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Legislative Pressure Mounts to Curb Fraud on Zelle

Digital Transactions

Pressure from the Senate Banking Committee on Early Warning Systems LLC, operator of the Zelle peer-to-peer payment network, is rising as committee members continue to press Early Warning for information about the extent of fraud on the network.

A report released by Sen. Elizabeth Warren’s office late Monday charges that fraud and theft are rampant on the network, but also argues member banks are not repaying victims in the vast majority of cases where customers were fraudulently induced into making payments on Zelle. It adds that Zelle members are not repaying customers who contest unauthorized Zelle payments, potentially violating federal law and Consumer Financial Protection Bureau rules.

In April, Sen. Warren (D-Mass). opened an investigation of Zelle and Early Warning and requested information from the bank owners of Early Warning about fraud on the network.

To support its claims about fraud on Zelle, the report cites data from Early Warning Systems, Zelle’s owner, that says consumer losses due to fraud and scams totaled an estimated $440 million in 2021. More specifically, that report cites data from four banks that shared information about fraud losses on Zelle. This information indicates there were 192,878 cases of customers being fraudulently induced into making $213.8 million in payments through Zelle during 2021 and through the first half of 2022. The report projects fraud losses on Zelle for those four banks will exceed $255 million in 2022. 

The report adds that, in the majority of cases in which consumers were fraudulently induced to make a payment using Zelle, the banks did not repay the customers involved. Three banks that provided data on repayments in instances of consumer fraud reimbursed in 3,473 cases, or 9.6% of consumers. Reimbursements totaled $2.9 million, or 11% of the losses claimed by consumers, the report says.   

In cases of consumers who were victims of so-called me-to-me fraud, in which criminals gain access to a consumer’s Zelle account and use it to make unauthorized payments, 47% of the total amount lost during 2021 and through the first half of 2022 was reimbursed. Under Regulation E, banks are required to repay customers when funds are illegally taken out of their account without authorization, the report states.


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