WASHINGTON–Calling consumer losses on the P2P solution Zelle “banks’ dirty little secret,” one senator is calling for reforms, while banks have responded by saying consumers also need to do their part.
Sen. Richard Blumenthal (D-CT), who chairs the Permanent Subcommittee on Investigations, said in his opening remarks at the hearing titled “Fraud Alert!: Shedding Light on Zelle,” that Zelle markets itself as, ‘a fast and easy way to send and receive money.’ But as this Subcommittee has found, ‘a fast and easy way to lose money’ is often what happens on Zelle.”
The hearing also included testimony from two individuals who were victimized by scammers on the peer-to-peer payment (P2P) platform.
‘Unique Risks’
Blumenthal said Zelle presents unique risks, and called on the banks that own it to better protect consumers. Zelle is operated by Early Warning Services, which in turn is owned by seven of the largest banks in the country. Three banks—J.P. Morgan Chase, Bank of America and Wells Fargo, handled 73% of all Zelle transactions during 2023.
“The banks of America have a dirty little secret. It’s called Zelle,” said Blumenthal. “And it’s not just Zelle, it’s other P2P paid platforms—apps that people use to transfer money among their bank accounts. All peer-to-peer payment apps are susceptible to fraud, no question about that fact. And I want to be clear that fraud happens on all of them, but Zelle deserves particular attention because of its direct connection to trusted financial institutions.
“Zelle and the banks that own it offer to customers the appearance of the trust they feel they deserve. But the risks there are real and present, and they simply are failing to protect consumers in the way that they deserve,” Blumenthal added.
‘They Wouldn’t Help’
“Many types of scams exist, but what they have in common is that these stories and many other consumers entail lost money due to fraud scams,” Blumenthal continued. “Time and again, Zelle and the big banks have said they couldn’t help. What they mean is they wouldn’t help.”
“Unfortunately, for consumers, it seems like the big banks have accepted that some of the transactions on Zelle will be fraudulent. They’ve made the decision that this is just the cost of doing business. But it’s the cost to their consumers, not them, because it’s the customer who is out of pocket,” Blumenthal concluded.
Statement from Banks
In a statement for the record entered on behalf of the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, the organizations said criminals are “relentless” and “banks have a long history of improving and innovating to protect their customers…Banks, however, cannot win this fight on their own– it is going to take a cross-industry effort to stay ahead of fraudsters and scammers.”
Help Needed from Consumers
“Consumers are on the front lines of this fight, and banks work diligently to ensure they have the tools and knowledge they need to protect themselves. Many banks have significantly increased their education of customers…” the bank group said. “However, while banks can educate consumers and help keep customers’ accounts secure, these controls can be defeated if a criminal convinces the customer to let them into the customer’s account or to send them money. Ultimately, banks have little power to stop customers from withdrawing their own money, and indeed victims often are coached to ignore the bank employees who warn them not to withdraw or send the money. We encourage other trusted sources, such as government actors and nonprofits, to partner with us to amplify the important work banks are doing to educate consumers on fraud.”
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