Senate report finds increasing cases of fraud, scams on Zelle

NEW YORK (AP) — Fraud and scams are more common at the popular peer-to-peer payment service Zelle, according to a report released Monday by the office of Senator Elizabeth Warren, giving the public the first glimpse into the growing problems at Zelle.

The report also found that the major banks that partly own Zelle have been reluctant to reimburse customers who have been victims of fraud or scams. For example, less than half of cash customers who reported being sent through Zelle without authorization were refunded.

Warren, D-Massachusetts, a longtime critic of the big banks, requested data on fraud and fraud on Zelle from seven banks as of April. The report cites data from four banks that counted 192,878 cases worth a combined $213.8 million in 2021 and the first half of 2022, where one customer claimed he was fraudulently tricked into making a payment. In only about 3,500 cases, those banks reimbursed the customer, the report found.

Furthermore, in cases where it was clear that money had been taken from the customer’s account without authorization, only 47 percent of those dollars were ever refunded.

Since its launch in June 2017, Zelle has become a popular way for banking customers to send money to friends and family. According to Early Warning Systems, the company that operates Zelle, nearly $500 billion in funds were sent through Zelle in 2021.

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Zelle is the banking industry’s answer to the growing popularity of peer-to-peer payment services such as PayPal, Venmo and the Cash App. The service allows a bank customer to instantly send money to a person through their email or phone number, and it goes from one bank account to another. More than 1,700 banks and credit unions offer the service. But the service has also become more popular with scammers and criminals. Once money is sent through Zelle, a bank intervention is required to attempt to get that money back.

The cases of increasing fraud and scams at Zelle have been discussed in previous news reports, including two by The New York Times. But those stories cited mostly anecdotal evidence. Early Warning Systems has previously said that 99.9 percent of all transactions occur without complaints of fraud or scams. A group of Democratic senators asked for usage data on Zelle after the Times report.

Banks are required by the Electronic Fund Transfer Act to refund customers when funds are illegally withdrawn from their accounts without authorization. Banks have argued that in cases of fraud, which involves a customer’s account being compromised in some way and they send an unauthorized payment, they do reimburse customers. Banks are more reluctant to reimburse customers who claim to have been scammed, arguing that customers would make such claims more often and it would be difficult to tell whether the customer is telling the truth.

The Consumer Financial Protection Bureau has also investigated Zelle and other payment platforms and is expected to issue regulations that could require banks to reimburse customers for a wider range of scams and fraud.

The banking industry, aware of Washington’s increased control over Zelle, has campaigned to show that Zelle is a safe way to send money. The industry generally likes to point out that fraud and scam claims are more common on the non-bank payment platforms like Venmo or the Cash app.

The data for individual banks shows the increase in fraud and scams. PNC Bank had 8,848 cases on Zelle in 2020 and is on track to have about 12,300 cases this year. US Bank had 14,886 cases in 2020 and had 27,702 cases in 2021. Truist had 9,455 fraud and scam cases on Zelle in 2020, which rose to 22,045 last year.

Warren made fireworks last month at a congressional hearing involving most of the CEOs of the major Wall Street banks that use and partially own Zelle, where she urged each of the CEOs to release data on fraud and scam incidents at their banks. to give. The seven are: JPMorgan Chase, Wells Fargo, PNC Financial, Truist, Bank of America, Capital One and US Bank.

The hearing included an exchange where Jamie Dimon, the CEO of JPMorgan Chase, apologized to Warren for not getting her the requested information and promised she would have it by the end of that day.

Warren’s office says JPMorgan’s data on Zelle ultimately did not provide the data they were looking for, so data from JPMorgan is not included in the report. The other banks that did not provide data to Warren’s office were Wells Fargo and Capital One. JPMorgan and Early Warning System did not return a request for comment.

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