Elizabeth Warren’s Report Says Few Customers Get Refunds for Zelle Fraud

Reports of scams and fraud on the bank-owned payment network Zelle are surging, but banks have refused to refund customers for most of their losses — at times outright flouting a federal consumer protection law, according to a report released on Monday by Senator Elizabeth Warren of Massachusetts.

The report, based on data sent to Ms. Warren by several of the banks that run the Zelle network, is the first public glimpse of the size and scope of customers’ fraud claims. The claims at the four banks that provided data are on pace to exceed $255 million this year, up from $90 million in 2020, according to the report.

Banks draw a distinction between what they consider scams — when a customer is tricked into sending money to a thief — and fraud, when an unauthorized person gains access to a consumer’s account and siphons off cash.

Banks typically won’t refund customers who were scammed, but they are required by law to repay customers whose money is stolen through an electronic transfer that they did not authorize. The data that banks provided indicated that they reimbursed only 47 percent of the money that clients claimed was taken without their authorization in 2021 and the first half of 2022, according to Ms. Warren’s report.

Zelle “is rampant with fraud and theft, and few customers are getting refunded,” said Ms. Warren, a Democrat who sits on the Senate’s Banking Committee.

The report follows a Senate hearing last month that turned acrimonious when Ms. Warren pressed the leaders of several large banks about their lack of response to her requests for information about Zelle fraud. The Zelle money transfer system is run by Early Warning, a consortium based in Scottsdale, Ariz., that is owned by seven banks: Bank of America, Capital One, JPMorgan Chase, PNC, Truist, U.S. Bank and Wells Fargo.

“You didn’t provide any of the information that we requested in our letter, none of it,” Ms. Warren said at the hearing. “So, what I want to know is, is that because you don’t keep track when your customers report fraudulent Zelle transactions? Or is it because you do keep track and you know exactly how many fraudulent transactions have been reported, and you want to keep that report a secret?”

JPMorgan Chase’s chief executive, Jamie Dimon, apologized to Ms. Warren for his bank’s lack of a response and told her, “I will get you the number immediately.” But four days later, bank representatives reversed course and told Ms. Warren that they would not provide the data she had requested, according to this week’s report.

Asked for comment on Monday, a JPMorgan Chase representative forwarded a letter the bank sent to Ms. Warren last month, which includes some data on fraud claims but does not directly provide the details Ms. Warren sought.

Four banks — Bank of America, PNC Bank, U.S. Bank and Truist — provided the data on which Ms. Warren’s report was based.

That data revealed wide variations in how the banks addressed fraud claims. PNC refunded only 14 percent of the 10,683 claims it received about unauthorized Zelle payments, while Truist repaid 82 percent of its 24,752 claims, according to the report.

Early Warning responded to Ms. Warren’s report with a statement that said “the proportion of fraud and scams has steadily decreased” on its network since its launch in 2017. Last year, people sent $490 billion through Zelle (compared with $230 billion through Venmo, its closest rival), a 60 percent increase from the $307 billion sent in 2020.

The Consumer Financial Protection Bureau is the regulator responsible for enforcing Regulation E, the 1978 federal rule that requires banks to repay customers if their money is stolen from a consumer account through an electronic payment initiated by another person.

Sam Gilford, an agency spokesman, said that scam and fraud complaints had “risen sharply” and that the agency was “working to prevent further harm.” The bureau has indicated to banks that it may soon issue new rules about their liability for fraudulent digital payments — a move that is likely to set off a major fight between banks and the regulator.

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