A New Report Reveals Zelle Facilitated 'Rampant Fraud.' Here's How Consumers Have Been Impacted

Zelle users might want to keep a close eye on their account.

If you regularly use Zelle to send or receive money, you may want to rethink the practice, at least for now. Despite assurances that Zelle is secure, that does not appear to be the case. And based on how banking institutions have dealt with defrauded customers thus far, you may be on your own if you lose money through Zelle.

What is Zelle?

Zelle is a payment network that allows consumers to send money from their bank account to someone else's account. While Zelle is a product of fintech company Early Warning Services, LLC, it is owned by some of the biggest banks in the U.S., including Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, U.S. Bank, and Wells Fargo. Zelle reported in 2021 that nearly 10,000 banks and credit unions across the U.S. were part of the Zelle network.

U.S. senator speaks out

With financial fraud of all kinds on the rise, Sen. Elizabeth Warren, a member of the Senate Banking, Housing, and Urban Affairs Committee (BHUA), did not mince words. "Big banks own and profit from Zelle, but are failing to make their customers whole for both authorized and unauthorized fraudulent activity on the platform, despite their claims that it is safe and that they have a 'zero liability' policy for fraud."

Warren's remarks are based on a new BHUA report finding that fraud on Zelle is rampant and that banks are not refunding the vast majority of those who've been defrauded. Despite promising customers that Zelle is secure and customers will be protected, banks have not followed through.

Calling on big banks

In September, Sen. Warren and Sen. Bob Menendez asked big bank CEOs to explain how banks address fraud related to Zelle. While a few CEOs promised to provide answers, JPMorgan Chase, Wells Fargo, and several others refused to provide Congress with information.

In addition to pointing out that banks may be violating federal law, Sen. Warren said, "Despite their CEOs' promises to the Senate Banking Committee, JPMorgan and Wells Fargo have still not turned over complete data, and I'll keep fighting for stronger consumer protections and to hold all these banks accountable for abuse."

Impact on Zelle users

According to the BHUA report, Zelle users have been impacted in several ways.

Customers told their money is safe

Banks describe Zelle as "safe and secure." Yet the raw data tells a different story. For example, PNC Bank reported that there were 8,848 customer fraud and scam claims in 2020. By 2022, that number had jumped to 12,300. In 2020, U.S. Bank reported receiving 14,886 fraud and scam claims. U.S. Bank is on pace to receive nearly 45,000 claims this year.

Banks not repaying customers

In the vast majority of cases where customers were tricked into making payments on Zelle, banks are not repaying the money lost; most customers are on their own. The three banks that provided full data to Congress indicate that they repaid customers for only 9.6% of scam claims.

Potential legal peril

Zelle claims to have a "zero liability policy" when scammers gain access to a consumer's account and use that account to make unauthorized payments. If banks followed through on their promise, a zero liability policy would ensure that that banks would refund losses.

The Electronic Fund Transfer Act (EFTA) and Consumer Financial Protection Bureau's (CFPB) "Regulation E" require that banks repay customers when funds are illegally taken from their accounts. Yet bank-provided data indicates that banks reimbursed customers for only 47% of their losses when unauthorized payments were made by bad actors.

It's too early to say whether banks will sort out their Zelle issues. After all, Zelle is not the only payment system that has run into issues with scammers. In the meantime, though, anyone using Zelle to send or receive money might want to use extra care.