Zelle scams: App now starting limited refunds, under pressure from lawmakers

Growing concern about Zelle scams has seen parent company Early Warning Services (EWS) begin to refund some people duped into sending money to criminals. The U-turn on its previous stance that customers are responsible for their own transactions is believed to have been made in an effort to stave off potential legislation …

Zelle scams and EWS’s previous response

The first thing to note is that scams – where people are tricked into sending money – are a different category to hacks, where a third party gains unauthorized access to an account. Federal law already requires banks to reimburse customers for fraudulent transactions they did not authorize.

A scam is where someone has posed as a legitimate beneficiary – a government agency, a company you are expecting to pay, a friend, or a family member – in order to trick you into making a payment to them.

Zelle originally said that it was the customer’s responsibility to ensure they were paying the right person and that the banks behind the app were not responsible.

Under pressure from regulators and lawmakers to do something to address the growing problem, Zelle said back in August that it was introducing a new policy that would reimburse customers for “specific scam types.” The company did not at that point explain this policy.

Scam refund policy now stated, refunds underway

Reuters reports that Zelle has now specified its new policy and has begun issuing refunds.

The 2,100 financial firms on Zelle, a peer-to-peer network owned by seven banks including JPMorgan Chase and Bank of America, began reversing transfers as of June 30 for customers duped into sending money to scammers claiming to be from a government agency, bank or existing service provider, said Early Warning Services (EWS), the banks’ company that owns Zelle.

This appears to mean that you will be reimbursed if the scammer pretends to be any government agency or any bank. However, it also suggests that if the scammer pretends to be a company, you’ll only get your money back if you are an existing customer of that company. Finally, it appears you’ll be out of luck if the scammer poses as an individual, such as a family member or friend.

The company says that going this far is “well above existing legal and regulatory requirements.”

New policy likely intended to stave off new laws

The growth of Zelle itself and of scammers using the app have raised the prospect of regulation.

A March 2022 New York Times report that scams were flourishing on Zelle caught the attention of lawmakers frequently critical of big banks, including Senator Elizabeth Warren.

She and other lawmakers started an investigation, estimating that Zelle users had lost $440 million to all types of fraud in 2021 alone. During a Senate hearing last year, Warren told Dimon and other bank CEOs that they had created a “perfect weapon” for criminals but had not stood by their customers […]

Under pressure from Warren and other lawmakers, the Consumer Financial Protection Bureau (CFPB) considered compelling lenders to reimburse scams, but Zelle’s changes have so far satisfied the agency, said a person familiar with the matter.

The CFPM had previously suggested that putting banks on the hook for scams would incentivize them to improve protections.

The National Consumer Law Center says that legislation would have been better than accepting this voluntary arrangement.

“The one thing that I think is problematic is that the consumer really wouldn’t know that they have that option,” said senior attorney Carla Sanchez-Adams. “And if they do know, and if the bank fails to reimburse them, there is no private remedy,” she continued, noting Zelle’s policy change was nevertheless a “good first step.”

Bank CEOs are due to testify to the Senate in December, and the issue of scams is almost certain to be on the agenda.

Image: Rubaitul Azad/Unsplash