Wednesday, November 2, 2022
P2P payment networks have been growing by leaps and bounds since the start of the pandemic, as consumers shun ATMs and replace cash and checks with digital transfers, like Zelle. In 2021, Zelle saw 1.8 billion transactions totaling $490 billion, which was double pre-pandemic volume.
The CFPB oversees compliance with Regulation E (the federal rule set governing retail electronic funds transfers) by digital networks like Zelle and Venmo. According to Sen. Warren’s report, Facilitating fraud: How consumers defrauded on Zelle are left high and dry by the banks that created it, and reporting by the Wall Street Journal the CFPB is preparing fresh guidance under Reg E that would put P2P networks and participating banks on the hook for all kinds of fraud.
“The findings of this report show that the agency must move quickly to strengthen and improve rules that prevent consumers from being safe on Zelle, and ensure that banks reimburse them when they are defrauded and their money is stolen,” the report stated.
At issue are the distinctions banks make between transactions that are unauthorized and therefore outright frauds, and those that are authorized for what later turn out to be scams. When Sen. Warren asked Early Warning Services LLC, which operates Zelle, about this, the company “indicated that neither Zelle nor its parent bank owners would reimburse users fraudulently induced by a bad actor into making a payment on the platform,” according to the report.
Sen. Warren and other members of the Senate Banking Committee have been pressing the big banks that own EWS to turn over data on the extent of fraud on the platform. Most of those banks apparently have been stalling, but the committee members did receive information from four banks—PNC Bank, U.S. Bank, Truist and Bank of America—which formed the basis of Sen. Warren’s report.
“The big banks that own Zelle market the product by telling their customers that the platform is safe and secure,” the report stated. Yet fraud and thefts are “rampant” and show no signs of abating.
For example, the report noted, fraud and scam claims by PNC customers using Zelle rose from 8,848 in 2020 to over 12,300 in 2022. Similarly, U.S. Bank reported 14,886 fraud and scam claims on the network in 2020 and that customers are on pace to report nearly 45,000 claims this year.
In all, the four banks that supplied data to lawmakers received fraud and scam claims in excess of $90 million in 2020, and they are on pace to receive $255 million in claims this year. In cases of outright fraud—or unauthorized transactions—data provided by banks revealed customer reimbursements represented just 47 percent of the dollars that were reported taken.
Users who were hoodwinked into authorizing sham transactions fared far worse, however. Just 9 percent of scam claims representing $2.9 million was reimbursed to scammed customers.
“These data are deeply troubling,” the report stated. It added that lawmakers concerns are “amplified by repeated reports by the CFPB, Federal Reserve Board, and the Federal Deposit Insurance Corp. that bank violations of Regulation E’s error resolution rules, including protection against unauthorized transfers, are common.”
EWS, in a statement, challenged the report’s finding. “Tens of millions of consumers safely use Zelle every day with more than 99.9 percent of payments sent without any reports or scams. Any external analysis done is incomplete and does not reflect the efforts and data reported by more than 1,700 financial institutions on the Zelle Network,” the company stated. 
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