Zelle, a free app for transferring money between people, has the attention of lawmakers who say the app is failing to protect users who fall victim to scammers.
People can send money almost instantly via Zelle, but that convenience has made the app a target of fraudsters and scammers — and Zelle doesn’t always reimburse users who lose money due to unauthorized transactions, even though such reimbursements are required by law, lawmakers say.
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“When things go wrong, Zelle and the banks are quick to blame the victim and allege that they failed to use Zelle as is, quote, unquote, intended,” Sen. Richard Blumenthal, a Connecticut Democrat, said at a Senate hearing this week where lawmakers questioned Cameron Fowler, the CEO of Early Warning Services, the company that owns Zelle. Officials from Bank of America BAC, JPMorgan Chase JPM and Wells Fargo WFC were also at the hearing.
On average, those three banks reimbursed 38% of Zelle payments that customers claimed were due to fraud in 2023, down from 62% in 2019, according to a report released by the Senate’s Permanent Subcommittee on Investigations ahead of the hearing.
Zelle customers who lose money to fraudsters are legally entitled to be compensated, lawmakers said.
As peer-to-peer payment apps become more popular, scams that make use of them are on the rise. Three out of four Americans say they’ve used Venmo, Cash App SQ, PayPal PYPL or Zelle, a 2022 Pew Research Center survey found.
Separate data from the Federal Trade Commission show that online-shopping scams are the most common reason people file fraud reports associated with payment apps or services. Among people who reported fraud while using a payment app in 2023, 28% were using PayPal, 24% were using Cash App and 20% were using Zelle.
But lawmakers have been focusing on Zelle, which is different from other payment apps in that it is owned by Early Warning Services, which is itself co-owned by seven banks: Bank of America, Capital One COF, JPMorgan Chase, PNC Financial Services PNC, Truist Financial TFC, U.S. Bancorp and Wells Fargo.
Zelle’s ownership is part of the reason lawmakers are particularly interested in the app, Blumenthal said at a subcommittee hearing in May.
This is not the first time lawmakers have looked at the relationship between scams and peer-to-peer payment apps. U.S. senators including Democrats Elizabeth Warren of Massachusetts and Sherrod Brown of Ohio sent letters in 2023 to Zelle, Cash App, Venmo and PayPal asking the companies to do more to protect users. They sent a second letter to Zelle in February asking for a clarification of its refund policy.
Here’s what consumers should know about Zelle.
You may already have Zelle
People don’t need to download the Zelle app to use it. If their bank or credit union is one of the 2,100 that participate in the Early Warning Services network in the U.S., the app is likely already embedded in their bank account, and only an email address or phone number is needed for users to receive or send money.
The money people send using Zelle comes directly out of their bank account. That differs from other payment apps, where users store funds on the app or link it to a credit card.
Zelle sees itself as a “messaging service” between banks, a representative from Early Warning Services told MarketWatch. The app instructs one bank to transfer money to another, and users’ money is held in their own accounts, which are protected by the Federal Deposit Insurance Corp.
But Zelle offers can be exploited by scammers, consumer advocates said.
A common scheme involves scammers posing as a bank and alerting the victim of suspicious activities in their Zelle account. The scammers then provide a step-by-step guide, asking the victim to transfer funds to a new account.
“There are gazillions of people out there who have Zelle and they don’t even know that they have Zelle,” said Teresa Murray, director of the U.S. Public Interest Research Group’s consumer watchdog office. “In a lot of cases, the bad guys prefer Zelle or wire transfers or gift cards, because those are the most immediate and the least traceable.”
Zelle transactions cannot be canceled or reversed
Zelle’s refund policy is not as clear to users as those of other payment apps, Delicia Hand, the senior director of digital marketplace at Consumer Reports, said at the May committee hearing, citing a 2022 Consumer Reports study that looked at different payment apps.
Zelle doesn’t allow people to cancel or reverse transactions unless the other party is not on Zelle yet. That can be problematic for victims of scams, consumer advocates and lawmakers said.
Scammers often pretend to be a victim’s bank, a job recruiter or a family member. When victims realize what has happened and want to get their money back from their bank or Zelle, they cannot.
In a complaint filed to the Consumer Financial Protection Bureau on March 21, a victim based in Los Angeles said they couldn’t get Zelle or their bank to address their loss after they got scammed during what they thought was the purchase of a truck.
“I contacted my bank and they said that they do not refund any Zelle claims because I initiated it. Which I did, but it was a scam. Zelle will not refund it either because it is through the bank app,” the complaint reads.
Zelle advises people to use the app only to pay people or small businesses they trust and know. “Because you authorized the payment, you may not be able to get your money back,” Zelle says on its website.
The rate of reported fraud on Zelle was less than 0.1% of transactions in 2023, Early Warning Services said.
Zelle displays security alerts in both the payment app and in bank apps to remind people before they conduct transactions that they shouldn’t send money to strangers, the company representative said. The app displayed the alert about 700 million times in 2023, according to the company.
How do banks decide whether you will be reimbursed?
Lawmakers and consumer advocates say Zelle leaves people more vulnerable in the face of scams, not only because of how fast transactions go through, but also because there is disagreement over whether victims are entitled to be reimbursed.
“[The solution] shouldn’t be that everybody gets their money back. It’s not that simple, but it’s super, super clear that these banks are not doing enough to protect their customers,” U.S. PIRG’s Murray told MarketWatch after this week’s hearing.
Scams in which victims send money on Zelle are a gray area for banks.
Zelle defines a scam as an authorized transaction in which someone loses money. That’s different from fraud, which Zelle’s defines as an unauthorized transaction that takes place because the user has lost control over their account, the banks and Zelle said. Banks are required under Federal Regulation E to reimburse fraud victims for their financial losses, but the law doesn’t require them to reimburse people who lose money to transactions that they authorize, even if they are scams.
The three banks at this week’s hearing said they investigate fraud claims to determine whether or not a transaction was authorized in order to determine whether they must reimburse the victim. If the transaction was unauthorized, they reimburse the user.
When lawmakers at this week’s hearing asked how banks make that determination, Mark Monaco, Bank of America’s head of global payment solutions, said: “During the course of the investigation, you can verify that, in fact, it was that customer that initiated the transaction to the use of their mobile device or their computer. You can verify that they pushed the button.”
Starting in 2023, Zelle changed its policy and said it would start reimbursing victims of certain types of imposter scams, but some cases still are not eligible for reimbursement. In the hearing Tuesday, Fowler, the CEO of Early Warning Services, said that 90% of imposter scams — which does not include other types of scams or fraud — that had happened on Zelle had been reimbursed by the participating financial institutions since the policy was changed.
At this week’s hearing, officials from the three banks and Early Warning Services said customers losing money to scammers is an issue that won’t be resolved unless law enforcement makes additional efforts to catch criminals. Changing the law to require banks to reimburse more victims, which some senators have suggested, will not help the situation, they said.
In fact, it could result in the platform becoming less accessible if some banks choose to stop offering Zelle, a JPMorgan Chase representative told MarketWatch.
Truist, PayPal and Venmo declined to comment. Cash App, Bank of America, Capital One, PNC Bank, U.S. and Wells Fargo did not immediately respond to MarketWatch’s request for comment.
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