Senators press banks to reimburse victims of Zelle scams

Photo (c) Andranik Hakobyan - Getty Images

Lawmakers say the app makes it too easy to victimize bank customers

A U.S. Senate report claims fraud related to the payment app Zelle is widespread and growing and that banks are offering little help to victims.

The report, released by Sen. Elizabeth Warren (D-Mass.), a member of the Senate Banking, Housing, and Urban Affairs Committee, is critical of banks' response to Zelle scams.

Zelle is a digital app that is similar to Venmo and is a way for people to send each other money. The app is owned by financial institutions that make it available to their customers. Unfortunately, scammers have devised ways to exploit it.

In one scam, the criminals claim they are trying to protect the victim from fraud. The target receives a text that appears to be from their bank asking if they attempted a Zelle transaction. Regardless of how they answer, the target next receives a phone call from the scammer, who spoofs the number so it shows up as coming from the target’s bank. 

The victim will then receive a set of instructions that ultimately winds up compromising their bank account information. The scammers use the information to withdraw funds and make off with their ill-gotten gains.

Protection against fraud but not scams

Zelle draws sharp distinctions between fraudulent activity and scams. If the victim did not authorize a transaction, then the theft is considered fraud and the victim can usually be reimbursed. It’s a different story if the victim acts on instructions from a scammer.

“Even if you were tricked or persuaded into authorizing a payment for a good or service someone said they were going to provide, but they didn’t fulfill it, this would be considered a scam," Zelle says on its website. “Because you authorized the payment, you may not be able to get your money back.”

According to Warren, that’s not good enough. She and fellow Senator Bob Menendez (D-N.J.) have called on banks to provide information about how they make that distinction when bank customers lose money. 

“New internal data from the big banks shows that their platform Zelle is rampant with fraud and theft, and few customers are getting refunded -- potentially violating federal laws and consumer rules,” Warren said. 

Warren said some banks have provided the requested information but that two major banks -- JPMorgan and Wells Fargo – have not.

Warren may get some support from regulatory agencies. In July The Wall Street Journal cited unnamed sources who sais the Consumer Financial Protection Bureau (CFPB) will require banks to compensate customers who were victims of the so-called Zelle scam.

‘Favorite of fraudsters’

It turns out that scammers love money transfer services like Zelle. When robbing a victim, the criminal needs to be sure the victim’s money can’t be retrieved or traced.

That’s why they favor payment systems such as gift cards. However, consumers are finally becoming wise to the absurdity of a legitimate business asking to be paid using Target gift cards.

According to a recent report in the Detroit Free Press, about 18 million people have suffered "widespread fraud" on money transfer apps. The newspaper cites a letter sent to Zelle's network operator Early Warning Services by three members of the U.S. Senate.

"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," the lawmakers wrote. 

Early Warning Services says it has numerous security features in place to prevent fraudulent use of the app.

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