Senate Democrats grill Zelle for data, responsibility in alleged fraud

Dive Brief:

Sens. Elizabeth Warren, D-MA, and Robert Menendez, D-NJ, asked payment network Zelle’s operator, Early Warning Services, in a letter Monday to detail — by May 9 — its efforts to root out scams in response to what the lawmakers called “disturbing reports of a rise in fraud."
The senators asked Early Warning CEO Al Ko to divulge the number of fraud reports the operator has received from Zelle customers in each calendar year dating back to 2017. They also want to know the dollar value of the reported fraud, 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 nation's nine largest retail banks, drove $490 billion in transactions in 2021 — more than twice the $230 billion in volume that rival Venmo reported last year, according to American Banker.

Dive Insight:

The lawmakers, both of whom are members of the Senate Banking Committee, are asking Early Warning how it has 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 big banks who both own and partner with the platform have abdicated responsibility for fraudulent transactions, leaving consumers with no way to get back their funds," Warren and Menendez wrote to Ko.

The immediacy of transfers through the platform serve as a draw for users, the senators asserted, but also make scams more effective "as consumers have no option to cancel a transaction even moments after authorizing it."

Banks argue, though, that they have no obligation to return money to fleeced customers, so long as the affected users authenticated the transfers themselves, Warren and Menendez wrote.

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

A March report from the Federal Deposit Insurance Corp. (FDIC), meanwhile, found that both the banks and platforms like Zelle were held responsible for fraudulent electronic transfers through Regulation E.

The senators asked Ko whether Regulation E applies to scams seen on Zelle, and 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 is reviewing the letter and will provide a response "in due course."

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