Senate Democrats sent letters to big banks on Friday, demanding that the corporations answer for their roles in allowing millions of Americans to be defrauded through scams involving Zelle, a money transfer network whose parent company is owned by seven large banks in the U.S.
Senators Elizabeth Warren (D-Massachusetts) and Bernie Sanders (I-Vermont), Senate Banking Housing, and Urban Affairs Committee Chair Sherrod Brown (D-Ohio), and four others said that the banks aren’t doing enough to prevent scams that use Zelle, which The New York Times deemed in an investigation earlier this year as a “favorite of fraudsters.”
“It is imperative that the banks that created, own, and offer the service do more to protect consumers from the fraud and scams that are being perpetrated through the platform,” the lawmakers said in letters to Bank of America, Capital One, JPMorgan Chase, PNC, Truist, U.S. Bank and Wells Fargo.
The service is popular due to its ability to immediately transfer money between bank accounts — but is easy to exploit, the lawmakers say, due to the fact that users have no way to cancel a transaction after they’ve made it.
Still, even people who have lost money to scammers on the service are met with a stony response from their banks. Reports have found that Wells Fargo and other banks have said that transactions done under a false premise aren’t fraudulent because the victim of the scam authorized the payment, leaving consumers short potentially hundreds or thousands of dollars. Instead, Zelle qualifies “fraud” as anything not authorized by the user — a definition that excludes scams or frauds.
In at least one case, The New York Times reported earlier this year, victims who didn’t even authorize the purchase themselves had lost money due to Zelle-related fraud. One victim, Bruce Barth, lost $2,500 in Zelle transactions when someone stole his phone in 2020 while he was hospitalized for COVID-19.
Lawmakers say that a lack of oversight and shedding of responsibility from the banks has led to widespread fraud on the platform. “The distinction [Early Warning Services, Zelle’s parent company] draws between fraud (transactions not authorized by the account owner) and scams (transactions authorized by the account owner, but induced through deception) ignores how consumers actually suffer financial loss on Zelle,” the senators wrote.
According to the lawmakers, about 18 million Americans fell victim to scams that used Zelle or other instant transfer services in 2020. And, of the $490 billion that was sent through Zelle in 2021, Americans lost an estimated $440 million due to defraudment through transactions on Zelle.
“While several banks have made the argument that they should not be held responsible for such scams, we believe that you need to do more to protect your customers,” the Democrats concluded. “Given the sheer numbers of consumers using online payments services such as Zelle and the amount of money at risk, the absence of protective measures is unacceptable.”
