The payment app Zelle has a growing fraud problem, the Senate report finds

Incidents of fraud and scams are increasingly occurring on the popular peer-to-peer payment service Zelle, according to a report released Monday by the sen’s office. Elizabeth Warren, giving the audience a first glimpse of Zelle’s growing problems.

The report also found that large banks that partly own Zelle have been reluctant to compensate customers who have been victims of fraud or scams. For example, less than half of the money customers reported sent via Zelle without authorization was refunded.

Warren, D-Massachusetts, a longtime critic of big banks, requested fraud and scam data about Zelle from seven banks starting in April. The report cites data from four banks that totaled 192,878 cases totaling $ 213.8 million in 2021 and the first half of 2022 in which a customer claimed to have been fraudulently tricked into making a payment. According to the report, only in about 3,500 cases those banks have repaid the customer.

Also, in cases where it is clear that funds were withdrawn from client accounts without authorization, only 47% of those dollars were repaid.

Since it launched in June 2017, Zelle has become a popular way for bank customers to send money to friends and family. Nearly $ 500 billion in funds were sent through Zelle in 2021, according to Early Warning Services, the company that manages Zelle.

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 instantly send money to a person via their email or phone number and will switch between bank accounts. More than 1,700 banks and credit unions offer the service. But the service has also become more popular with scammers and criminals. Once the money is sent through Zelle, a bank is required to attempt to get that money back.

Cases of fraud and scams on the rise in Zelle have been highlighted in previous reports, including two from the New York Times. But those stories mostly cited anecdotal evidence. Early Warning Services previously stated that 99.9% of all transactions take place without any reports of fraud or scams. A group of Democratic senators asked for data on the use of Zelle after the New York Times report.

Under the Electronic Fund Transfer Act, banks are required to reimburse clients when funds are illegally withdrawn from their account without authorization. The banks have said that in the event of fraud, which means a customer’s account is somehow compromised and they send an unauthorized payment, they refund the customers. Banks are more reluctant to reimburse customers who claim they have been scammed, claiming customers would make such requests more often and it would be difficult to tell if the customer is telling the truth.

The Consumer Financial Protection Bureau has also looked into 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 sector, aware of Washington’s increased control over Zelle, has campaigned to prove that Zelle is a safe way to send money. The industry generally likes to point out that fraud and scam claims occur more often on non-bank payment platforms like Venmo or Cash App.

Data from individual banks show the rise in fraud and scams. PNC Bank recorded 8,848 cases on Zelle in 2020 and is expected to have around 12,300 cases this year. The US Bank recorded 14,886 cases in 2020 and 27,702 in 2021. Truist had 9,455 cases of fraud and scams on Zelle in 2020, which increased to 22,045 last year.

In response to Warren’s report, the owner of Zelle said the increase in cases reflects the fact that the service has become more popular.

“The use of Zelle has grown significantly since its launch, from 247 million transactions in 2017 to 1.8 billion in 2021, while the percentage of fraud and scams has steadily declined,” Early Warning Services said in a statement. .

Warren threw fireworks at a Congressional hearing last month that involved most of the CEOs of large Wall Street banks using and partly owning Zelle, where he prompted each of the CEOs to release data on fraud and scams at their banks. The seven are: JPMorgan Chase, Wells Fargo, PNC Financial, Truist, Bank of America, Capital One and US Bank.

The hearing featured an exchange in which Jamie Dimon, the CEO of JPMorgan Chase, apologized to Warren for not receiving the data he requested and promised he would have it at the end of that day.

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

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This story has been updated to correct the name of the company that manages Zelle. These are early warning services, not early warning systems.

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