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Watch out when using the Zelle payment app as fraud and theft are rampant, senator says

App for Making Payments-g17b9f32b7_640On Facebook this week, a woman in a financial group told about how she almost paid $2,500 to a scammer on Zelle.

It was the government imposter scam. A guy told her she owed $2,500 because she’d missed a court date. The calls went on for about an hour. A friend on another line kept telling her not to send the money. Zelle also offered warnings.

Fortunately, she didn’t take the final step to send the payment. You often don’t get your money back on payment apps such as Zelle when fraud or a mistake occurs.

Fraud is growing on the Zelle platform and banks aren’t refunding the vast majority of defrauded consumers, breaking their promises to their customers and potentially violating federal law, a new report by U.S. Senator Elizabeth Warren (D-Mass.) finds. 

“New internal data from the big banks shows that their platform Zelle is rampant with fraud and theft, and few customers are getting refunded – potentially violating federal laws and consumer rules,” Warren, a member of the Senate Banking, Housing, and Urban Affairs Committee, said in a statement.

The report shows that:

  • Fraud and theft are rampant on Zelle – and are increasing. The big banks that own Zelle market the product by telling their customers that the platform is safe and secure. However, U.S. Bank reported 14,886 fraud and scam claims on Zelle in 2020, and that its customers are expected to report nearly 45,000 claims in 2022. The four banks that reported data received scam and fraud claims of more than $255 million in 2022.
  • Banks aren’t repaying the vast majority of cases where customers were fraudulently induced into making payments on Zelle. The four banks that provided data reported more than 190,000 scams with over $213 million in payments in 2021 and the first half of 2022. In most cases, the banks didn’t repay the customers that were defrauded.
  • Banks aren’t repaying customers who contest “unauthorized” Zelle payments – potentially violating federal law and Consumer Financial Protection Bureau rules. Zelle claims to have a “zero liability policy” for cases where a bad actor gains access to a consumer’s Zelle account and uses it to make unauthorized payments. Federal laws require that the banks repay customers when funds are illegally taken out of their account. However, the data provided by the banks showed that they reimbursed consumers for only 47 percent of the dollar amount of cases in which customers reported unauthorized payments on Zelle in 2021 and the first half of 2022.

JPMorgan Chase, Wells Fargo, and several other banks still haven’t made key information about Zelle fraud public, Warren said.

Early Warning Systems, the parent company of Zelle, provided little data on the volume of fraudulent transactions occurring on the platform so each of the banks that own the parent company were asked to provide information about the Zelle scams and frauds its customers have reported to them.

So, once again, it’s buyer beware.

The Federal Trade Commission offers these tips when using payment apps:

  • Never send money to anyone you don’t recognize.
  • Call or contact a person you do recognize if you get a cash request using a number you know to be correct. Confirm they made the request before you send money – even if you’ve sent them money through the app before.
  • Deny access or uninstall the app if you’re asked for permission to access information – such as your contacts – on your device when you use it for the first time and you’re not comfortable with it.
  • Read your bank statements closely and regularly. Ask the app company and your bank to reverse any transactions you didn’t authorize.
  • Find out more about mobile payments and securing your mobile device. If you’ve experienced a money transfer scam or other fraud, report it to the FTC.

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