Banks that use payment app Zelle have reportedly started refunding customers victimized in imposter scams.
According to a Monday (Nov. 13) report by Reuters, Zelle operator Early Warning Services (EWS) says the 2,100 firms on Zelle began in late June reimbursing customers tricked into sending money to crooks claiming to represent the government, a bank or service provider.
Those refunds are “well above existing legal and regulatory requirements,” EWS Chief Fraud Risk Officer Ben Chance told Reuters.
That’s because the government requires banks to provide refunds to customers when payments are made without their consent, but not when customers make a transfer themselves.
The Reuters report says that although Zelle revealed in August it had launched a new reimbursement benefit for “specific scam types,” a spokesperson said it has not previously detailed its new imposter scam refund policy out of fears that doing so might prompt scammers to make false claims.
Instead of requiring banks to reimburse customers out of pocket, Chance told Reuters that EWS has set up a mechanism that lets lenders recover funds from the recipient’s account and return them to the sender.
He added that banks on Zelle must now use a tool that flags transfers with risky attributes, such as a payment to an account that has never transacted on the Zelle network. Chance said Zelle has seen “a step-change reduction” in fraud and scams this year but declined to offer details.
The report also notes that this new policy makes a change in attitude for bankers, who last year argued that it was unfair to require them to refund transfers customers were duped into making. That came after a New York Times report on the rise of scams on Zelle, which captured the notice of Sen. Elizabeth Warren (D-Mass.) and other legislators critical of big banks.
Since its debut in 2017, Zelle — owned by seven of the country’s largest banks — has become one of the largest peer-to-peer payment networks.
For example, Bank of America — one of Zelle’s owners — said last month that transactions on the network rose 27% during its latest quarter, to 323 million and are now outpacing checks written by the banking giant’s clients by two-fold.
The news comes at a time when 62% of financial institutions (FIs) are seeing an increase in fraudulent transactions, according to “The State of Fraud and Financial Crime in the U.S.,” a PYMNTS and Featurespace collaboration.
“The report found that the increase in fraud encompassed most payment methods issued by FIs, although credit cards were especially targeted,” PYMNTS wrote. “Fraud rates related to credit cards increased year over year for 64% of FIs. More than half of FIs reported an increase in fraud related to Zelle, and 32% said the same for Venmo transactions.”