Sen. Elizabeth Warren is urging the Consumer Financial Protection Bureau to strengthen rules governing Zelle, as she raises concerns about what she called growing fraud on the payment platform.
In a letter to CFPB Director Rohit Chopra, the Massachusetts Democrat also said big banks could have violated federal law by failing to totally refund the “overwhelming majority” of defrauded customers. Warren, a member of the Senate Banking, Housing and Urban Affairs Committee, released the findings as a part of a report earlier this month.
“My investigation, which relies on previously non-public information obtained from the banks that own and run the platform, shows that Zelle is increasingly becoming a tool of bad actors who use the platform to defraud consumers, while the large banks that own Zelle do little to stop them or provide recourse to their consumers,” Warren wrote within the letter.
Warren urged the CFPB to make use of its rule-making authority under the Dodd-Frank Act to amend Regulation E of the Electronic Fund Transfers Act “to extend consumer protection and interpret the rules surrounding peer-to-peer platforms.”
“The rising volume of fraud and scams — combined with banks’ failure to make consumers whole in greater than 90% of authorized scam cases and nearly 50% of unauthorized fraud cases — is a violation of banks’ responsibilities to their consumers and will not be consistent with the goals of Regulation E,” she wrote.
Zelle and its parent company, Early Warning Services LLC, are owned by Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, U.S. Bank and Wells Fargo. Consumers use the platform to directly transfer money between banking accounts, much like how other peer-to-peer platforms like Money App and Venmo function.
In a press release to CNBC, Early Warning Services said, “Tens of thousands and thousands of consumers safely use Zelle, with greater than 99.9% of payments sent with none report of fraud or scams. Any external evaluation done is incomplete and doesn’t reflect the efforts and data reported by greater than 1,700 financial institutions on the Zelle Network.”
CNBC contacted the seven financial firms for comment. Bank of America directed CNBC to Early Warning Services, while JPMorgan and PNC Bank declined to comment.
Jim Seitz, a spokesperson for Wells Fargo, said 99.94% of transactions through Zelle in 2022 occurred without incident and that the bank’s fraud and scam rates are consistent with the industry. “We do not believe the numbers in a recent report are done on a comparable basis, and subsequently the evaluation is misleading and inaccurate,” Seitz said. “We welcome the chance to have a constructive discussion about wholistic Zelle data and industry trends — not only that of three banks.”
Warren’s letter follows an April letter to Early Warning Services — also signed by Sens. Robert Menendez, D-N.J., and Jack Reed, D-R.I. — inquiring about its procedures to handle fraud.
The senator said her investigation found big banks have promoted Zelle as a protected payment option, yet the variety of consumer fraud and scam claims has climbed since 2020.
PNC Bank reported 8,848 customer claims in 2020, and reports may top 12,000 in 2022, based on Warren’s report. U.S. Bank said it received 14,886 claims on Zelle in 2020, but now it’s on pace to achieve nearly 45,000 this 12 months.
Truist reported 9,455 fraud and scam claims on Zelle in 2020 and 22,045 in 2021, based on the senator. But claims are expected to dip barely to roughly 20,000 in 2022.
Bank of America reported its variety of claims rose from 49,652 in 2020 to 131,509 in 2021, Warren’s report said. Its customers are on target to make 160,977 scam and fraud claims on Zelle in 2022.
The worth of the scam and fraud claims received by PNC, Truist, U.S. Bank and Bank of America exceeded $90 million in 2020. The worth of claims is predicted to rise to $255 million this 12 months, based on the report.
Warren said she also found that the majority of the time big banks are usually not repaying customers involved within the 190,000 cases in 2021 and the primary half of 2022 where consumers said they were scammed into making payments through Zelle. The fraudulent payments reached $213 million in that point period.
Of the three banks that provided full data sets, customers were repaid in just 9.6% of scam claims, amounting to $2.9 million, based on the report. That quantity represented 11% of total payments.
The inaction is a possible violation of the Electronic Fund Transfer Act and CFPB’s Regulation E, Warren said. Each require that banks repay customers for unauthorized account withdrawals.
Data provided by banks show that customers who reported unauthorized payments on Zelle in 2021 and the primary half of 2022 were reimbursed for 47% of the dollar amount, Warren said.
Several other banks, including JPMorgan Chase and Wells Fargo, refused to release key fraud information, Warren said. The information that Wells Fargo released revealed that customers reported fraud and scams on Zelle at an almost 2.5 times higher rate in 2022 than in 2019.
“And that’s greater than twice as high for Wells customers in comparison with customers of other banks,” Warren wrote.
