Banking institutions appear to be ignoring the problem of fraudulent activities allegedly being carried out via Zelle, a new report reveals, with large financial service providers that founded the service not really caring or concerned about issues with the digital payments platform.
Zelle has quickly become a widely-used payments app in a crowded marketplace, one that has the support of a group of giant banking institutions in the US. But this particular group seems to not be caring too much about fraudulent activities, with claims that it isn’t their issue to resolve.
Clients who may be victims of fraud that involves Zelle are now being told that there is not much that the banking service providers can do, and in certain cases even stating that it was not fraud at all.
In one particular example, shared by the New York Times, client Justin Faunce reportedly lost $500 to a bad actor who had pretended to be a Wells Fargo worker in January 2022, one that took place via Zelle. But Wells Fargo states that the transaction was not actually fraudulent because it had been approved by the user, even though they had been “tricked” into making the payment.
Another client, named Bruce Barth, had a bad actor allegedly steal his mobile phone and then abuse his virtual wallet, making various charges to his credit card, withdrawing funds from an ATM, and also carrying out a $2,500 Zelle transaction. As reported by Apple Insider, all of the accounts had been maintained at Bank of America, which then refunded all the money, except for the Zelle transaction.
The BoA explained that the transfers had been approved or validated by authentication codes and therefore were legit. This was noted despite the phone being stolen and out of the person’s control.
Barth stated that he had “filed grievances with every agency” but the responses he got had been “useless.”
The banking institutions may also know that there’s a lot of fraud taking place via Zelle. In reporting the fraudulent activity, Faunce had been told by the bank’s reps that “a lot of people are getting scammed on Zelle” and that “many people were getting hit for thousands of dollars.”
A key point of this issue is that banking institutions think they are not accountable or responsible because of Regulation E federal laws regarding digital transactions, which note that they may cover strictly “unauthorized” transfers.
In scams or cases of fraud where unsuspecting victims are deceived and tricked into offering confirmation codes to malicious actors, this is viewed as being an actual authorization.
Clients are also unable to argue with Zelle about the transfer, because it is run by Early Warning Services, a company that is owned by seven major banking institutions including Bank of America, Wells Fargo, Capital One and JPMorgan Chase.
The Consumer Financial Protection Bureau has attempted to address such issues, by asking banks last year about the different fraud types they need to reimburse clients over.
Under the current guidance, banks have to pay for transactions “initiated by a person other than the consumer without actual authority to initiate the transfer,” which covers situations where the user’s iPhone or other mobile phones may be stolen.
But the CFPB has not actually covered who is responsible in the case of a fraud when the user is involved in the transfer by pressing buttons via their devices. The bureau pointed out that it “is aware of the problem and considering how best to address it.”
In 2021, Zelle facilitated $490B in transactions, which is over 2x the $230B handled via Venmo.