A class-action lawsuit claims Zelle consumers hit by fraud are up against a “secret” bank policy to deny consumer dispute rights, even when the victimized account holders are entitled to Regulation E protections. Given the details shared in a New York Times story published today, and the pile of examples that land in my email every week, I see where that accusation comes from.
A very quick summary of where we are: Consumers continue to find out the hard way that banks reflexively refuse most or all Zelle fraud disputes. Not all Zelle fraud is created equal. If consumers willingly give their Zelle bucks to a criminal who later fails to deliver on a promised product — like concert tickets — the buyer is out of luck. It’s like handing someone $100 and having the criminal run away. But there are hundreds of other Zelle fraud scenarios, and in the opinion of many, consumers should be entitled to dispute resolution and transaction reversal in many of these situations. When a Zelle account is hacked, for example, or if a smartphone is stolen and funds transferred via app by the criminal. These are described as “unauthorized” transactions, and the Consumer Financial Protection Bureau affirmed recently that such fraud should be treated like other electronic transactions — online banking fraud, or debit card fraud, for example — and consumers should get their money back if they follow standard procedure.
In a more subtle form of Zelle theft that is common recently, criminals call victims and persuade them to move money — by claiming to be from the bank, or more recently, claiming to be law enforcement. Banks routinely reject claims in this scenario, sometimes claiming the transaction was authorized by the consumer — or sometimes failing to conduct investigations at all. Often, when journalists call banks on behalf of consumers in such situations, the financial institutions relent and issue “refunds” of the stolen money after “reinvestigations.”
A person can make a good-faith argument about that last scenario, but there’s ample evidence banks are rejecting plenty of claims that are obviously unauthorized. The Times story found some dramatic examples. In one, a victim named Argelys Oriach was robbed at gunpoint, his iPhone stolen. Later $8,294 was moved out of his account, via Zelle and other apps. Capital One refused his requests to dispute the transactions and reverse the withdrawals. “That could be a potential violation of the law,” the Times wrote. (The bank relented after a NYT call).
In a lawsuit seeking class-action status that was filed in May, Zelle victims Mohammad al-Ramahi claims that Bank of America refused his dispute request simply because that’s the bank’s policy — alleging such decisions are standard procedure. “Indeed, BofA maintains a secret policy whereby it refuses to reimburse fraud losses incurred via Zelle, even where its accountholders timely inform BofA of the fraud,” the lawsuit claims.
The lawsuit claims will be tested by the legal process, but a quick Twitter or Google search for Zelle and fraud will show any observer the scale of the problem. In April, Sen. Elizabeth Warren joined a few colleagues to demand answers from Zelle and its banking partners, asking the company for extensive fraud data and other information. The deadline in the letter, May 9, has come and gone. Warren’s office has yet to respond to my emails requesting an update. I’ll let you know as soon as I get one. In the meantime, if you’re a Zelle victim, claim Regulation E protection during your dispute. If that doesn’t work, demand a re-investigation, file complaints with the CFPB and your state attorney general, and keep detailed paperwork. I’m confident that many victims who have been denied “refunds” in the past will eventually be made whole through some kind of judicial or regulatory action. But you’ll want to have clear paperwork available when the time comes.
This issue is compounded by a pattern of retaliatory behavior by the banks, particularly PNC (who you’ll note hasn’t been sued yet). When customers cry fraud and push for action/to be made whole, there appears to be a pattern of punitive behavior (including closing accts and cutting off access to funds altogether), for those that are too insistent.
For me in addition to the absence of basic fraud protection (afforded to customers using debit cards also cash trans or PayPal & Venmo); it’s the Zelle partnership/Zelle on the landing page of my bank’s website and mobile app- it’s the legal and financial equivalent of an unfenced swimming pool. They are giving customers these tools, advertising them prominently, failing to disclose their susceptibility to widespread fraud, and then trying to wash their hands of the whole thing.