Payments app Zelle starts refunding imposters after pressure from Washington

Hannah Long

(Reuters) – Banks on payments app Zelle have started refunding victims of imposter scams in a major policy change to address consumer protection concerns raised by U.S. lawmakers and federal consumer regulators.

Zelle is a peer-to-peer network owned by seven banks including JPMorgan Chase and Bank of America. As of June 30, 2,100 financial companies on Zelle began withdrawing funds for customers who were deceived into sending money to scammers claiming to be from government agencies and banks. Transfer money. Early Warning Services (EWS), the banking company that owns Zelle, said.

Ben Chance, chief fraud risk officer at EWS, told Reuters that this was “well above existing legal and regulatory requirements.”

Federal rules require banks to reimburse payments made without the customer’s authorization, such as from a hacker, but not when the customer made the transfer themselves.

While Zelle revealed on Aug. 30 that it had launched new reimbursement benefits for “certain types of scams,” a spokesperson said the company had not previously provided details about its new imposter scam refund policy due to concerns Doing so may encourage criminals to file false fraudulent claims. explain.

The new policy marks a significant shift from last year, when bankers including JPMorgan Chase & Co. CEO Jamie Dimon told voters that fraud was rising and it was unreasonable to require banks to refund transfers that customers were duped into approving. of.

Following its launch in 2017, Zelle has grown to become one of the largest peer-to-peer payment networks in the United States by total payment volume. A March 2022 New York Times report alleging rampant fraud on Zelle drew the attention of lawmakers who often criticize big banks, including Sen. Elizabeth Warren.

She and other lawmakers began an investigation that estimated Zelle users lost $440 million to various types of fraud in 2021 alone. At a Senate hearing last year, Warren told Dimon and other bank CEOs they had created “the perfect weapon” for criminals … but failed to stand up for their customers. According to EWS, more than 100 million people have U.S. bank accounts and can use Zelle.

According to the Federal Trade Commission, imposter scams were the most reported fraud losses among all payment methods in the United States in 2022, accounting for $2.6 billion.

Banks worry that covering the cost of authorizing transactions will encourage more fraud and put them on the hook for potentially billions of dollars. Rather than requiring lenders to reimburse customers, EWS implemented a mechanism that allowed banks to recover funds from recipients’ accounts and return them to the sender, Chance said.

Lenders on Zelle will also now need to implement a tool to flag transfers with risky attributes, such as payments to accounts that have never transacted on the Zelle network, Chance said. Rates of fraud and scams this year, but declined to provide details.

“We have had a robust set of controls in place since the launch of the network and as part of our journey we have continued to evolve those controls… to keep up with the changes we are seeing in the market,” he said.

Chance said EWS has been engaging with policymakers to discuss the need for a “holistic approach” to combating fraud, including advocating for more dedicated law enforcement resources.

The Consumer Financial Protection Bureau (CFPB), under pressure from Warren and other lawmakers, has considered forcing lenders to repay fraud fees, but so far Zell’s changes have pleased the agency, a person familiar with the matter said.

A CFPB spokesman declined to comment on Zelle or potential rule changes, but said the agency is working to protect customers, “including ensuring financial institutions meet their investigation and error resolution obligations.”

JPMorgan Chase, Bank of America and Zell’s five other owner banks declined to comment.

“Zelle’s platform changes are long overdue,” Warren said in a statement to Reuters. “The CFPB stands with consumers, and I urge the agency to continue to pressure Zelle to protect consumers from bad actors.” Infringement.”

market pressure

Zeller has long argued that its fraud and fraud rates are low.

In 2022, the company processed $629 billion worth of payments, with 99.9% of transfers having no fraud or fraud reports, according to the network.

It competes with other peer-to-peer payment platforms like PayPal and Venmo, which review situations on a case-by-case basis and create purchase protection plans that cover fraud for eligible transactions. Experts point out that it’s difficult to compare fraud and fraud rates between different platforms. Platform, because the classification is different.

Trace Foohee, a strategic advisor at Datos Insights, said Zelle’s about-face shows that banks are feeling competitive pressure to raise “market standards of care.”

Still, regulations mandating imposter fraud protections would be better for customers because lenders’ policies may not be clear or they may not follow them as promised, said Carla Sanchez-Adams, senior staff attorney at the National Consumer Law Center. policy.

“One of the things that I think is problematic is that consumers really don’t know they have this option, even if they do, and there’s no private remedy for the bank’s failure to reimburse them,” she said. Still, Ze Le’s policy changes are a “good first step.”

Payment fraud is expected to resurface next month when bank executives appear before a Senate hearing, industry experts say. This time, they believed they had a good story to tell.

“The banks through Zelle – no regulation, no legislation – have actually proactively said that we will make sure that we… try to address any type of consumer issues or harm,” CEO Lindsey Johnson said. Consumer Bankers Association.

(Reporting by Hannah Long in Washington; Additional reporting by Chris Prentice in New York; Editing by Michelle Price and Rod Nickell)

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