Incidents of fraud and scams are occurring more frequently on popular peer-to-peer payment service Zelle, according to a report released Monday by Sen. Elizabeth Warren's office, giving the public a first look at the growing problems at Zelle. .
The report also found that large banks that partially own Zelle have been reluctant to compensate customers who have been victims of fraud or scams. For example, less than half of the money that customers reported sending through Zelle without authorization was being refunded.
Warren, D-Massachusetts, a longtime critic of big banks, requested data on fraud and scams at Zelle from seven banks beginning in April. The report cites data from four banks that accounted for 192,878 cases worth a collective $213.8 million in 2021 and the first half of 2022, where a customer claimed he had been fraudulently tricked into making a payment. In only about 3,500 cases did those banks refund the customer, according to the report.
Additionally, in cases where clear funds were withdrawn from customer accounts without authorization, only 47% of those dollars were refunded.
Since its launch in June 2017, Zelle has become a popular way for bank customers to send money to friends and family. Nearly $500 billion in funds were sent through Zelle in 2021, according to Early Warning Services, the company that operates Zelle.
Zelle is the banking industry's answer to the growing popularity of peer-to-peer payment services like PayPal, Venmo and Cash App. The service allows a bank customer to instantly send money to a person via their email or phone number. phone, and will go from one bank account to another. More than 1,700 banks and credit unions offer the service. But the service has also become more popular with scammers and criminals. Once the money is sent through Zelle, a bank intervention is required to try to recover that money.
The growing cases of fraud and scams at Zelle have been highlighted in previous news reports, including two from The New York Times. But those stories mostly cited anecdotal evidence. Early Warning Services has previously said that 99.9% of all transactions are made without complaints of fraud or scam. A group of Democratic senators requested Zelle usage data after reports in The New York Times.
Banks are required under the Electronic Funds Transfer Act to refund customers when funds are illegally withdrawn from their account without authorization. Banks have argued that in cases of fraud, meaning a customer's account is compromised in some way and they send an unauthorized payment, they refund customers. Banks are more reluctant to reimburse customers who claim they have been scammed, arguing that customers would make such claims more often and that it would be difficult to tell if the customer was telling the truth.
The Consumer Financial Protection Bureau has also been investigating Zelle and other payment platforms, and is expected to issue regulations that could require banks to reimburse customers for a broader range of scams and fraud.
The banking industry, aware of the heightened scrutiny of Zelle from Washington, has been on a campaign to show that Zelle is a safe way to send money. The industry generally likes to point out that fraud and scam claims occur most often on non-bank payment platforms like Venmo or Cash App.
“That does not mean that Zelle, like any other instant (peer-to-peer) payment service, is completely free from those seeking to defraud the American consumer,” four banking industry lobbyists said in a joint statement. . "Banks know this and take steps to mitigate instances of fraud and criminal activity."
Data from individual banks shows the rise in fraud and scams. PNC Bank had 8,848 cases at Zelle in 2020 and is on track to have approximately 12,300 cases this year. US Bank had 14,886 cases in 2020 and had 27,702 cases in 2021. Truist had 9,455 Zelle fraud and scam cases in 2020, which skyrocketed to 22,045 last year.
In response to Warren's report, Zelle's owner said the increase in cases reflected the fact that the service had become more popular.
“Zelle usage has grown significantly since its launch, from 247 million transactions in 2017 to 1.8 billion in 2021, while the proportion of fraud and scams has steadily decreased,” Early Warning Services said in a statement.
Warren made fireworks in a congressional hearing last month which involved most of the CEOs of the big Wall Street banks that use and in part own Zelle, where he pressured each of the CEOs to release data on fraud and scam incidents at their banks. The seven are: JPMorgan Chase, Wells Fargo, PNC Financial, Truist, Bank of America, Capital One and US Bank.
The hearing featured an exchange in which Jamie Dimon, chief executive of JPMorgan Chase, apologized to Warren for not providing him with the data he requested and promised he would have it by the end of the day.
Warren's office says that ultimately JPMorgan's data on Zelle did not provide the information they were looking for, so JPMorgan's data is not included in the report. JPMorgan did not respond to a request for comment.
Wells Fargo and Capitol One were also not included in the report. Wells said he sent his data to Warren's office on Sept. 28, a week after the congressional hearing.