If you are a victim of Zelle fraud, I finally have some good news for you. Two U.S. senators, including Elizabeth Warren (D-Mass.), are now demanding answers from the instant payment tool. A bright light is finally shining on the terrible crimes that Zelle and its banking partners have enabled.
If you are one of the countless victims who have written to me looking for help recovering thousands of dollars stolen by a criminal via Zelle, and later faced a cold (and, I think, potentially illegal) dispute rejection by your bank, now is the time to ask again. Why? Zelle and its partners are facing a demand to tell Congress by May 10 how many consumers have been denied fraud claims, in addition to a series of other data disclosures. Zelle’s owner, Early Warning, suddenly has an incentive to make those statistics look better, so it’s worth a shot. At a bare minimum, you want to make sure your complaint has been posed through official channels, so as the investigation continues, you are in line for refunds.
The scathing letter sent by Warren and Sen. Bob Menendez (D-N.J.) earlier this week echoes many of the complaints I’ve been writing about for some time. Zelle is a “preferred tool for grifters” the letter says, but worse yet, Zelle and the banks involved routinely reject consumers’ legal demands to reverse criminal transactions.
“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. Zelle’s biggest draw – the immediacy of its transfers – also makes scams more effective and ‘a favorite of fraudsters,’ as consumers have no option to cancel a transaction even moments after authorizing it.” And banks have chosen to let consumers suffer, blaming them for authorizing fraudulent transactions,” the letter says.
“Given the rise of increasingly sophisticated scams on your platform and the widely documented difficulties consumers have faced in seeking relief from banks, we seek to understand the extent to which Zelle allows fraud to flourish and the steps your company is taking to increase consumer protection and help users recover lost funds.”
The language in the letter echoes a recent New York Times story on Zell written by Stacey Cowley titled “Fraud is flourishing at Zelle; the banks say it’s not their fault.” She’s covered Zelle fraud before, and she deserves a lot (most?) of the credit for steering the attention of Congress this way.
The letter goes on to claim that consumers should be entitled to credit-card-like Regulation E protections with Zelle transfers, even those that involve a victim who is ‘induced’ to send money to a criminal. In a typical scam that’s common lately, criminals pose as bank employees and call victims claiming their accounts have been hacked — then direct the consumers to move money into hacker-controlled accounts. Banks often tell consumers they aren’t entitled to fraud protections in these situations because the account holder initiated the transfers.
“The Consumer Financial Protection Bureau (CFPB) and the FDIC previously clarified that Regulation E of the Electronic Transfer Act protected victims of fraudulent money transfers, including those who were “induced” into transferring the money themselves, and the FDIC issued a report in March 2022 finding that the banks and the platform were both responsible for fraudulent electronic transfers through this regulation,” the letter says.
While that’s an important issue, it’s a potential distraction from the larger pattern that Zelle and banks have engaged in since the service launched: even in cases where Regulation E rights are not in dispute, such as outright account hijacking, bank security officials often reject “refund” requests. I’ve chronicled examples of consumers that didn’t even know they had Zelle accounts who’ve lost thousands of dollars and were rejected by banks. Often, once a reporter gets involved, the banks relent — the Internet is littered with such stories — but that’s hardly a great customer service policy.
The sheer number of emails I receive with stories like this suggests a massive problem, but there is no way to know how large it is without data. That’s why the Senators’ demand should please victims. Zelle has been asked to answer a series of questions by May 10. That includes:
1. What are the procedures for rooting out scams on the online platform Zelle, and how has your company adjusted those procedures in light of “rampant […] organized crime” on the platform?
2. What are Zelle’s policies for determining which consumers receive refunds for fraudulent claims?
a. Is this a joint process with the account holders’ bank? If so, are these procedures standardized across all banks and financial institutions using the platform?
3. Does Regulation E of the Electronic Fund Transfers Act apply to the scams seen regularly on Zelle, including those that involve consumers induced into authorizing fraudulent transfers?
a. Under Regulation E, would Early Warning Services, LLC or the account holders’ bank be responsible for refunding the funds?
4. How many reports of fraud from Zelle customers have Early Warning Services received for each of the last five full calendar years, and from January 1, 2022, to the present? For each year, and for the period from January 1, 2022, to the present, please provide:
a. The total number of reported cases of fraud from Zelle customers.
b. The total dollar value of reported fraud.
c. The number of cases where Zelle provided refunds to customers.
d. The total value of these refunds.
e. The number of cases where Zelle referred fraud to law enforcement or to federal or state bank regulators.
In the meantime, consumers who are looking for relief should contact their banks again and cite this article, or the letter from Warren and Menendez. No promises of course, but it’s worth a shot.