Scam payments are being made on payment apps every single day – now, the government is investigating one specific payment network and the major banks that own it.
Zelle App Scams
Payment app scams – particularly those perpetrated on US-based digital payment network Zelle – have become so pernicious and widespread, that federal authorities are stepping in.
A Convenient Platform for Scammers
Zelle has been a popular platform for scammers because cash transfers are virtually instantaneous, and cannot be stopped, reversed, or disputed once they are sent.
Banks Under Fire
This has led to widespread criticisms of the banks who own the platform. These same banks have refused to reimburse many of their victimized account holders, on the grounds that it will encourage more fraud cases.
CFPB Gets Involved
The Consumer Financial Protection Bureau has now launched a probe into how several major financial institutions have handled customer funds and fraud reports on the platform, according to a report by the Wall Street Journal last week.
Are They Doing Enough?
It will include investigations into whether these individual banks are doing enough to vet and identify potentially fraudulent customers, and how these scam accounts are shut down once reported.
Three Major Banks
The investigation will focus on JP Morgan, Bank of America, and Wells Fargo, all of which share partial ownership of Zelle. It was prompted by a letter from Sen. Richard Blumenthal.
US Senate Subcommittee
Democratic Sen. Blumenthal is the chair of the U.S. Senate subcommittee of investigations. He called on the CFPB to investigate how Early Warning Services (the company that manages Zelle) and the associated banks had handled customer disputes around Zelle scams.
Failing to Safeguard Consumers
“Zelle and the banks that own it have failed to fully safeguard consumers from a growing threat of scams and fraud,” Blumenthal’s letter read. “I look forward to the CFPB reviewing our findings and conducting a thorough investigation.”
Falling Reimbursements
Previously, the subcommittee had released a report showing that consumer reimbursements for scams and unauthorized transactions on Zelle had plummeted in the last five years.
CEO Speaks Out
Cameron Fowler, the chief executive of Early Warning Services, has defended the company’s role in fraud prevention and customer disputes. In a statement to the Senate subcommittee in July he claimed that a mere 0.1% of Zelle transactions involved a scam or fraud.
Closer to 0.5%
However, company spokespeople have said that number is closer to 0.5%, which would have translated to $403 million in scam and fraud losses during 2023.
Working Hard to Reduce Scam Activity
The company also maintains that it has diligently worked to reduce the amount of scam activity on its platform, cutting scam rates by nearly 50% between 2022 and 2023, despite on-platform transactions rising by 28% during the same period.
New Reimbursement Policies
Back in June 2023, Zelle also implemented a policy requiring banks to reimburse fraud victims on the platform who had been scammed by fake representatives of the bank in question, the federal government, or a service provider connected to the customer.
Is It Enough?
Despite this policy, the subcommittee report found that 80% to 85% of scammed consumers reported receiving no reimbursements for fraudulent transfers on the platform.
Fewer Consumers Scammed on Zelle
A survey carried out by data analytics company J.D Power also found that fewer consumers had lost money to Zelle scams than those who had lost money to equivalent scams through CashApp, Paypal, and Venmo.
Proactive Steps Were Taken
Following the announcement of a federal investigation, Early Warning Services issued a statement reiterating that the company has “proactively taken steps to go above the law by leading the industry in scam reimbursement efforts.”
No Comment from the Banks
So far, representatives for JP Morgan, Bank of America, and Wells Fargo, have declined to comment on the investigation announcement.
Difficult to Recover Scam Losses
The issue links back to the overall treatment of scam losses by US financial institutions. Historically, money lost in scams has been very difficult to recover or seek reimbursement for.
The Protecting Consumers from Payment Scams Act
Blumenthal, alongside Democrat Rep. Maxine Waters and Sen. Elizabeth Warren, has previously proposed the Protecting Consumers from Payment Scams Act, which would help to address the problem.
Holding Banks Responsible
If signed into law, the Act would allow federal agencies to hold financial institutions more responsible for helping their account holders recover funds through fraud disputes.
21 Illegal Household Items You Might Be Unknowingly Keeping
You might think your home is your safe haven, but could it also be a cache of contraband? Are you unknowingly breaking the law with items tucked away in your drawers or closets? 21 Illegal Household Items You Might Be Unknowingly Keeping
VA to Axe 10,000 Employees Amid $11M Scandal Fallout
The VA is under fire after a damning report revealed the department is trying to rid itself of almost 10,000 staff members while trying to keep the lid on a multi-million dollar scandal. VA to Axe 10,000 Employees Amid $11M Scandal Fallout
End of an Era: 18 All American Firms Closing Doors in the US
American retail and dining is changing irreversibly. Iconic stores and restaurants that once defined the vibrancy of community life are now fading memories, leaving behind empty storefronts and a sense of loss. End of an Era: 18 All American Firms Closing Doors in the US
Featured Image Credit: Shutterstock / rafapress.
The content of this article is for informational purposes only and does not constitute or replace professional financial advice.
The images used are for illustrative purposes only and may not represent the actual people or places mentioned in the article.
