Federal Crackdown on Zelle Scams

Drowning in Zelle Fraud? Blame the Usual Suspects

You know it’s bad when even the perennial grandstanders in Washington can see through the smoke and mirrors. Yes, I’m talking about the big banks and their darling payment service, Zelle. This peer-to-peer payment network, proudly owned by seven banking behemoths like JPMorgan and Bank of America, is now in the spotlight for all the wrong reasons—think rampant fraud and zero accountability. Let’s cut to the chase, shall we?

Senators Demand Action

U.S. Senators Jack Reed, Bob Menendez, Elizabeth Warren, Sherrod Brown, and Mark Warner are urging regulators to put Zelle under a microscope.

Exclusive: Regulators are investigating some of the biggest U.S. banks for their handling of customer funds on Zelle, which has been facing scrutiny over scams and fraudulent transactions https://t.co/6DhfxyRuXx https://t.co/6DhfxyRuXx

— The Wall Street Journal (@WSJ) August 7, 2024

Their message? Hold Zelle accountable for inadequate fraud protection. They’ve looped in heavy-hitters from the Federal Reserve Board, NCUA, FDIC, and OCC to dig into Zelle’s customer reimbursement and anti-money laundering (AML) practices.

Consumer Protection, Anyone?

Banks, as of now, aren’t obliged under the Electronic Fund Transfer Act (EFTA) to reimburse customers for fraud-related losses via Zelle. Senator Blumenthal, among others, believes that big banks like JPMorgan Chase and Wells Fargo are failing to adequately protect their customers. The Senate Permanent Subcommittee on Investigations, chaired by Blumenthal, is focusing heavily on these banks which alone handle 73% of Zelle transactions.

The Scale of the Issue

In 2022 alone, Zelle saw claims of $456 million lost to scams and fraud, with three-quarters of those losses remaining unpaid. It’s justified when Senator Blumenthal argues that Zelle’s speed and permanence make reversing fraud incredibly challenging.

What’s Being Done?

Wells Fargo insists it’s committed to fraud detection, emphasizing that it blocked over 1 million suspicious transactions in 2023. But consumer advocates like John Breyault from the National Consumers League are skeptical about Early Warning Services’ (EWS) claim that only 0.1% of transactions are fraudulent.

Current law does not protect consumers from authorized payments involved in scams. This makes Zelle a hotbed of fraudulent activity.

Regulatory Calls

Senate Democrats are pressuring federal agencies to collaborate with the Consumer Financial Protection Bureau (CFPB) to present a united front against Zelle and similar apps. They’re focusing on ensuring Zelle’s user-friendly facade doesn’t mask fraudulent activities.

Hearing Set To Unveil More

Executives from JPMorgan Chase, Bank of America, and Wells Fargo are scheduled to testify before a U.S. Senate panel. The hearing aims to explore whether banks should be responsible for Zelle payments authorized by consumers but later discovered to be fraudulent.

New Bills on the Horizon

Legislative solutions like the “Protecting Consumers From Payment Scams Act” are being proposed to extend fraud protection under the EFTA. This bill aims to cover fraudulently induced payments, closing a significant loophole in Zelle’s current operating guidelines.

Ongoing Investigations

The subcommittee has been investigating Zelle’s handling of fraud and scams for nearly a year, highlighting the scale of this burgeoning issue.

A Closing Note of Reality

No one should be naïve enough to think that slapping some regulations on Zelle will clean up the mess instantly. However, this growing scrutiny is a step in the right direction. When aggressive oversight is touted by the likes of Elizabeth Warren, you know things have hit rock bottom. Maybe, just maybe, it’s time for these banking giants to face the music—for real this time.

In the end, whether it’s our favorite watchdog Senators or the relentless consumer advocates, staying informed and vigilant is our best bet. Let’s hope that this federal intervention is more than just political theater.

Big banks under pressure from the CFPB over how they resolve customer payment disputes on Zelle. Very broad investigation. Seems to go beyond Reg E obligations. One open question: what are they doing to flag and shutdown accounts controlled by scammers. https://t.co/tsXxw0RSLC

— Andrew Ackerman (@amacker) August 7, 2024