July 08, 2022

Warren, Menendez, Reed, Colleagues Demand Answers from Big Banks on Widespread Fraud on Zelle Instant Payment Application

New Information From Zelle Reveals Consumers Lost an Estimated $440 Million through Fraud and Scams in 2021

Nearly 18 Million Americans Were Defrauded Through Scams Involving Zelle and Other Instant Payment Applications in 2020

Text of Letter (PDF)

Washington, D.C. – U.S. Senators Elizabeth Warren (D-Mass.); Bob Menendez (D-N.J.); Jack Reed (D-R.I.); Sherrod Brown (D-Ohio), Chair of the Senate Banking, Housing, and Urban Affairs Committee; Chris Van Hollen (D-Md.); Sheldon Whitehouse (D-R.I.); and Bernie Sanders (I-Vt.) sent letters to seven of the nation’s largest banks, demanding answers about widespread fraud on Zelle, their online peer-to-peer money transfer program. Copies of this letter were sent to Bank of America, Truist, Capital One, JPMorgan Chase, PNC, U.S. Bank, and Wells Fargo, which collectively own Zelle’s parent company. 

“In 2021, consumers and businesses made 1.8 billion payments to transfer $490 billion through Zelle…[and p]ayment volumes have increased 49% year-over-year. As these payment networks have become ubiquitous, frauds and scams have proliferated,” wrote the senators. “One of Zelle’s biggest selling points to consumers – the ability to immediately transfer money – makes the platform a ‘favorite of fraudsters’ because consumers have no option to cancel a transaction, even moments after authorizing it… At least in the case of Zelle, the banks that participate in the network appear not to have provided sufficient recourse to their customers.”

In 2020, nearly 18 million Americans were defrauded through scams involving Zelle and other instant payment applications; yet, the banks that participate in the network appear not to have provided sufficient recourse to their customers. 

According to Consumer Watchdog, this is a widespread problem that the big banks are doing little to address. In late April, Senators Warren, Menendez, and Reed wrote a letter to Early Warning Services, LLC (EWS), Zelle’s parent company which itself is co-owned by seven of the nation’s largest banks: Bank of America, Truist, Capital One, JPMorgan Chase, PNC, U.S. Bank, and Wells Fargo. EWS’ response has only heightened the senators’ concerns about fraud on Zelle and the ongoing failures to adequately address these fraudulent schemes.

EWS claims it has gone beyond what is required under Regulation E and adopted a ‘zero-liability’ approach for any transaction through a participant institution on the Zelle Network determined to be unauthorized, and added that its rules require each participant institution to provide full refunds for Zelle transactions determined to be unauthorized within the meaning of the Electronic Fund Transfer Act (EFTA) and Regulation E. Yet, only a narrow set of transactions are clearly unauthorized within the meaning of the EFTA and Regulation E. According to EWS, the company uses the term ‘fraud’ to refer to unauthorized transactions, meaning transactions that a consumer does not themself authorize and initiate – a definition that excludes the fraudulent schemes that have been extensively documented in the press and by Consumer Financial Protection Bureau guidance.

According to EWS, consumers sent $490 billion through Zelle in 2021, of which an estimated $440 million were lost through fraud and scams; however, it is unclear exactly how or who determined whether a transaction is fraudulent or a scam – meaning the money consumers have lost through such schemes could be higher than what EWS has estimated. 

“The distinction EWS draws between fraud (transactions not authorized by the account owner) and scams (transactions authorized by the account owner, but induced through deception) ignores how consumers actually suffer financial loss on Zelle,” concluded the senators. “…While several banks have made the argument that they should not be held responsible for such scams, we believe that you need to do more to protect your customers. Given the sheer numbers of consumers using online payments services such as Zelle and the amount of money at risk, the absence of protective measures is unacceptable.”