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By: Kathleen Hugo,<\/p>\n
In today\u2019s world, people frequently conduct financial transactions through mobile payments. A person can pay her roommate for utilities, split the dinner bill, or chip in for a round of drinks all with the click of a button. A popular platform to conduct such transactions is the peer-to-peer payment service mobile app called Venmo, which acts as a \u201cdigital wallet.\u201d[1]<\/a> While Venmo is known for its user-friendly interface, many users overlook the possibility of potential fraud and the limited legal actions they can take in that event.<\/p>\n Background on Venmo:<\/strong><\/p>\n Venmo was created in 2009 when one of the cofounders, Iqram Magdon-Ismail, forgot his wallet on a trip to Philadelphia to visit friends.[2]<\/a> When Magdon-Ismail owed Andrew Kortina two hundred dollars, the two agreed that the situation would be easier solved through a mobile payment system rather than traditional cash or checks.[3]<\/a> In 2012, Magdon-Ismail and Kortina\u2019s startup, \u201cVenmo,\u201d was purchased by Braintree, which operates the payment systems for companies such as Dropbox, Airbnb, StubHub, and Uber.[4]<\/a> The following year, Ebay\u2019s PayPal acquired Braintree, making Venmo a subsidiary of PayPal.[5]<\/a><\/p>\n How Venmo Works:<\/strong><\/p>\n To use Venmo, a consumer simply links a credit card, debit card, or checking account to the mobile app, and can immediately send or receive payments from friends in their network.[6]<\/a> The payments are then retained in a \u201cVenmo Balance\u201d account, which can be used for future transactions or cashed out and deposited into the consumer\u2019s bank account.[7]<\/a><\/p>\n The Problem:<\/strong><\/p>\n Many users incorrectly assume that when sending a payment, Venmo immediately transfers the funds from Consumer A to Consumer B.[8]<\/a> In reality, Venmo floats the money to Consumer B until the funds have cleared from Consumer A\u2019s bank account.[9]<\/a> This common misunderstanding of Venmo\u2019s technology is being utilized by scammers to commit fraudulent transactions, with little to no protection for the consumer on the other end.[10]<\/a> One type of Venmo fraud occurs when Consumer A uses a fraudulent credit card to pay Consumer B.[11]<\/a> The money immediately appears in Consumer B\u2019s Venmo balance, but when he or she attempts to cash out, the transaction has been reversed for failure to clear Consumer A\u2019s bank account.[12]<\/a> Another common scam occurs when strangers A and B conduct a transaction via Craigslist.[13]<\/a> Consumer A, the buyer, deliberately cancels the transaction before Consumer B, the seller, has had time to transfer the money into his or her bank account.[14]<\/a> In this case, the seller may have already sent the goods to the buyer, but the buyer has now evaded payment, and the seller has no opportunity to recover.[15]<\/a> For this reason, Venmo does not condone stranger-to-stranger transactions on Craigslist and event sites, instead encouraging users to only engage in \u201cpayments between friends and people who trust each other.\u201d[16]<\/a><\/p>\n Venmo has limited options for users who fall victim to fraudulent transactions, especially when the consumer is in violation of the User Agreement. Venmo\u2019s user agreement clearly prohibits personal accounts from \u201creceiv[ing] business, commercial, or merchant transactions.\u201d[17]<\/a> So if Consumer A purchased concert tickets from Consumer B on Craigslist, this could be considered a \u201cmerchant transaction\u201d on a personal account, therefore breaching the User Agreement.[18]<\/a> Venmo does offer the option to create a business account, but this requires \u201can application and explicit authorization.\u201d[19]<\/a><\/p>\n Section (i) of the user agreement, entitled \u201cno buyer or purchase protection,\u201d says just that. In the event of any \u201cunsatisfactory\u201d transactions, the customer will have no option for remedy from Venmo.