Home Financial responsibility Senate Democrats grill Zelle for data and responsibility in alleged fraud

Senate Democrats grill Zelle for data and responsibility in alleged fraud


Diving brief:

  • Sense. Elizabeth Warren, D-MA, and Robert Menendez, D-NJ, asked the operator of the Zelle payment network, Early Warning Services, in a letter Monday to detail – by May 9 – its efforts to root out scams in response to what lawmakers called “worrying reports of increased fraud”.
  • The senators have asked Early Warning CEO Al Ko to disclose the number of fraud reports the operator has received from Zelle customers in each calendar year since 2017. They also want to know the dollar value of the fraud reported, the number of cases in which Zelle provided refunds – and the value of those refunds – and the number of cases Zelle referred to law enforcement or banking regulators.
  • The P2P platform, owned by seven of the country’s nine largest retail banks, generated $490 billion in transactions in 2021, more than double the $230 billion in volume that rival Venmo brought in the year. latest, according to American Banker.

Overview of the dive:

Lawmakers, both members of the Senate Banking Committee, ask Early Warning how it adjusted its procedures in light of “widespread fraud” that affected 18 million Americans in 2020, according to a New York Times report.

“Your company and the major banks that own and partner with the platform have abdicated responsibility for fraudulent transactions, leaving consumers with no way to recover their funds,” Warren and Menendez wrote to Ko.

The immediacy of transfers through the platform attracts users, the senators claimed, but also makes scams more effective “because consumers do not have the option to cancel a transaction even moments after authorizing it.” , added the senators.

The banks say, however, that they have no obligation to return money to defrauded customers, as long as the users involved authenticate the transfers themselves, Warren and Mendez wrote.

The senators pointed to a clarification from the Consumer Financial Protection Bureau (CFPB) published, noting that Regulation E of the Electronic Funds Transfer Act protects victims of fraudulent money transfers, even when they have been “coaxed” into transferring funds themselves.

A March report from the Federal Deposit Insurance Corp. (FDIC)meanwhile, found that banks and platforms like Zelle have been held liable for fraudulent wire transfers under Regulation E.

The senators asked Ko if Regulation E applied to the scams seen on Zelleand whether Early Warning or an affected customer’s bank would be responsible for refunds.

In a statement to Banking Dive, Early Warning Services said it was reviewing the letter and would provide a response “in due course”.

Early Warning Services is owned by Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, US Bank and Wells Fargo.