit report. Previously, in that situation, Fannie Mae required banks to use 1% of the balance or a full payment term.

As of last week, Fannie has declared that mortgage lenders can instead use $0 as a student loan payment when determining DTI, as long as the borrower can back that up with documentation.

That announcement followed another Fannie update issued in April telling lenders that they could use the lower income-based monthly payment, rather than a larger payment based on the full balance of the loan, when calculating borrowers’ monthly debt obligations.

“We are simplifying the options available to calculate the monthly payment amount for student loans. The resulting policy will be easier for lenders to apply, and may result in a lower qualifying payment for borrowers with student loans,” Fannie said in its statement.

Taken together, the two announcements could immediately benefit the roughly 6 million borrowers currently using income-driven repayment plans known as Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), Income-Contingent Repayment (ICR), and Income-Based Repayment (IBR).
Freddie Mac didn’t immediately respond to an inquiry about its policy in the same situation.

What This Means for Student Loan Borrowers Looking to Buy

Michigan-based mortgage broker Cassandra Evers said the changes “allow a lot more borrowers to qualify for a home.” Previously, there was a lot of confusion among borrowers, lenders, and brokers, Evers said. “[The rules have] changed at least five or six times in the last five years.”

The broader change announced in April, which allowed lenders to use the income-driven payment amount in calculations, could make a huge difference to millions of borrowers, Evers said.

“Imagine you have $60,000 in student loan debt and are on IBR with a payment of $150 a month,” she said. Before April’s guidance, lenders may have used $600 (1% of the balance of the student loans) as the monthly loan amount when determining DTI, “basically overriding actual debt with a fake/inflated number.”

“Imagine you are 28 and making $40,000 per year. Well, even if you’re fiscally responsible, that added $450-a-month inflated payment would absolutely destroy your ability to buy a decent home … This opens up the door to a lot more lenders being able to use the actual IBR payment,” Evers said.

The Fannie Mae change regarding borrowers on income-driven plans with a $0 monthly payment could be a big deal for some mortgage applicants with large student loans. A borrower with an outstanding $50,000 loan but a $0-a-month payment would see the monthly expenses side of their debt-to-income ratio fall by $500.

It’s unclear how many would-be homebuyers could qualify for a mortgage with an income low enough to qualify for a $0-per-month income-driven student loan repayment plan. Fannie did not have an estimate, spokeswoman Alicia Jones said.

“If your income is low enough to merit a zero payment, then it is probably going to be hard to qualify for a mortgage with a number of lenders. But, with the share of IBR now at almost a full 25% of all federally insured debt, it’s suspected that there will be plenty of potential borrowers who do,” Jones said. “The motivation for the original policy and clarification came from lenders’ requests.”

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