[20]<\/a> The only available recourse for consumers is described in section (D)(11), which describes the consumer\u2019s options in case of an \u201cunauthorized transaction,\u201d or an \u201cerror that occurs when money is sent from your account that you did not authorize and did not benefit you.\u201d[21]<\/a> Aside from this limited circumstance, Venmo\u2019s terms and conditions are clear on the fact that \u201cVenmo does not offer buyer or seller protection,\u201d so use at your own risk.[22]<\/a><\/p>\n Venmo is a free service designed for convenience, but with that benefit comes the potential burdens of conducting transactions. While Venmo is a widely accessible and easy-to-use option for mobile payments, each consumer must understand its limits in order to protect his or her money.<\/p>\n <\/p>\n [1]<\/a>\u00a0See <\/em>Venmo, http:\/\/www.venmo.com.<\/p>\n [2]<\/a> See <\/em>Felix Gillette, Cash is for Losers!, <\/em>Bloomberg (Nov. 21, 2014, 6:32 AM), http:\/\/www.bloomberg.com\/news\/articles\/2014-11-20\/mobile-payment-startup-venmo-is-killing-cash; See also <\/em>Carolyn Lowry, Note: What\u2019s In Your Mobile Wallet?<\/em> An Analysis of Trends in Mobile Payments and Regulation<\/em>, 68 Fed. Comm. L.J. 353 (2016).<\/p>\n [3]<\/a> See <\/em>Gillette, supra <\/em>note 2.<\/p>\n [4]<\/a> Trevir Nath, How Safe is Venmo and Why is it Free?, <\/em>Investopedia (Mar. 24, 2015, 6:50 PM), http:\/\/www.investopedia.com\/articles\/personal-finance\/032415\/how-safe-venmo-and-why-it-free.asp; see generally <\/em>Braintree, https:\/\/www.braintreepayments.com (last visited Oct. 3, 2016).<\/p>\n [5]<\/a> See <\/em>Gillette, supra <\/em>note 2. See also <\/em>Alison Griswold, Venmo Scammers Know Something You Don\u2019t, <\/em>Slate (Sept. 15, 2015, 9:32 PM), http:\/\/www.slate.com\/articles\/business\/moneybox\/2015\/09\/venmo_scam_and_fraud_why_it_s_easy_to_get_ripped_off_through_the_mobile.html.<\/p>\n [6]<\/a> See <\/em>Nath, supra <\/em>note 4.<\/p>\n [7]<\/a> Id. <\/em><\/p>\n [8]<\/a> See <\/em>Griswold, supra <\/em>note 5 (\u201cContrary to many users\u2019 assumptions, sending money on Venmo does not instantaneously transmit funds from Person A to Person B.\u201d).<\/p>\n [9]<\/a> See id. <\/em><\/p>\n [10]<\/a> See id. <\/em><\/p>\n [11]<\/a> See <\/em>Justin Pritchard, Venmo Scams: Can You Get Ripped off on Venmo?, <\/em>The Balance (July 5, 2016), https:\/\/www.thebalance.com\/venmo-scams-315823 (\u201c[T]he person might use a stolen, credit card number to fund the payment . . .\u201d).<\/p>\n [12]<\/a> See <\/em>Griswold, supra <\/em>note 5 (\u201cHe handed off the devices once he got Venmo\u2019s payment notifications, then later attempted to withdraw funds into his bank account. They never showed up.\u201d).<\/p>\n [13]<\/a> See id<\/em>.<\/p>\n [14]<\/a> See <\/em>Ethan Wolff-Mann, The Scary Thing You Don\u2019t Understand About Venmo, <\/em>Time (Sept. 21, 2015), http:\/\/time.com\/money\/4036511\/venmo-more-check-than-cash\/.<\/p>\n [15]<\/a> See id. <\/em><\/p>\n [16]<\/a> See <\/em>Venmo, https:\/\/www.venmo.com\/about\/security (\u201cAvoid payments to people you don\u2019t know, especially if it involves a sale for goods and services (like event tickets and Craigslist items).\u201d).<\/p>\n [17]<\/a> See <\/em>User Agreement \u00a7 B, Venmo, https:\/\/venmo.com\/legal\/us-user-agreement (valid as of Sept. 13, 2016).<\/p>\n [18]<\/a> Id<\/em>. at \u00a7 I.<\/p>\n [19]<\/a> See <\/em>Venmo, https:\/\/venmo.com\/about\/security.<\/p>\n [20] See <\/em>User Agreement \u00a7 I, Venmo, https:\/\/venmo.com\/legal\/us-user-agreement (valid as of Sept. 13, 2016) (\u201cCompany does not currently offer a buyer or purchase protection program in connection with App Payments or any other payments made using a Venmo account. This means that should your purchase turn out to be unsatisfactory for any reason, you will not have recourse with Company, and instead should contact the App provider directly.\u201d).<\/p>\n