Banks aren’t doing enough to address Zelle fraud, senators say

Dive Brief:

A group of eight U.S. senators is calling on the nation’s biggest banks to do more for customers defrauded by scam artists on Zelle, the bank-owned peer-to-peer payments network.
In letters sent to the CEOs of JPMorgan Chase, Bank of America, Wells Fargo, U.S. Bank, PNC, Truist and Capital One on Thursday, lawmakers called Zelle a “favorite of fraudsters” due to customers’ inability to cancel a transaction, even moments after authorizing it.
Payments through Zelle, which is owned by Early Warning Services (EWS), totaled $490 billion in 2021 — $440 million of which was lost through fraud and scams, the senators allege.

Dive Insight:

The senators — Bob Menendez, D-NJ; Elizabeth Warren, D-MA; Sherrod Brown, D-OH; Bernie Sanders, I-VT; Tammy Duckworth, D-IL; Jack Reed, D-RI; Chris Van Hollen, D-MD; and Sheldon Whitehouse, D-RI — want the nation’s largest banks to reimburse customers who were tricked into sending money to scammers through Zelle.

“The distinction EWS draws between fraud (transactions not authorized by the account owner) and scams (transactions authorized by the account owner, but induced through deception) ignores how consumers actually suffer financial loss on Zelle,” the senators wrote. “…While several banks have made the argument that they should not be held responsible for such scams, we believe that you need to do more to protect your customers.”

Democratic lawmakers have been zeroing in on Zelle and its parent company EWS ever since The New York Times outlined extensive fraud allegations related to Zelle in a March feature. That report claimed banks deflected responsibility mainly by saying the consumers authorized the transactions.

Warren and Menendez asked EWS in April to detail its efforts to root out scams in response to what the lawmakers called “disturbing reports of a rise in fraud.”

“Your company and the big banks who both own and partner with the platform have abdicated responsibility for fraudulent transactions, leaving consumers with no way to get back their funds,” Warren and Menendez wrote to EWS CEO Al Ko.

EWS claims it has already instituted procedures that limit such abuses, including real-time alerts that ask users if they know and trust the person they’re about to send money to, according to Bloomberg.

In its response to Warren and Menendez, EWS said it believes it “has gone beyond what is required under Regulation E” by reimbursing customers who are victims of unauthorized transfers.

Regulation E provides a framework that protects consumers when they use electronic fund and remittance transfers.

In Thursday’s letter, however, the senators said EWS’s definition of fraud, which to refers to unauthorized transactions, “excludes the fraudulent schemes that have been extensively documented in the press and acknowledged by officials at the Consumer Financial Protection Bureau.”

“Given the sheer numbers of consumers using online payments services such as Zelle and the amount of money at risk, the absence of protective measures is unacceptable,” the senators wrote.

Several banks have become the targets of lawsuits related to fraudulent transactions on the Zelle platform.

In an April lawsuit filed against Wells Fargo in the U.S. District Court for the Central District of California, plaintiff Jessica Stock alleged she lost $1,000 as a result of a scam that involved Zelle.

In another suit filed against Bank of America in May, plaintiff Mohammad Al-Ramahi alleges he was tricked into sending $4,950 through the platform as part of a scam in which he thought he was sending the money in his role at a new job.

“BofA maintains a secret policy whereby it refuses to reimburse fraud losses incurred via Zelle, even where its accountholders timely inform BofA of the fraud,” the lawsuit said. “BofA misrepresents and fails to disclose this secret policy.”