Source: United States Senator for New Jersey Bob Menendez
WASHINGTON, D.C. – U.S. Senators Bob Menendez (D-N.J.), a senior member of the Senate Banking Committee, and Elizabeth Warren (D-Mass.), sent a letter today to Zelle’s parent company, Early Warning Systems, LLC, regarding disturbing reports of a rise of fraud and scams on its money transfer platform Zelle and the ongoing failure by Zelle and the big banks that own the service to address the scams and provide appropriate redress to defrauded consumers. Early Warning Systems, LLC. is a company 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 Senators to Early Warning Services CEO, Al Ko.
Zelle was introduced in 2017 by a company made up of some of the U.S.’s largest banks. Given its connection to the banks, Zelle was able to quickly increase its volume, driving over $490 billion in transactions in 2021 and doubling its nearest competitor Venmo. However, 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 the Senators.
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.
Sen. Menendez has long been leading the charge in the Senate for consumer protections – ranging from banks, data breach protections for consumers, to cyber security, and more. In 2014, Sen. Menendez crafted legislation following the monumental Target data breach in 2013, where he called on the Federal Trade Commission (FTC) to protect American consumers.
A copy of the letter can be found here and below.
Dear Mr. Ko,
We write regarding disturbing reports of a rise in fraud and scams on your online peer-to-peer money transfer platform Zelle, and the ongoing failure by Zelle or the banks that own this service to address these scams and provide appropriate redress to defrauded consumers. 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.
After its introduction in 2017, Zelle exploded in popularity, in large part because its connections to large financial institutions allowed it to sell itself as “fast, free, and ubiquitous.” Your company, Early Warning Services, LLC is owned by seven of the country’s biggest banks, including JP Morgan Chase & Co., Bank of America, and Wells Fargo, giving consumers the convenience of an integrated platform and providing an implicit promise that activity on the platform is as secure as activity at the bank teller window. In 2021, Zelle “drove $490 billion in transactions, more than double Venmo’s $230 P2P volume.”
The increased activity on Zelle is putting millions of consumers at risk as fraud flourishes:
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. According to Consumer Watchdog, banks were essentially “throw[ing] up their hands and say ‘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 policies of your company and the banks that own and operate on it create a confusing and unfair environment for consumers, who are already facing “rampant” and sophisticated threats from spammers on the platform. The Consumer Financial Protection Bureau previously clarified that Regulation E of the Electronic Fund Transfer Act protected victims of fraudulent money transfers, including those who were “induced” into transferring the money themselves, while the FDIC issued a report in March 2022 finding that both the banks and the platform – in this case Zelle – were held responsible for fraudulent electronic transfers through Regulation E. Given this regulatory landscape, your company and the banks have a clear responsibility to more aggressively protect consumers.
In order to better understand how consumers have experienced fraud on your platform we ask that you provide answers to the following questions by May 10, 2022:
1. What are the procedures for rooting out scams on the online platform Zelle, and how has your company adjusted those procedures in light of “rampant […] organized crime” on the platform?
2. What are Zelle’s policies for determining which consumers receive refunds for fraudulent claims?
a. Is this a joint process with the account holders’ bank? If so, are these procedures standardized across all banks and financial institutions using the platform?
3. Does Regulation E of the Electronic Fund Transfers Act apply to the scams seen regularly on Zelle, including those that involve consumers induced into authorizing fraudulent transfers?
a. Under Regulation E, would Early Warning Services, LLC or the account holders’ bank be responsible for refunding the funds?
4. How many reports of fraud from Zelle customers have Early Warning Services received for each of the last five full calendar years, and from January 1, 2022, to the present? For each year, and for the period from January 1, 2022, to the present, please provide:
a. The total number of reported cases of fraud from Zelle customers.
b. The total dollar value of reported fraud.
c. The number of cases where Zelle provided refunds to customers.
d. The total value of these refunds.
e. The number of cases where Zelle referred fraud to law enforcement or to federal or state bank regulators,
Thank you for your attention to this matter.
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