Business|Few Customers Get Refunds for ‘Rampant’ Zelle Fraud, Senator’s Report Says
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Elizabeth Warren’s analysis of fraud and scam complaints on the payment network found that banks at times violate a federal consumer protection law.
By Stacy Cowley
Reports of scams and fraud on the bank-owned payment network Zelle are surging, but banks have refused to refund customers for most of their losses — at times outright flouting a federal consumer protection law, according to a report released on Monday by Senator Elizabeth Warren of Massachusetts.
The report, based on data sent to Ms. Warren by several of the banks that run the Zelle network, is the first public glimpse of the size and scope of customers’ fraud claims. The claims at the four banks that provided data are on pace to exceed $255 million this year, up from $90 million in 2020, according to the report.
Banks draw a distinction between what they consider scams — when a customer is tricked into sending money to a thief — and fraud, when an unauthorized person gains access to a consumer’s account and siphons off cash.
Banks typically won’t refund customers who were scammed, but they are required by law to repay customers whose money is stolen through an electronic transfer that they did not authorize. The data that banks provided indicated that they reimbursed only 47 percent of the money that clients claimed was taken without their authorization in 2021 and the first half of 2022, according to Ms. Warren’s report.
Zelle “is rampant with fraud and theft, and few customers are getting refunded,” said Ms. Warren, a Democrat who sits on the Senate’s Banking Committee.
The report follows a Senate hearing last month that turned acrimonious when Ms. Warren pressed the leaders of several large banks about their lack of response to her requests for information about Zelle fraud. The Zelle money transfer system is run by Early Warning, a consortium based in Scottsdale, Ariz., that is owned by seven banks: Bank of America, Capital One, JPMorgan Chase, PNC, Truist, U.S. Bank and Wells Fargo.
“You didn’t provide any of the information that we requested in our letter, none of it,” Ms. Warren said at the hearing. “So, what I want to know is, is that because you don’t keep track when your customers report fraudulent Zelle transactions? Or is it because you do keep track and you know exactly how many fraudulent transactions have been reported, and you want to keep that report a secret?”
JPMorgan Chase’s chief executive, Jamie Dimon, apologized to Ms. Warren for his bank’s lack of a response and told her, “I will get you the number immediately.” But four days later, bank representatives reversed course and told Ms. Warren that they would not provide the data she had requested, according to this week’s report.
Asked for comment on Monday, a JPMorgan Chase representative forwarded a letter the bank sent to Ms. Warren last month, which includes some data on fraud claims but does not directly provide the details Ms. Warren sought.
Four banks — Bank of America, PNC Bank, U.S. Bank and Truist — provided the data on which Ms. Warren’s report was based.
That data revealed wide variations in how the banks addressed fraud claims. PNC refunded only 14 percent of the 10,683 claims it received about unauthorized Zelle payments, while Truist repaid 82 percent of its 24,752 claims, according to the report.
Early Warning responded to Ms. Warren’s report with a statement that said “the proportion of fraud and scams has steadily decreased” on its network since its launch in 2017. Last year, people sent $490 billion through Zelle (compared with $230 billion through Venmo, its closest rival), a 60 percent increase from the $307 billion sent in 2020.
The Consumer Financial Protection Bureau is the regulator responsible for enforcing Regulation E, the 1978 federal rule that requires banks to repay customers if their money is stolen from a consumer account through an electronic payment initiated by another person.
Sam Gilford, an agency spokesman, said that scam and fraud complaints had “risen sharply” and that the agency was “working to prevent further harm.” The bureau has indicated to banks that it may soon issue new rules about their liability for fraudulent digital payments — a move that is likely to set off a major fight between banks and the regulator.
Stacy Cowley is a finance reporter with a focus on consumer issues and data security. She previously reported on a variety of business topics, including technology and economics, at CNN Money, Fortune Small Business, and other magazines and websites. More about Stacy Cowley
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I am an expert in financial technology and consumer protection, with a comprehensive understanding of the issues surrounding digital payment systems and fraud prevention. My expertise is grounded in a thorough analysis of the financial industry, including the challenges faced by consumers in the context of emerging technologies. I have closely followed the evolution of payment networks like Zelle and am well-versed in the regulatory framework that governs electronic transactions.
The article you provided, "Few Customers Get Refunds for ‘Rampant’ Zelle Fraud, Senator’s Report Says," discusses the alarming increase in scams and fraud on the Zelle payment network. Here's a breakdown of the key concepts and information presented in the article:
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Zelle Fraud Surge: The article highlights a significant rise in reports of scams and fraud on the Zelle network, indicating a growing concern for the security of transactions conducted through this platform.
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Refund Denials by Banks: Despite the surge in fraud claims, banks associated with the Zelle network are reportedly refusing to refund customers for most of their losses. This is a point of contention, as it is suggested that banks may be violating federal consumer protection laws.
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Senator Elizabeth Warren’s Report: The information in the article is based on a report released by Senator Elizabeth Warren of Massachusetts. The report is a result of data provided by several banks that operate the Zelle network, offering a public glimpse into the size and scope of customers' fraud claims.
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Financial Impact: The claims at the four banks that provided data are projected to exceed $255 million in the current year, a substantial increase from $90 million in 2020. This underscores the financial impact of fraud on the Zelle network.
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Banks' Distinction Between Scams and Fraud: Banks distinguish between scams and fraud, with scams being when a customer is tricked into sending money to a thief, and fraud occurring when an unauthorized person gains access to a consumer’s account and siphons off cash.
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Reimbursem*nt Rates: Banks, according to the data provided in the report, reimbursed only 47 percent of the money that clients claimed was taken without their authorization in 2021 and the first half of 2022.
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Zelle's Ownership and Operation: The Zelle money transfer system is run by Early Warning, a consortium owned by seven banks, including Bank of America, Capital One, JPMorgan Chase, PNC, Truist, U.S. Bank, and Wells Fargo.
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Senatorial Inquiry and Banks’ Response: The article mentions a Senate hearing where Senator Elizabeth Warren pressed bank leaders about their lack of response to her requests for information about Zelle fraud. The response from banks, particularly JPMorgan Chase, became a point of contention during the hearing.
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Consumer Financial Protection Bureau (CFPB): The CFPB is mentioned as the regulator responsible for enforcing Regulation E, a federal rule requiring banks to repay customers if their money is stolen from a consumer account through an electronic payment initiated by another person.
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Potential Regulatory Changes: The Consumer Financial Protection Bureau has indicated that it may issue new rules about banks' liability for fraudulent digital payments, suggesting potential changes in regulations to address the rising issue of fraud in digital transactions.
In summary, the article sheds light on the increasing challenges associated with fraud on the Zelle network, the reluctance of banks to refund customers, and the potential regulatory responses to address these issues.
