The Senate report says Zelle is facing a spike in fraud and fraud

Fraud and fraud are on the rise at the popular peer-to-peer payments service Zelle, according to a report released Monday by Sen. Elizabeth Warren’s office, giving the public the first glimpse of growing problems at Zelle.

The report also shows that the big banks that partially own Zelle are reluctant to compensate customers who are victims of fraud or scams. For example, less than half of customers who reported that money was sent through Zelle without authorization were reimbursed.

Warren, Mass., a longtime critic of big banks, requested Zelle fraud and fraud data from seven banks starting in April. The report cites data from four banks that reported 192,878 cases totaling $213.8 million in 2021 and the first half of 2022 where customers claimed they were tricked into making a payment. According to the report, only in about 3,500 cases did these banks reimburse customers.

Additionally, in cases where it was clear that funds were withdrawn from a customer’s account without authorization, only 47% of those dollars were reimbursed.

Banks answer PayPal, Venmo

Since launching in June 2017, Zelle has become a popular way for the bank’s customers to send money to friends and family. According to Early Warning Services, the company that operates Zelle, nearly $500 billion was sent through Zelle in 2021.

Zelle is the banking sector’s answer to the growing popularity of peer-to-peer payment services such as PayPal, Venmo and Cash App. The service allows a bank customer to instantly send money to a person to their email or phone number, and they will be transferred from one bank account to another. The service is offered by more than 1,700 banks and credit unions. But the service has also become more popular among fraudsters and criminals. After sending money through Zelle, it takes the bank’s intervention to try to get that money back.

Cases of growing fraud and fraud at Zelle have been covered in previous news stories, including two in The New York Times. But these stories cited mostly anecdotal evidence. Early warning services have previously stated that 99.9% of all transactions occur without fraud or fraudulent complaints. A group of Democratic senators requested data on Zelle’s usage after the Times report.

Thousands of cases of fraud

Under the Electronic Funds Transfer Act, banks are required to refund customers if funds are illegally withdrawn from their account without authorization. Banks say that in cases of fraud – meaning a customer’s account is compromised in some way and they send an unauthorized payment – they will reimburse customers. Banks are more reluctant to reimburse customers who claim they have been defrauded, arguing that customers will make such claims more often and it will be difficult to tell whether the customer is telling the truth.

Data from individual banks shows an increase in fraud and fraud. PNC Bank had 8,848 cases on Zelle in 2020 and is on pace to have about 12,300 cases this year. US Bank had 14,886 cases in 2020 and 27,702 cases in 2021. In 2020, Truist had 9,455 cases of fraud and fraud on Zelle, which rose to 22,045 last year.

Warren made fireworks at a congressional hearing last month involving most of the CEOs of the big Wall Street banks that use and partly own Zelle, where she pushed each of the CEOs to release data on fraud and fraud at their banks. The top seven: JPMorgan Chase, Wells Fargo, PNC Financial, Truist, Bank of America, Capital One and US Bank.

There was a scene at the hearing in which Jamie Dimon, the CEO of JPMorgan Chase, apologized to Warren for not getting the data she requested and promised he would get it at the end of the day.

Warren’s office says that in the end, JPMorgan’s data on Zelle did not provide the data they were looking for, which is why JPMorgan’s data is not included in the report. Other banks that did not provide data to Warren’s office were Wells Fargo and Capital One. JPMorgan and Early Warning Services did not respond to a request for comment.