Zelle, Major Banks Fail to Assist Most Fraud Victims: Senate Report

Sen. Richard Blumenthal (D-Conn.) speaks with reporters during a press conference in Washington, on July 11, 2023. (Madalina Vasiliu/The Epoch Times)

The U.S. Senate Permanent Subcommittee on Investigations published a 62-page report on July 24 and concluded that money-transferring application Zelle and the three major banks that own the platform have not done enough to stop fraud and reimburse defrauded victims.

Following a 13-month investigation into the payment app, the probe found that consumers who fell victim to scams were not adequately reimbursed by financial institutions. The report revealed that Bank of America, JPMorgan Chase, and Wells Fargo—the principal owners of the payment network—collectively reimbursed 38 percent of the $166 million submitted fraud disputes in 2023.

In addition, nine out of 10 consumers who disputed a transaction as a scam last year were not reimbursed.

From 2021 to 2023, the three big banks rejected scam disputes totaling north of $500 million, the report noted.

At a hearing this past spring, subcommittee members were provided with testimony from defrauded individuals and their stories of how they were victimized.

A 94-year-old woman, for example, was targeted by scam artists who possessed personal information about her brother and convinced her and the family that he had been arrested and urgently needed bail money.

A college student lost $2,400 after being tricked into believing she was hired for a summer job opportunity with a professor at a university.

The speed of Zelle’s payment network is what appeals to fraudsters, the report highlighted.

“Zelle payments are generally instant and irreversible. The speed of P2P [peer to peer] payments make them particularly attractive to bad actors,” the subcommittee wrote. “In most cases, by the time a consumer realizes they have been targeted, their money is already gone.”

Subcommittee Debates Reimbursements

Senate Democrats, led by subcommittee Chairman Richard Blumenthal (D-Conn.), argued that the principal owners should reimburse clients who have collectively lost millions of dollars in fraud on the app.

Speaking at a July 24 subcommittee hearing, Mr. Blumenthal noted that these stories might represent a fraction of a percent of transactions on Zelle, but when billions of dollars are transacted on the network, “1 percent makes a difference.”

“The average losses are $500, and that’s a big chunk of change to the average everyday America,” the senator from Connecticut said.

“We would never tolerate a car that protects infants 99 percent of the time in using a car seat. We would never accept an airplane that succeeds in 99 percent of its landing, and we should not accept a financial tool that protects 99 percent of the people who use it.”

Mr. Blumenthal stated that banks are required to reimburse clients when they lose their money through unauthorized transactions, be it hacking or unauthorized access. Yet, he explained, two out of every three customers who contacted their bank explaining that they had been defrauded without authorization, approval, or consent “were denied reimbursement.”

Sen. Ron Johnson (R-Wis.) said that the credit-payment companies have installed a plethora of safeguards, and “I think there is an awful lot being done.”

“Banks obviously provide their customers cash, and when they’re given those their customers cash, they walk out the bank and they get robbed. I don’t think anybody is suggesting the banks need to reimburse that customer for the fact that they were robbed,” Mr. Johnson said.

“It’s not the bank’s fault. It’s not these direct payment companies’ fault. It’s the criminals’ fault,” the subcommittee ranking member stated during the hearing, adding that perhaps there could be a fee system that can be used to devise a pot of money to reimburse for fraud.

Banking officials accepted that even one client harmed is too much and pledged to work with lawmakers to establish a national task force and framework that helps victims and fights unscrupulous individuals.

Melissa Feldsher, the managing director and head of commerce enablement at JPMorgan Chase, conceded that the banks, government, law enforcement, and social media platforms need to do more to make “it harder for these criminals to perpetrate their crimes.”

That said, as criminals and foreign actors “have fully embraced modern technology,” the Zelle network has adapted. Last year, Ms. Feldsher noted, the rate of fraud and scam disputes on the platform “was the lowest it had ever been,” totaling 0.05 percent, “a number we have seen further improve in the first half of 2024.”

“These issues are complex and global,” she said. “The only way to make real progress against the increasingly sophisticated criminals is through an aggressive and coordinated national response.”

Cameron Fowler, the CEO of Zelle’s parent company Early Warning Services, put forward policy solutions that Congress could enact to combat scams and protect consumers.

Some of these measures include requiring mobile network operators to fully block spoofed calls and allowing financial institutions free access to the Social Security Administration’s Electronic Consent-Based Social Security Number Verification (“eCBSV”) system to improve identity verification.

Overall, the banking officials presented measures their companies are taking, such as investing more in fraud detection, prevention capabilities, consumer education, and reimbursement policies.