Banks that are part of Zelle, a peer-to-peer payment service, are now giving money back to fraud victims due to pressure from lawmakers.
Since June 30, over 2,000 financial firms have started reversing transfers their customers sent to scammers who posed as officials from government agencies, banks, or other service providers in “impostor” scams, according to Zelle’s parent company, Early Warning Services (EWS), as reported by Reuters.
Historically, banks have resisted reimbursing victims of these scams, claiming that federal rules only mandate refunds for money withdrawn from customers’ bank accounts by hackers, rather than for fraudulent payments authorized by customers, as noted by the wire service.
The new policy offers consumer protection services “well above existing legal and regulatory requirements,” according to Ben Chance, chief fraud risk officer at EWS, in a statement to Reuters.
EWS has not publicly disclosed the amount of money it intends to return to customers. The company also has not provided a timeline for refunds or offered instructions on how fraud victims can request them. It is also unclear if banks will retroactively reverse any fraudulent transactions that occurred before the new policy was put in place.
Seven large banks, including Bank of America, JPMorgan Chase, and Wells Fargo, introduced Zelle in 2017 to compete with PayPal, Venmo, and other payment apps.
EWS did not immediately respond to a request for comment.
Reports of widespread fraud
Financial institutions’ change in approach comes about a year after concerns were raised by the New York Times and lawmakers regarding the prevalence of fraud on Zelle and other payment applications.
According to an investigation led by Sen. Elizabeth Warren and other lawmakers, Zelle users lost around $440 million to various types of fraud in 2021. A report from Sen. Warren’s office, citing data from four banks between 2021 and the first half of 2022, found that banks reimbursed less than a quarter of Zelle customers who were victims of any type of fraud, and only about 2% of impostor scam victims were reimbursed.
Impostor fraud resulted in $2.6 billion in losses in 2022, making it the most widely reported scam last year, according to data from the Federal Trade Commission.
In addition to recouping funds from scammers and reimbursing impostor scam victims, Zelle has implemented other policy changes to combat fraud on its network, as reported by Reuters. For example, lenders on Zelle have implemented a tool that flags risky transfers, such as those involving recipients that have never processed transactions on the payments network. The change has reduced the number of frauds on the platform, according to Chance.
