Fraud Becoming More Of An Issue On Zelle; Banks Hesitant To Respond

Peer-to-peer (P2P) payment app Zelle has become a popular platform for scammers. Fraudsters prefer Zelle because transactions via Zelle settle instantly, as compared to credit or debit card transactions, which typically take a day or two to clear. Victims of fraud via the Zelle app are looking to banks to help them to retrieve their funds, but banks claim that there is little they can do to help.

Zelle users have been swindled out of amounts of money ranging from $500 to $19,500 and scammers often front as employees of big banks like Wells Fargo or Citigroup, according to The New York Times. These scammers often frighten Zelle users into sending money to stop some sort of compromise to the bank account that the users have linked to Zelle. In most cases, banks have not reimbursed Zelle users who have been victims of such fraud, citing that there is little to nothing that they can do if Zelle users authorized the transactions.

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Javelin Strategy & Research, a consultancy firm in the digital financial world, reports that 18 million Americans have been defrauded through such scams. It claims that organized crime is omnipresent on platforms such as Zelle. Scamming is likely more pervasive on Zelle than on similar platforms like Venmo, as more than twice as much money is transferred each year through Zelle as compared to Venmo.

Some have argued that banks have not done enough to educate customers about the dangers of fraudulent activity on platforms such as Zelle. However, banks have argued that they have done all that they are required to do under Regulation E, issued by the Consumer Financial Protection Bureau (CFPB), which stipulates that monetary losses over platforms like Zelle are not fraudulent if they were authorized by the sender.

Where banks have failed to educate their customers about the dangers of being scammed on Zelle, organizations such as Elliot Advocacy, a nonprofit that offers free advice to consumers, have warned customers against sending money to unknown entities that claim to either be selling puppies or concert tickets. They also explicitly warn users to be wary of scammers pretending to be representatives of their bank.