The year-over-year losses from scams continue to rise. In 2022, the Federal Trade Commission (Off-site) reported $8.8 billion in losses from scam activity, a 30% increase from the previous year.
In spring 2023, the Federal Reserve established a scams definition and classification work group of payments and fraud experts, with the goal of providing a more consistent foundation for scams reporting to better understand and mitigate the problem. Now, the work group has published an operational definition of scams: the use of deception or manipulation intended to achieve financial gain.
“This straightforward definition applies to multiple scam types, promotes a common understanding and ultimately, can help advance more consistent identification and classification of scams across the payments industry.”
Mike Timoney, vice president of payments improvement
Federal Reserve Financial Services
The work group’s goal was to craft a definition that can apply both to attempted and successful scams. Work began by reviewing existing and varying definitions of scams, where the members looked for common elements that could be incorporated into the new definition, as well as missing or potentially conflicting elements. The definition had to encompass key concepts, such as scam interactions, intent and financial gain. The definition is not intended to address liability, reimbursement or reporting requirements.
The definition of a scam is intended to be used by payments industry stakeholders, such as financial institutions, payment networks, technology solution providers and industry trade organizations. However, the work group’s definition and its upcoming recommendations on scams classification can benefit non-payments industry audiences, ranging from law enforcement to social media platforms, allowing all involved to use a more consistent classification method.
The scams definition is expected to have multiple uses, including helping to foster more consistent dialogue and understanding of scam trends across organizations. In addition, this dialogue can improve scam detection and mitigation, education and reporting by both consumers and businesses.
This definition is the first step in the work group’s efforts to promote consistent classification and reporting of scams. Work group members now will turn their focus to scams classification, and they will produce a structure to categorize different scam types using the scams definition as a basis. This will help the industry catalog scam types that use different nuances and tactics.
Join the FedPayments Improvement Community for updates on this initiative and the Fed’s continued efforts to help modernize the U.S. payment system.
Disclaimer: The scams definition was developed by a cross-industry work group to provide a consistent way to identify and classify this type of fraud across the payments industry. This definition is not intended to result in any regulatory or reporting requirements, imply any liabilities for fraud loss, or confer any legal status, legal definitions, or legal rights or responsibilities. While use of this definition throughout the industry is encouraged, adoption of the definition is voluntary at the discretion of each individual entity. Absent written consent, this definition may not be used in a manner that suggests the Federal Reserve endorses a third-party product or service.