WASHINGTON — Sen. Richard Blumenthal, D-Conn., the chairman of the Senate Permanent Subcommittee on Investigations, said banks should fully reimburse victims of fraud on Zelle, the
Senate Democrats, in a report led by Blumenthal and in an accompanying hearing late Tuesday afternoon, argued that banks who own and operate peer-to-peer payment network Zelle should do more to help
"While this problem affects all peer-to-peer apps, nowhere is it more problematic than on Zelle, which is the largest of them," Blumenthal said. "Sending a payment on Zelle is fast, easy and irreversible. Zelle and the big banks who own it know that its speed and convenience makes it a target, and they're well aware that every day some of their customers will be hurt."
Representatives of JPMorgan Chase, Wells Fargo and Bank of America — the three largest banks that share ownership of Zelle's parent company Early Warning Services, suggested that lawmakers should also focus on the criminals who are defrauding customers.
The Electronic Fund Transfer Act, a decades-old law, requires that banks and other payment providers investigate and reimburse unauthorized funds transfers. But Blumenthal and other Democrats on the committee said some of the most rampant fraud problems with Zelle involve authorized fund transfers where victims are tricked into sending money to scammers who might pose as a bank employee or use an AI-generated voice scheme.
Blumenthal asked whether the bankers believe that the Electronic Fund Transfer Act should be updated to also include authorized fund transfers — rather than unauthorized ones that might include something like a computer hack — and if banks should be required to reimburse scammed customers.
The bank representatives warned that doing so could cause "unintended consequences," including a rise in claims of scams that are not valid.
"We all have a vested interest in protecting all of our customers from fraud and scams, and we want to work together with everybody to drive out the cause of the problem which is the criminals," said Melissa Feldsher, managing director and head of commerce enablement at JPMorgan. "Changing the reimbursement policy is actually not going to do anything to actually solve the problem, which is we actually need to prevent, identify and prosecute the criminals who are taking advantage of innocent Americans."
Bank trade groups echoed these concerns in a statement released before the Tuesday afternoon hearing. The groups said that the efforts in Congress and among regulators need to be "cross-industry."
"Each step in the scam ecosystem — from how a scammer identifies consumer targets, to how a scammer communicates instructions to a victim, to how the money is processed — offers an opportunity to stop the flow of funds to the criminal," said the American Bankers Association, Bank Policy Institute and Consumer Bankers Association in a statement. "Focusing on only one aspect or one step in the process will not stop this surge of scams. Rather, a holistic approach to address all the entities and elements of a scam has the best chance of being successful."
A report released before the hearing, led by Blumenthal and Senate Democrats, said that customers who fall victim to scams "in the absence of legal requirements for banks" are "rarely" reimbursed for their losses.
The report claims that in 2020, JPMorgan reimbursed three transactions out of more than 40,000 scam disputes that year, while Wells Fargo didn't reimburse any of the more than 25,000 scam disputes. Bank of America did not track scam data until the second half of 2020, the report said.
Last year, those three banks reimbursed scam victims 12% of the time, the report said.
The report also claimed that the three banks don't reimburse victims who report lost funds through unauthorized transactions. The banks reimbursed victims who reported this kind of fraud 38% of the time in 2023, a decline from 62% in 2019, according to the report.
"They are simply not doing enough," Blumenthal said. "They are failing to protect consumers from the growing risks of scams and fraud."
Republicans on the subcommittee disagreed.
"It strikes me that Zelle, although there's some risk and some fraud, is safer than cash, carrying around a wad of cash, and it's safer than checks," said Sen. Ron Johnson, R-Wis., the ranking member of the subcommittee. "And there's no reimbursement on check [fraud] other than if you can catch it quick enough you can stop payment. But once that's cleared, banks are under no legal requirement."
Feldsher said that, at least for JPMorgan's part, it's her understanding that the bank reimburses 100% of unauthorized fund transfers, as required by law.
"I cannot speak to the aggregated data, I can only speak to the Chase data," she said.
Vancini said that in some cases, a disputed transaction that's originally classified as an unauthorized fraud transaction might later be found through investigation to actually be an authorized transaction.
"In some cases, a customer might have made the transaction and forgotten they made it," he said. "In other instances it might be a joint account, a husband versus wife, and you see that your wife has made an interaction on that account, and you don't recognize that so you call in."
The banks also said that a relatively tiny portion of transactions that occur on Zelle are reported as frauds or scams. Feldsher said that 0.05% of transactions made on the bank's Zelle platform were disputed in 2023, while Adam Vancini, Wells Fargo's head of payments for consumer, small, and business banking said that more than 99.9% of Zelle transfers by the bank's customers were completed without a claim.
