Bank executives, in a Senate subcommittee hearing this week, aired their concerns about expanding the Electronic Fund Transfer Act such that banks would be on the hook to reimburse scammed customers even when they authorize the transaction.

"I think we need to be thoughtful and think about unintended consequences," Adam Vancini, Wells Fargo’s head of payments for consumer, small and business banking, said Tuesday.

Regulation E of the EFTA now requires banks to reimburse customers for fraudulent or unauthorized transactions. However, Sen. Richard Blumenthal, D-CT, has proposed adding authorized transactions to the 2016 law — so it would include transactions made after a consumer is duped into sending money to a scammer.

Vancini said the addition would encourage customers to game the system by falsely claiming they were scammed.

Executives from JPMorgan Chase, Bank of America and Zelle’s parent company, Early Warning Services, testified Tuesday, in addition to Wells Fargo’s Vancini.

Lawmakers and consumer advocates have pushed for years for Zelle, a peer-to-peer payments service owned by seven of the nation’s largest banks, to improve fraud protection and do more to fight scams and make consumers whole.

Sen. Elizabeth Warren, D-MA, issued a 2022 report that found the banks that own Zelle reimbursed less than half of the amount customers reported in fraud through the platform. Earlier this year, she wrote an open letter asking Early Warning Services to clarify and simplify its reimbursement policy for Zelle users.

If a bad actor convinces someone to send them money under false pretenses — say a scammer poses as a police officer and tells a consumer to post bail for a relative — the consumer should get the money back, Blumenthal said.

However, Melissa Feldsher, head of payments and lending innovation and loyalty at JPMorgan Chase, asserted that working with law enforcement to head off scams before consumers send money is a better solution.

"The best way to protect customers from fraud and scams is to prevent criminals from carrying out their schemes in the first place," Feldsher said.

Undeterred, Blumenthal continued to argue for an expansion of Regulation E.

"This issue of reimbursement is fundamental," Blumenthal said. When banks are required to reimburse scam victims, "you have a financial incentive to impose stronger measures” to fight scams.

Vancini and Feldsher told Blumenthal that each claim is investigated individually.

But customers of JPMorgan, Wells and Bank of America who are victimized by scammers are rarely reimbursed, according to a report released Tuesday by the Senate Committee on Homeland Security and Government Affairs. In 2020, the most recent year for which statistics were available, JPMorgan Chase received consumer reports of more than 41,000 scams, but only reimbursed three transactions, according to the Senate report. Wells Fargo did not issue any reimbursements after receiving more than 21,000 scam reports that year, the report indicated.

Blumenthal noted that the report includes proposals encouraging banks and payment networks to share information with law enforcement in real time to better combat fraud and scams.

For their part, Early Warning Services CEO Cameron Fowler and bank executives who testified Tuesday said they already warn customers about potential scams, flag suspicious transactions and push customers to verify that they’re sending money to a trusted recipient.

Blumenthal, however, noted that those safeguards don’t do much good if a consumer is tricked into thinking a relative is in danger, or if a scammer convinces a victim they are trustworthy.

Zelle changed its rules in June to reimburse scam victims in some circumstances, Fowler said, adding that the network issues reimbursements in 90% of those cases. However, Blumenthal said Zelle only considers scams that meet a narrow set or requirements, such as scams that involve a criminal posing as a government official or a police officer.

Fowler also underscored the overall integrity of the system, maintaining that sending money through Zelle is safer than paying in cash.

"99.9 percent of Zelle transactions are completed without any report of fraud or scam," he said, repeating past statements his company’s spokespeople have made in response to critics like Warren.