Zelle clamps down on fraud: Customers who fall for imposter scams on payment app now receiving refunds after banks came under pressure from lawmakers

Banks on payment app Zelle have started refunding victims of fraud scams in a major policy change across the industry, officials confirmed today.

Customers tricked into sending money to fraudsters claiming to be from a government agency, bank or existing service provider on the app have been quietly refunded since June 30.

This move follows significant pressure from U.S. lawmakers and the federal consumer watchdog to improve fraud protections for Americans.

This initially faced resistance from the big banks, with JPMorgan CEO Jamie Dimon telling lawmakers it would be unreasonable to refund transfers that customers were tricked into approving.

Federal rules currently require banks to reimburse customers for fraudulent payments made without their permission, such as by hackers. But this does not apply to customers who make the transfer themselves.

Zella is a peer-to-peer network owned by seven banks, including JPMorgan Chase and Bank of America under the umbrella company Early Warning Services (EWS).

Ben Chance, chief fraud risk officer at EWS, told Reuters that the latest policy “well exceeds existing legal and regulatory requirements.”

Although Zelle announced on August 30 that it had introduced a new refund benefit for “specific scams,” it has not previously provided details about its new refund policy for scammers because it fears it could encourage criminals to make false claims serve, a spokesperson said. .

After launching in 2017, Zelle grew to become one of the largest U.S. peer-to-peer payment networks by total number of payments. A March 2022 report in the New York Times that Zelle scams were flourishing caught the attention of lawmakers often critical of big banks, including Senator Elizabeth Warren.

She and other lawmakers launched an investigation and estimated that Zelle users had lost $440 million to various types of fraud in 2021 alone.

Last year, Warren told Dimon and other bank CEOs at a Senate hearing that they had created a “perfect weapon” for criminals but had failed to support their customers.

Democratic Senator Elizabeth Warren said the changes were “long overdue.”

JPMorgan CEO Jamie Dimon previously told lawmakers it would be unreasonable to refund transfers that customers were tricked into approving. Pictured: Dimon, left, and Citigroup CEO Jane Fraser, right, during a Senate Fraud Hearing in Washington in September 2022

According to EWS, more than 100 million people, all with U.S. bank accounts, have access to Zelle.

According to the Federal Trade Commission, impersonator fraud was the most reported scam across all payment methods in the US in 2022, accounting for $2.6 billion in losses.

Banks worry that covering the costs of authorized transactions will encourage more fraud and leave them on the hook for potentially billions of dollars.

Instead of requiring lenders to reimburse customers, EWS has implemented a mechanism that allows banks to recover money from the recipient’s account and return it to the sender, Chance said.

He added that lenders on Zelle must now also implement a tool that flags transfers with high-risk features, such as a payment to an account that has never occurred on the Zelle network.

“We’ve had a strong set of controls in place since the network launched, and as part of our journey we’ve continued to evolve those controls… to keep up with what we see happening in the marketplace,” Chance said.

Under pressure from Warren and other lawmakers, the Consumer Financial Protection Bureau (CFPB) considered forcing lenders to pay back scams, but Zelle’s changes have so far satisfied the agency, a person familiar with the matter told Reuters /

A spokesperson for the CFPB declined to comment on Zelle or potential rule changes, but said the agency is working to protect customers “including by ensuring that financial institutions meet their investigative and error resolution obligations.”

JPMorgan, Bank of America and Zelle’s five other banks declined to comment.

“Zelle’s platform changes are long overdue,” Warren said in a statement. “The CFPB stands with consumers, and I urge the agency to keep up the pressure on Zelle to protect consumers from bad actors.”

Zelle has long argued that its fraud and scam rates are low.

According to the network, it processed $629 billion in payments in 2022, with 99.9% of transfers occurring without a fraud or scam report.