U.S. Sens. Bob Menendez and Elizabeth Warren sent a letter (Tuesday) April 26 to Zelle’s parent company, Early Warning Services, asking questions about the rise of fraud and scams on its peer-to-peer (P2P) money transfer platform and the alleged failure by Zelle and the big banks that own the service to address these problems.
The senators said the reports of “widespread fraud” were “disturbing,” and the nearly 18 million consumers affected were not getting the appropriate redress for these practices.
The bank-to-bank money transfer service was introduced in 2017, and its relationship with some of the biggest banks in the country, including J.P. Morgan Chase, Bank of America and Wells Fargo, has helped to propel its volume to $490 billion in transactions in 2021. But as the volume of transactions rose, so did the number of scams and fraud the letter alleged, to the point that senators said in the letter than Zelle is the “preferred tool for grifters.”
According to the senators, scams and fraud are well documented, and neither Zelle nor the banks that own the parent company are doing anything to fix the problem.
“Alarmingly, both your company and the big banks who both own and partner with the platform have abdicated responsibility for fraudulent transactions, leaving consumers with no way to get back their funds,” said the senators in their letter to Early Warning CEO Albert Ko.
The letter further stated that “banks have chosen to let consumers suffer, blaming them for authorizing fraudulent transactions.”
At the end of the letter, the senators included four questions to better understand how the company is responding to deal with the “rampant … organized crime” in the platform, what Zelle’s policies are for determining which consumers receive refunds for fraud, the role of the Electronic Fund Transfer Act and additional information about the number of reported cases of fraud. Senators said they expect the answers by May 10, but Early Warning said that it was reviewing the letter and would respond in due course.
The same day the senators sent this letter, Menendez questioned Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra about fraud in P2P platforms during his testimony before the Senate Banking Committee.
Chopra, who refused to comment directly on the specifics of the case, said: “I am certainly aware of the complaints. The fraud has gotten more egregious that we are seeing through peer-to-peer payment transfer. It is something we are highly attuned to.”
The CFPB has previously clarified that Regulation E of the Electronic Fund Transfer Act protects victims of fraudulent money transfer, including those who are “induced” into transferring the money themselves. The Federal Deposit Insurance Corporation (FDCI) also issued a report in March, finding that both the banks and Zelle were held responsible for fraudulent electronic transfers.
Zelle included a message on its website advising users how to report scams to the company and to the user’s bank. Zelle also explained to users that the company won’t be able to assist them in getting the money back. One of the main legal issues in this type of fraud, also known as authorized push payment fraud, is that the user authorizes the transaction, and this reduces or eliminates the bank’s responsibility as the latter only executes the user’s decision.
Read more: UK Online Safety Bill Can Reduce Authorized Push Payment Fraud
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More