October 27, 2022

Senator Warren Alerts CFPB to Extensive Fraudulent Activity on Zelle, Ramps Up Call for Stronger Rules to Prevent Banks From Mistreating Customers

“The findings of this report reveal that the Consumer Financial Protection Bureau (CFPB) must update and strengthen regulations governing the obligations of banks to repay customers who are defrauded on Zelle and other peer-to-peer payment platforms.”

Text of Letter (PDF)

Washington D.C. – U.S. Senator Elizabeth Warren (D-Mass.) sent a letter to the Consumer Finance Protection Bureau (CFPB) summarizing the findings of her investigation revealing high rates of fraud and scams on the bank-owned peer-to-peer platform Zelle. The report found that not only is fraudulent activity growing on the platform, but the banks are not refunding the vast majority of defrauded consumers, breaking their promises to their customers and potentially violating federal law.

“My investigation, which is based on previously non-public information obtained from the banks that own and run the platform, shows that Zelle is increasingly becoming a tool of bad actors who use the platform to defraud consumers, while the big banks that own Zelle do little to stop them or provide recourse to their consumers,” wrote Senator Warren.

Among the findings in the report, Senator Warren uncovered new data revealing that these banks are not repaying customers who contest “unauthorized” Zelle payments – potentially violating federal law and CFPB rules. Additionally, banks are not repaying the vast majority of cases where customers were scammed into making payments on Zelle.

The CFPB has regulatory authority over peer-to-peer platforms like Zelle, and is reportedly considering issuing guidance clarifying the scope of “Regulation E.” The agency must act to clarify and strengthen “Regulation E,” and to include fraud in the Regulation’s error resolution purview.

“As the CFPB considers whether to take action on this topic, the findings of my investigation reveal that the agency must strengthen consumer protections on peer-to-peer platforms like Zelle,” concluded Senator Warren. “The rising volume of fraud and scams – combined with banks’ failure to make consumers whole in more than 90% of authorized scam cases and nearly 50% of unauthorized fraud cases – is a violation of banks’ responsibilities to their consumers and is not consistent with the goals of Regulation E.”

Over the past six months, Senators Warren, Bob Menendez (D-N.J.), and Jack Reed (D-R.I.) have led oversight letters requesting information about fraudulent transactions on Zelle. In April, Senator Warren led a letter to Early Warning Services asking the company to disclose how many reports of fraud it had received from users since the beginning of 2018. Early Warning Services provided little data on the volume of fraudulent transactions occurring on Zelle. In July, Senators Warren, Menendez, and Reed led letters to each of the banks that own Zelle’s parent company requesting information about the Zelle scams and frauds its customers have reported to them. With the exception of Truist, the relevant banks testifying provided little to none of the information the lawmakers requested, until Senators Warren and Menendez again pressed bank CEOs for this information at the September Banking, Housing, and Urban Affairs hearing.