Nov 13 (Reuters) – Payment app Zelle’s banks have started reimbursing victims of imposter scams to address consumer protection concerns raised by U.S. lawmakers and the federal consumer watchdog. consumers, as part of a major policy change.
The 2,100 financial companies of Zelle, a peer-to-peer network owned by seven banks including JPMorgan Chase (JPM.N) and Bank of America (BAC.N), began canceling transfers starting June 30 for tricked customers into sending them money. scammers pretending to be from a government agency, bank or existing service provider, said Early Warning Services (EWS), the banking company that owns Zelle.
This is “well above existing legal and regulatory requirements”, Ben Chance, head of fraud risk at EWS, told Reuters.
Federal rules require banks to reimburse customers for payments made without their authorization, such as by hackers, but not when customers make the transfer themselves.
Although Zelle revealed on August 30 that it had introduced a new refund benefit for “specific types of scams,” it did not provide details on its new refund policy for imposter scams, fearing that This does not encourage criminals to make false claims of fraud, a spokesperson said. said.
The new policy marks a major shift from last year, when bankers including JPMorgan CEO Jamie Dimon told lawmakers concerned about rising scams that it was unreasonable to require banks to they reimburse transfers that customers have been asked to approve.
After its launch in 2017, Zelle became one of the largest peer-to-peer payment networks in the United States in terms of total payments. A March 2022 New York Times report that scams were thriving on Zelle drew the attention of lawmakers frequently critical of big banks, including Senator Elizabeth Warren.
She and other lawmakers launched an investigation, estimating that Zelle users lost $440 million to all types of fraud in 2021 alone. At a Senate hearing last year, Warren told Dimon and other bank CEOs that they had created a “perfect weapon” for criminals but failed to stand by their customers. More than 100 million people, all with U.S. bank accounts, have access to Zelle, according to EWS.
Identity theft fraud was the most reported scam of all payment methods in 2022 in the United States, accounting for $2.6 billion in losses, according to the Federal Trade Commission.
Banks fear that covering the cost of authorized transactions will encourage more fraud and potentially cost them billions of dollars. Instead of requiring lenders to repay their customers, EWS set up a mechanism that allows banks to take funds from the recipient’s account and return them to the sender, Chance explained.
Lenders on Zelle are also now required to implement a tool that flags transfers with risky attributes, such as a payment to an account that was never made on the Zelle network, Chance said. He said Zelle had seen “a dramatic reduction” in fraud and scam rates this year, but declined to provide details.
“We have had a strong set of controls in place since the network launched, and as part of our journey, we have continued to evolve those controls…to keep pace with what we are seeing in the market,” he said. he declared.
Chance said EWS has been engaging with policymakers on the need for a “holistic approach” to tackling scams, including advocating for more dedicated law enforcement resources.
Under pressure from Warren and other lawmakers, the Consumer Financial Protection Bureau (CFPB) has considered requiring lenders to reimburse scams, but Zelle’s changes have so far satisfied the agency, a said a person familiar with the matter.
A CFPB spokesperson declined to comment on Zelle or possible rule changes, but said the agency works to protect customers “including ensuring that financial institutions meet their disclosure obligations.” investigation and resolution of errors.
JPMorgan, Bank of America and the five other banks that own Zelle declined to comment.
“Zelle’s platform changes are long overdue,” Warren said in a statement to Reuters. “The CFPB stands with consumers and I urge the agency to keep the pressure on Zelle to protect consumers from bad actors.”
Zelle has long claimed that its fraud and scam rates are low.
It processed $629 billion in payments in 2022, according to the network, with 99.9% of transfers completed without reports of fraud or scams.
It competes with other peer-to-peer payment platforms like PayPal (PYPL.O) and Venmo that review situations on a case-by-case basis and have a purchase protection program for eligible transactions that covers scams. Experts note that it’s difficult to compare fraud and scam rates across platforms because classifications vary.
Zelle’s turnaround shows how banks are feeling competitive pressure to strengthen “market diligence standards,” said Trace Fooshee, strategic advisor at Datos Insights.
Still, regulations requiring imposter fraud protections would be better for customers because lenders’ policies may be unclear or they may not follow them as promised, said Carla Sanchez-Adams, senior attorney at the National Consumer Law Center .
“The only thing that seems problematic to me is that the consumer doesn’t really know that he has this option, and if he knows it, and if the bank doesn’t reimburse him, there is no recourse private,” she said, emphasizing Zelle’s policy change nonetheless constitutes a “good first step.”
Payment fraud is expected to resurface when bank CEOs appear before the Senate next month, according to industry experts. This time, they believe they have a good story to tell.
“Banks, through Zelle – without regulation or legislation – have actually stepped up and said: we’re going to make sure that we try to resolve any type of problem or harm to consumers,” Lindsey said Johnson, CEO of Zelle. the Consumer Bankers Association.
Reporting by Hannah Lang in Washington; additional reporting by Chris Prentice in New York; Editing by Michelle Price and Rod Nickel
Our Standards: The Thomson Reuters Trust Principles.
Hannah Lang covers financial technology and cryptocurrency, including the companies driving the industry and the political developments governing the sector. Hannah previously worked at American Banker where she covered banking and Federal Reserve regulation. She is a graduate of the University of Maryland, College Park and lives in Washington, DC.