Senate report finds fraud and fraud cases are increasing in Zelle

NEW YORK (Associated Press) – Fraud and scams frequently occur on the popular peer-to-peer payment service Zelle, according to a report Monday from the office of Senator Elizabeth Warren, giving the public a first glimpse into Zelle’s growing problems.

The report also found that large banks that partially own Zelle have been reluctant to compensate customers who have been victims of fraud or fraud. For example, less than half of the money customers reported sending through Zelle without permission was paid.

Warren, D-Mas., a longtime critic of major banks, requested data on Zelle fraud and fraud from seven banks starting in April. The report cites data from four banks that recorded 192,878 cases worth a combined $213.8 million in 2021 and the first half of 2022 in which a customer claimed he was fraudulently duped into making a payment. The report found that in only about 3,500 cases did those banks pay compensation to the client.

Moreover, in cases where clear funds were withdrawn from customers’ account without authorization, only 47% of these dollars were recovered.

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 money was sent through Zelle in 2021, according to Early Warning Systems, the company that operates Zelle.

Zelle is the banking industry’s response to the growing popularity of peer-to-peer payment services such as PayPal, Venmo, and the Cash App. The service allows a bank customer to instantly send money to someone via their email or phone number, and it will move from one bank account to another. The service is provided by more than 1,700 banks and credit unions. But the service is also becoming more and more popular among scammers and criminals. Once the money is sent through Zelle, it takes the bank’s intervention to try to get that money back.

Zelle’s growing fraud and scams have been highlighted in previous news reports, including two by The New York Times. But those stories often cited anecdotal evidence. Early Warning Systems previously reported that 99.9% of all transactions are made without complaints of fraud or fraud. A group of Democratic senators requested Zelle usage data after the Times report.

Under the Electronic Funds Transfer Act, banks are required to reimburse customers when money is illegally withdrawn from their accounts without permission. Banks have argued that in cases of fraud — which means a customer’s account is somehow compromised and unauthorized payments being sent — they compensate customers. Banks are more reluctant to compensate customers who claim to have been deceived, arguing that customers will often make such allegations and it will be difficult to know if the customer is telling the truth.

The Consumer Financial Protection Bureau has also been looking into Zelle and other payment platforms, and is expected to pass regulations that may require banks to compensate customers for a wide range of scams and fraud.

The banking industry, aware of Washington’s increasing scrutiny of Zelle, has been on a campaign to show that Zelle is a safe way to send money. The industry usually likes to point out that fraudulent and fraudulent claims often occur on non-bank payment platforms such as Venmo or the cash app.

Data for individual banks shows an increase in scams and fraud. PNC Bank had 8,848 cases in Zelle in 2020, and is on track to have nearly 12,300 cases this year. The US bank had 14,886 cases in 2020 and had 27,702 cases in 2021. Trust had 9,455 cases of Zelle fraud and scams in 2020, which ballooned to 22,045 last year.

Warren staged fireworks at a congressional hearing last month that featured most of the chief executives of major Wall Street banks that use and part-owner Zelle, as it prompted each of the chief executives to release data on fraud and fraud incidents at their banks. The seven are: JPMorgan Chase, Wells Fargo, PNC Financial, Trust, Bank of America, Capital One, and US Bank.

The session included an exchange where JPMorgan Chase CEO Jamie Dimon apologized to Warren for not getting the data she requested and promised to get it at the end of that day.

Warren’s office says JPMorgan’s data on Zelle did not provide the data they were looking for, so data from JPMorgan was not included in the report. The other banks that did not provide data to Warren’s office are Wells Fargo and Capital One. JPMorgan and Early Warning System did not return a request for comment.

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