Senators grill banks behind Zelle for not intervening in payments to scams

Quick Take

  • Zelle is under political pressure from a group of Senators over payments to scams. 
  • Recent letters to a group of banks behind Zelle raise the question of responsibility for instant fund transfers and the role of third parties in transactions. 

Eight Democratic Senators have written to seven of the leading banks in the US, criticizing what they call a lack of safeguards against fraud on the digital payment platform Zelle. 

On July 7, Bob Menendez, Elizabeth Warren, Jack Reed, Sherrod Brown, Chris Van Hollen, Sheldon Whitehouse, Bernie Sanders and Tammy Duckworth sent letters to Capital One, Wells Fargo, PNC, Chase, US Bank, Bank of America and Truist. 

Zelle is a real-time payment platform that the Senators call "peer-to-peer," though it actually runs through the same Automated Clearing House network that handles most bank transfers, albeit in a streamlined fashion.

"In 2020, nearly 18 million Americans were defrauded through scams involving Zelle and other instant payment applications," the Senators write. "At least in the case of Zelle, the banks that participate in the network appear not to have provided sufficient recourse to their customers."

The letter continues: "One of Zelle’s biggest selling points to consumers — the ability to immediately transfer money — makes the platform a 'favorite of fraudsters' because consumers have no option to cancel a transaction, even moments after authorizing it."

Warren, Menendez and Reed initially drew attention to the issue by writing to Early Warning Services, or EWS, back in April. The seven banks in today's letter share ownership of EWS. It is via their accounts that Zelle provides its services. 

EWS had said that it provides protections for frauds that result in transfers that customers themselves do not authorize, but it does not recompense users for money that they sent to scams. The Senators wrote that this policy "ignores how consumers actually suffer financial loss on Zelle."

The question of responsibility for online payments has broad applications. The Consumer Financial Protection Bureau launched inquiries into Venmo and PayPal over similar concerns earlier this year. Lack of recourse after sending a payment to a false address also crops up as a perennial concern when it comes to cryptocurrency payments, with lawmakers frequently targeting self-hosted wallets

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