Bankers Tell Lawmakers Fraud Is Growing Faster Than Defenses

Financial fraud has become more sophisticated, more coordinated and more difficult to contain, even as banks pour billions of dollars into prevention efforts, they said.

At a Capitol Hill hearing titled “Fighting Fraud on the Front Lines: Challenges and Opportunities for Financial Institutions,” industry leaders, community bankers and consumer advocates said fraud schemes move rapidly across payment rails, exploit digital platforms and increasingly rely on artificial intelligence to deceive victims.

Witnesses said financial institutions remain one of the final points of intervention in many scams. By the time a transaction reaches a bank, the deception often began elsewhere on social media platforms, messaging services or fraudulent websites.

Patrick McDade, senior vice president for fraud risk at EverBank, told representatives that banks “have been raising the alarm for years about the rise in fraud and scams that are inflicting deep financial and emotional harm on American consumers and small businesses.”

Fraud Is Expanding Across Channels

Witness testimony highlighted a shift in how fraud operates. Rather than isolated incidents, modern schemes frequently involve coordinated networks that exploit weaknesses across multiple payment systems and institutions.

Fraud today is “increasingly industrialized, technology-enabled, cross-channel and scalable,” Joseph Schuster, a partner at Ballard Spahr, said when describing a threat environment in which criminal groups rapidly adapt their tactics to bypass controls.

Check fraud, for example, has resurfaced as a major problem. Organized criminal groups increasingly steal checks from mailboxes or postal facilities and alter them using digital tools. Those items can then be deposited through remote channels before institutions detect the manipulation.

The growth of faster payment systems also complicates prevention efforts. Real-time settlement compresses the window during which banks can analyze suspicious transactions or halt transfers.

“In many cases, once funds are transmitted and received, recovery rates decline sharply,” Schuster said, adding fraudsters often move money rapidly across multiple payment rails to obscure the trail.

AI Is a Weapon and a Defense

Technology played a central role in the discussion. Panelists described AI as an emerging defense mechanism and a new tool for fraudsters.

Banks increasingly rely on advanced analytics, behavioral biometrics and real-time monitoring systems to identify suspicious activity before losses occur. According to McDade, financial institutions deploy behavioral biometrics, AI models, real-time transaction screening, two-factor authentication, digital identity verification, dark web monitoring and 24/7 investigative teams to detect threats.

Yet the same technologies can also strengthen criminal operations. Fraud rings now employ AI tools to generate convincing impersonations or create detailed profiles of potential victims using stolen data.

The Role of Banks and the Limits of Their Control

Another recurring theme during the hearing involved the distinction between traditional bank fraud and scams that originate outside the banking system.

Bank fraud typically involves attempts to access accounts without authorization or manipulate bank systems. In those cases, banks can often intervene because the suspicious activity occurs within their operational environment.

Scams present a different challenge. In many cases, victims willingly authorize a payment after being manipulated through impersonation schemes, investment pitches or social engineering tactics.

Credit union representatives echoed that concern. Kate McKune of Park Community Credit Union indicated that fraud and scams frequently originate outside the financial system and increasingly exploit human psychology rather than technological vulnerabilities.

During the back and forth between congressional reps and the witnesses, Rep. Bill Huizenga of Michigan said that with data and images “out in the general public, there are many people who are victims as both scam targets and as vehicles to go after those victims.” He offered an example where his own visage was used in an online scam that targeted the mother of one of his constituents.

“[The fraudster] was someone who had taken my readily available information and my images and had used AI,” Huizenga said. “It just demonstrates that no one is above being caught up in these scams.”

The consumer also plays a role. Later in the hearing, Rep. Dan Meuser of Pennsylvania asked about the effectiveness of consumer education in combating fraud.

“You absolutely have to have educated consumers,” McKune said, adding that shame may have a dampening effect on individuals’ willingness to step forward and report fraud.

As a result, she said, “the very first tool has to be fundamental understanding and sophistication of consumers about the risks of fraud.” She advocated for a top-down, government-led education effort.

Regulatory and Coordination Challenges

Regulatory constraints can complicate fraud prevention efforts, according to discussions during the hearing.

Schuster said banks must operate within a layered legal and supervisory framework that includes numerous federal statutes, regulatory expectations and state laws governing data usage and privacy.

These overlapping requirements can create uncertainty about how aggressively banks may intervene when suspicious transactions occur. Legal restrictions on information sharing between institutions can also limit collaborative efforts to identify fraud networks.

Community bankers warned lawmakers that additional regulatory mandates could strain smaller institutions already investing heavily in fraud prevention.

Bank of Lincoln County CEO Gay Dempsey testified that fraud losses at many community banks now exceed loan losses, illustrating the scale of the challenge.

At the same time, consumer advocates said regulatory oversight remains essential to protect victims. Adam Rust of the Consumer Federation of America said fraud losses reported by consumers reached approximately $12.5 billion in 2024, according to data from the Federal Trade Commission.

A Call for a Broader Strategy

Despite differing perspectives on regulation, witnesses broadly agreed that fraud prevention requires coordination beyond the banking sector.

Banks, technology companies, telecommunications providers, payment networks and law enforcement agencies all play roles in the ecosystem where fraud originates and spreads.

McDade said policymakers should pursue a “unified approach across government and the private sector” to improve information sharing, consumer education and enforcement efforts.

Witnesses suggested that such cooperation will become increasingly important as digital payments expand and criminals continue to exploit the speed and scale of modern financial infrastructure.