Bankers are on the hot seat over P2P
Back in September, the chief executives of seven big banks appeared before the Senate Banking, Housing and Urban Affairs committee for annual banking oversight hearings. They got an earful about Zelle, the peer-to-peer payment system jointly owned by six of the seven banks in attendance.
Sen. Elizabeth Warren (D-Mass.), a longtime big-bank critic, and Sen. Bob Menendez (D-N.J.) demanded more information ASAP about incidents of fraud on Zelle, which the committee had been requesting for months. In early October, Warren released a new report of the findings of her investigation of Zelle fraud data provided by banks.
The report reveals rampant fraud and theft on Zelle. It finds that fraud is growing on the platform and that the banks are not refunding the vast majority of defrauded consumers, potentially violating federal law. Highlights:
Fraud and theft are rampant on Zelle — and increasing. PNC Bank reported that the number of fraud and scam claims from customers increased from 8,848 in 2020 to a pace of over 12,300 in 2022. Similarly, U.S. Bank reported 14,886 fraud and scam claims on Zelle in 2020, and that its customers are on pace to report nearly 45,000 claims in 2022.
Banks are not repaying in the vast majority of cases when customers were fraudulently induced into making Zelle payments.
Overall, the three banks that provided full data reported repaying customers in only 9.6% of scam claims. The repayments totaled just $2.9 million, representing 11% of payments.
Banks are not repaying customers who contest “unauthorized” Zelle payments.
That potentially violates federal law and Consumer Financial Protection Board
rules.
Zelle claims to have a “zero liability policy” for cases in which a bad actor gains access to a consumer’s Zelle account and uses it to make unauthorized payments, and the Electronic Fund Transfer Act (EFTA) and the CFPB’s “Regulation E” require that the banks repay customers when funds are illegally taken out of their account without authorization.
But the data provided by the banks revealed that they reimbursed consumers for only 47% of the dollar amount for cases in which customers reported these unauthorized payments on Zelle in 2021 and the first half of 2022.
Things may be changing, though. The Wall Street Journal reported in late November that the banks are in advanced discussions about a plan to reimburse customers who have been duped into sending money to scammers.