Dive Brief:

• Sen. Elizabeth Warren. D-MA, is calling on the Consumer Financial Protection Bureau (CFPB) to bolster regulations governing how banks reimburse scammed customers, citing rampant fraud on the peer-to-peer payments network Zelle.
• In a letter sent to CFPB Director Rohit Chopra on Wednesday, Warren said she collected private data from several banks that shows fraud rates are rising on the platform, and offered to share the data with the bureau.
• Zelle, which is owned by seven of the nation’s largest banks, has been a frequent target for the Massachusetts senator, who this month released a report that found Zelle reimbursed 47% of the amount customers reported in fraud in 2021 and the first half of 2022.

Dive Insight:

“My investigation, which is based 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 big banks that own Zelle do little to stop them or provide recourse to their consumers,” Warren wrote in her letter to Chopra.

Warren, who is also a member of the Senate Banking Committee, urged the regulator to amend Regulation E of the Electronic Fund Transfer Act “to increase consumer protection and interpret the guidelines surrounding peer-to-peer platforms.”

“The rising volume of fraud and scams — combined with banks’ failure to make consumers whole in more than 90% of authorized scam cases and nearly 50% of unauthorized fraud cases — is a violation of banks’ responsibilities to their consumers and is not consistent with the goals of Regulation E,” she wrote.

Zelle operator Early Warning Services and bank trade groups have pushed back against Warren’s attacks in recent months, claiming fraud makes up a small percentage of transaction activity on the platform.

“Disputes and complaints about P2P payments are uncommon, especially for Zelle payments when compared to nonbank P2P products,” the American Bankers Association wrote in a letter to Chopra on Thursday. “As noted, 99.9 percent of the 5 billion Zelle transactions processed in the past 5 years were sent without any report of fraud or scams.”

The group cautioned the bureau against taking steps that would shift liability for Zelle fraud to banks.

“Shifting liability for payments the customer has authorized and later claims were made to a scammer will harm consumers in the form of higher costs, fewer options, and less competition,” the group wrote.

The group said Zelle outperforms its nonbank P2P competitors, claiming the share of disputed transactions made using PayPal is three times higher than the bank-owned platform, and six times higher for CashApp.

The group also highlighted a campaign to educate consumers on how to avoid falling victim to scammers on the platform. 

“More than 2,000 banks have participated since the campaign began in 2020,” the group wrote. “The free materials were refreshed in early October 2022 and include educational information empowering consumers to spot common P2P payment scams.”