Dive Brief:

• Banks that own Zelle reimbursed 47% of the amount customers reported in fraud through the peer-to-peer platform in 2021 and the first half of 2022, according to a report Monday from Sen. Elizabeth Warren, D-MA.
• Warren is using the report to urge the Consumer Financial Protection Bureau (CFPB) to bolster and clarify Regulation E, which governs when banks must repay harmed customers.
• Zelle delineates between fraud and scams. Fraud encompasses unauthorized transactions in which bad actors access a customer’s account. Scams, however, are transactions authorized by the account owner that may have been influenced by bad actors. Zelle’s policy mandates that participating institutions reimburse unauthorized transfers but makes no such promise for authorized ones, the report said.

Dive Insight:

Warren’s report comes less than two weeks after seven big-bank CEOs testified in front of the Senate Banking Committee. Six of those banks hold ownership stakes in Zelle.

At the hearing, Warren chastised many of the bank executives for not responding months ago to the panel’s request for data detailing how many customers had submitted Zelle-related claims — all but accusing the banks of purposefully keeping the figures under wraps.

“What I want to know is, is that because you don’t keep track when your customers report fraudulent Zelle transactions? Or is it because you do keep track and you know exactly how many fraudulent transactions have been reported, and you want to keep that report a secret?” Warren asked, according to The New York Times.

Truist was the only bank to comply before the hearing, Warren said. 

The CEOs of JPMorgan Chase, Wells Fargo, U.S. Bank and PNC pledged at the hearing to “immediately” send that information, Warren said. Monday’s report contains statistics from Truist, U.S. Bank, PNC and Bank of America. Wells Fargo provided incomplete and confidential data, Warren noted. JPMorgan sent Warren a letter indicating that the bank handled roughly 335,000 unauthorized fraud claims between 2017 and August 2022 but did not include the specific breakdown of data the senator requested. 

Reimbursement rates vary from bank to bank. Truist customers filed 24,752 unauthorized transaction claims in 2021 and the first half of 2022, amounting to $24.4 million, according to the report. The bank reimbursed 82% of those claims — 20,349, totaling $20.8 million.

At the other end of the scale, PNC customers issued refunds in 14% of customer-reported unauthorized transactions — 1,495 out of 10,683 cases. Refunds totaled $1.46 million out of more than $10.6 million, according to the report.

U.S. Bank customers, meanwhile, refunded customers in roughly 29% of unauthorized transactions during that time — 8,242 out of 28,642 cases, for about $4.7 million of $16.2 million, according to the report.

And Bank of America refunded roughly 45% of the dollar amount of reported unauthorized transfers — $56.1 million out of $125 million.

The figures did not include scams, or authorized transactions — of which PNC counted 6,831 cases; Truist, 7,223; U.S. Bank, 21,794; and Bank of America, 157,030.

“These data are deeply troubling,” Warren wrote in the report. “They not only reveal that banks are breaking their word about repaying victims harmed by Zelle — they also indicate that the banks may be violating the CFPB’s Regulation E rules.”

Indeed, all four banks saw an uptick in the number of Zelle-related claims — encompassing both fraud and scams — between 2020 and 2021, according to the report. 

PNC reported 11,356 cases in 2021, up from 8,848 in 2020. U.S. Bank saw 27,702 cases in 2021 — nearly double its 14,886 claims in 2020. Truist reported 22,045 in 2021, up from 9,455 a year earlier. And Bank of America saw 131,509 in 2021, up from 49,652, according to the report.

Four trade groups — the American Bankers Association, the Bank Policy Institute, the Consumer Bankers Association and The Clearing House — defended Zelle in a statement Monday, saying Warren’s report “fails to acknowledge that 99.9% of the 5 billion transactions processed on the Zelle network in the past 5 years were sent without any report of fraud or scams.”

“That doesn’t mean that Zelle, just like every other instant P2P payment service, is entirely free from those who seek to defraud the American consumer,” the groups wrote. “Banks know this and take steps to mitigate instances of fraud and criminal activity.”

Expanding Regulation E would prompt Zelle providers to scale back the platform’s services because of financial risk, limit its real-time features or start charging fees to recover additional costs, the groups said. 

"Either way, consumers' access to these valued services would be limited, forcing them to meet their needs outside the well-regulated banking system,” they said.

Zelle’s parent company, Early Warning Services, told The New York Times on Monday that “the proportion of fraud and scams has steadily decreased” since the platform’s launch in 2017.