Senators Warren, Menendez, Reed Blast Zelle Parent Company on Failure to Address Consumer Fraud and Scams
Widespread fraud on money transfer apps has affected nearly 18 million Americans.
“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.”
Washington D.C. — U.S. Senators Elizabeth Warren (D-Mass.), Robert Menendez (D-N.J.), and Jack Reed (D-R.I.) questioned Early Warning Systems, LLC, the parent company of the money transfer platform Zelle about disturbing reports of widespread fraud and scams on the platform, and the ongoing failure by Zelle and the big banks that own this service to address the scams and provide appropriate redress to defrauded consumers. Early Warning Systems, LLC. is owned by seven of the U.S.’s largest banks, including J.P. Morgan, Chase & Co., Bank of America, and Wells Fargo.
“This ‘widespread fraud’ on money transfer apps has affected nearly 18 million Americans. 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,” wrote the lawmakers.
Zelle was introduced in 2017 by a company created by some of the U.S.’s largest banks. Given its connection to the banks, Zelle grew quickly, driving over $490 billion in transactions in 2021, twice as many as its nearest competitor Venmo. But Zelle’s immediacy made it a “preferred tool for grifters,” leading to widespread fraud and scams across the platform.
The increased activity on Zelle is putting millions of consumers at risk as fraud flourishes: as The New York Times reported, “Police reports and dispatches from industry analysts make it clear that the network has become a preferred tool for grifters like romance scammers, cryptocurrency con artists, and those who prowl social media sites advertising concert tickets and purebred puppies — only to disappear with buyers’ cash after they pay.” Reports of consumers losing thousands of dollars have come out of California, Massachusetts, and Georgia. These scams, many of which involve a scammer creating a Zelle account linked to the consumer’s own phone number, have cost victims their life savings and robbed them of funds essential to their small businesses, further underscoring the consequences of this widespread fraud.
“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,” continued the lawmakers.
According to Consumer Watchdog, banks were essentially “throw(ing) up their hands and saying ‘it’s not our problem because you authenticated it.’” A former executive at your company even argued that banks have not done enough to deter fraud on Zelle, warning that banks had not sufficiently educated consumers about the risks. One customer observed that “it’s like the banks have colluded with the sleazebags on the street to be able to steal.”
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.
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