Zelle faces a boom in fraud and scams, Senate report finds

Elizabeth Warren’s office, which gives the public a first glimpse of the growing problems at Zelle.

The report also found that large banks that partially own Zelle are reluctant to compensate customers who have been victims of fraud or scams. For example, less than half of customers who sent via Zelle without authorization were being reimbursed.

Warren, D.-Massachusetts, a longtime critic of big banks, requested data on fraud and scams on Zelle from seven banks starting in April. The report cited data from four banks, which collectively reported 192,878 cases worth $213.8 million in 2021 and a customer in the first half of 2022 who claimed they were duped into making fraudulent payments. . The report found that in only about 3,500 cases, those banks reimbursed the customer.

Furthermore, in cases where this apparent money was withdrawn from customers’ accounts without authorization, only 47% of those dollars were reimbursed.

Banks Respond to PayPal, Venmo

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

Zelle is the banking industry’s answer to the growing popularity of peer-to-peer payment services such as PayPal, Venmo and Cash App. The service allows a bank customer to send money instantly to an individual via their email or phone number, and it will move from one bank account to another. More than 1,700 banks and credit unions provide the service. But the service has become more popular among scammers and criminals as well. Once money is sent through Zelle, attempts to get that money back require the intervention of the bank.

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

thousands of fraud cases

The Electronic Funds Transfer Act requires banks to pay customers when funds are illegally withdrawn from their accounts without authorization. Banks have argued that in cases of fraud – meaning that a customer’s account is somehow compromised and they send an unauthorized payment – they reimburse customers. Banks are more reluctant to reimburse customers who make fraudulent claims, arguing that customers will make such claims more frequently and it will be difficult to tell whether a customer is telling the truth.

Data from individual banks shows an increase in frauds and scams. PNC Bank had 8,848 cases on Zelle in 2020, and is on pace to have around 12,300 cases this year. US Bank had 14,886 cases in 2020 and 27,702 cases in 2021. Truist had 9,455 fraud and scam cases on Zelle in 2020, up from 22,045 last year.

Warren attended a congressional hearing last month involving most CEOs of large Wall Street banks that use and partly own Zelle, where he asked each CEO to release fraud and scam incident data at their banks. inspired to. The seven are: JPMorgan Chase, Wells Fargo, PNC Financial, Truist, Bank of America, Capital One and US Bank.

The hearing featured a scene where JPMorgan Chase CEO Jamie Dimon apologized to Warren that he didn’t get the data and promised she would get it at the end of the day.

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

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