American financial giants, including JPMorgan, Wells Fargo and Bank of America, are facing investigation for their handling of Zelle funds.
Zelle’s popularity has significantly increased in recent times, making it the latest target of scammers. One reason for the rising Zelle scams is the way their system operates, as their transactions are almost instant and irreversible in almost all cases.
These rising scams have mobilized the Consumer Financial Protection Bureau (CFPB), which is probing why the top US financial institutions are not doing enough to stop these scams and protect their customers from fraudulent practices.
The CFPB is investigating if banks are taking enough measures to close scammers’ accounts and whether there are credible measures that stop such scammers from signing up on the platform in the first place.
JPMorgan Chase and Wells Fargo have already mentioned the ongoing investigation in their security filing.
Responding to the investigations, a JPMorgan spokesperson stated that the CFPB is well aware that banks are already taking enough measures to stop these activities and always make sure that customers are reimbursed for any unauthorized transaction. The spokesperson further suggested that Zelle is one of the fastest and free ways to send peer-to-peer money, adding that the bank will even contact courts, if needed, to prove the integrity of their systems.
Some surveys indicate that at least 3% of Zelle users have faced monetary scams, which are lower than fraud rates on other peer-to-peer transaction services like PayPal, Venmo, and CashApp.
However, the CEO of Early Warning Services, a fintech company that operates Zelle, told the US Senate that 99.9% of transactions on their platform go undisputed, adding that Zelle scam rates reduced to only 0.05% in 2023.
EWS suggested that despite processing 28% more transactions in 2023, the company managed to bring its scams to historic lows of 0.05%.
Zelle transferred almost $806 billion in 2023 alone, as 120 million users relied on the platform and performed 2.9 billion transactions. Such a massive scale of transactions means that even with 0.05% scams, consumers suffered from $403 million of scams and frauds.
Online payments frauds and scams have dramatically increased in recent times with the increasing reliance on mobile banking.
In the first six months of 2024, at least 41,000 people have lost more than $171 million combined in such frauds.
Despite Zelle’s claims to reimburse scammed customers, the reality is that the financial giant does not reimburse people in most cases. If a scammer sends money from your Zelle account to their own account, this money is not reimbursed, as the company assumes that you are the one who authorized the transaction.
Just last year, the company initiated a policy to reimburse money to users who are tricked into paying scammers posing as the representative of the company.
According to a Senate report, Zelle reimbursed almost $18.3 million to its customers in the second half of 2023. However, nearly 80 to 85% of people who claimed to be scammed on Zelle never received any reimbursement, the report added.
Ben Chance, Zelle’s chief fraud risk manager, noted that increased law enforcement funding and policy implementation is the best way to stop such scams.
