Fraud is being ignored on Zelle by its big banking founders
Banks are ignoring the widespread problem of fraud on Zelle, a report claims, with the major financial institutions that founded the service seemingly not caring about issues with the payments platform.
Zelle is a popular payments app in a slowly saturating marketplace, one that enjoy backing from a group of major banks. However, that same group appears to have an indifferent attitude to fraud, with claims that it isn't their problem.
Customers who are victims of fraud that involves Zelle are being told there's little that the banks can do, and in some cases saying it wasn't fraud at all, despite the backing.
In one example told by the New York Times, customer Justin Faunce lost $500 to a scammer pretending to be a Wells Fargo official in January, one that occurred through Zelle. However, Wells Fargo says the payment wasn't fraudulent since it was authorized by the user, despite being tricked into the transfer.
Another customer, Bruce Barth, had a thief steal his phone and abuse his digital wallet, making charges to his credit card, withdrawing cash from an ATM, and making $2,500 in Zelle transfers. All of the accounts were held at Bank of America, which refunded all but the Zelle transfers.
According to BoA, the transactions were validated by authentication codes and therefore were authorized. This was said even though the phone was stolen and out of his control.
Barth said he "filed grievances with every agency" but all responses were "useless" in his case.
The banks are also aware that there is fraud occurring on Zelle. In reporting the fraud, Faunce was told by a bank representative "A lot of people are getting scammed on Zelle." and that "many people were getting hit for thousands of dollars."
Customers also can't argue with Zelle about the transaction, since it is operated by Early Warning Services, a firm owned by seven banks. The list includes both Bank of America and Wells Fargo, as well as other major entities including Capital One and JPMorgan Chase.
The Consumer Financial Protection Bureau has tried to change matters, by advising banks in 2021 what fraud types they are required to reimburse consumers over. Under the guidance, banks must pay for transfers "initiated by a person other than the consumer without actual authority to initiate the transfer," which includes cases where the victim's iPhone or other smartphones are stolen.
However, the CFPB hasn't covered who is responsible if it is a case of fraud when the user is involved in the transaction by pressing buttons. The bureau say it "is aware of the problem and considering how best to address it."
It is this confusion that gives banks an opening to deny a repayment of lost funds through fraud.
"There are certain indicators that we look for in the investigation to let us know that there has indeed been fraud on the account," Wells Fargo told Faunce in a February 23 letter. "During the investigation, we were not able to find any of those indicators present and denied the claim."
While it is unclear how much money is being lost to scams through Zelle, the platform does play host to a considerable amount of transfers. In 202, Zelle facilitated $490 billion in transfers, more than double the $230 billion that passed through main rival Venmo.
Read on AppleInsider
Zelle is a popular payments app in a slowly saturating marketplace, one that enjoy backing from a group of major banks. However, that same group appears to have an indifferent attitude to fraud, with claims that it isn't their problem.
Customers who are victims of fraud that involves Zelle are being told there's little that the banks can do, and in some cases saying it wasn't fraud at all, despite the backing.
In one example told by the New York Times, customer Justin Faunce lost $500 to a scammer pretending to be a Wells Fargo official in January, one that occurred through Zelle. However, Wells Fargo says the payment wasn't fraudulent since it was authorized by the user, despite being tricked into the transfer.
Another customer, Bruce Barth, had a thief steal his phone and abuse his digital wallet, making charges to his credit card, withdrawing cash from an ATM, and making $2,500 in Zelle transfers. All of the accounts were held at Bank of America, which refunded all but the Zelle transfers.
According to BoA, the transactions were validated by authentication codes and therefore were authorized. This was said even though the phone was stolen and out of his control.
Barth said he "filed grievances with every agency" but all responses were "useless" in his case.
The banks are also aware that there is fraud occurring on Zelle. In reporting the fraud, Faunce was told by a bank representative "A lot of people are getting scammed on Zelle." and that "many people were getting hit for thousands of dollars."
Rules are rules, except when they're not
Part of the problem is that the banks believe they are absolved of responsibility due to Regulation E federal laws about electronic transfers, which specify they cover only "unauthorized" transactions. In scams where victims are tricked into providing confirmation codes to scammers, this is seen as being an authorization.Customers also can't argue with Zelle about the transaction, since it is operated by Early Warning Services, a firm owned by seven banks. The list includes both Bank of America and Wells Fargo, as well as other major entities including Capital One and JPMorgan Chase.
The Consumer Financial Protection Bureau has tried to change matters, by advising banks in 2021 what fraud types they are required to reimburse consumers over. Under the guidance, banks must pay for transfers "initiated by a person other than the consumer without actual authority to initiate the transfer," which includes cases where the victim's iPhone or other smartphones are stolen.
However, the CFPB hasn't covered who is responsible if it is a case of fraud when the user is involved in the transaction by pressing buttons. The bureau say it "is aware of the problem and considering how best to address it."
It is this confusion that gives banks an opening to deny a repayment of lost funds through fraud.
"There are certain indicators that we look for in the investigation to let us know that there has indeed been fraud on the account," Wells Fargo told Faunce in a February 23 letter. "During the investigation, we were not able to find any of those indicators present and denied the claim."
While it is unclear how much money is being lost to scams through Zelle, the platform does play host to a considerable amount of transfers. In 202, Zelle facilitated $490 billion in transfers, more than double the $230 billion that passed through main rival Venmo.
Read on AppleInsider
Comments
In some cases, some vendors want me to send a check. I don't write checks anymore but my bank issues a check on my behalf. But, my bank takes week just to think about it, then mails it, which takes another week. In one case, the vendor who received the check took another week to cash it, then it takes time for the Fed do all this interbank transfers.
The Fed recently published a working paper on the pros and cons of the Fed issuing CBDC (Central Bank Digital Currency). It's an interesting read at https://www.federalreserve.gov/central-bank-digital-currency.htm
In 2023 the Fed will implement the FedNow service that will allow almost instantaneous financial transactions 24x7x365. See https://www.federalreserve.gov/paymentsystems/fednow_about.htm
You can be sure Apple among others are not sitting on their hands.
It's just common sense. Except for the hospitalized customer who had his phone stolen, others in the news article were careless and should learn from the experience. I assist several elderly people with online transactions and issues, and I have to constantly remind them to not give out personal information to random callers/texters. My grandmother never falls for BS like this. If anything, she likes to give scammers the run-around. Keeping them on the phone for several minutes till they're frustrated and hang up on her. She's helped her friends avoid scams as well.
Zelle provides no functionality that I can't get by doing traditional banking. The only reason these banks created Zelle is to bypass banking laws and regulations, and stick it to their customers instead.
But there's also the stolen phone being used to access someone's account. Is it always the fault of the account holder if it's a thief pushing the buttons and not the account holder? Do Zelle and its ilk use 2FA?
AI recently published a story about a kid borrowing a stranger's phone under the pretense of needing to phone home. In reality he accessed the owners Zelle account and sent upwards of $3000. I a fairly short period of time, the kid had to search the phone for a Zelle account, access it and set up a transfer, all without the owner getting suspicious until it was too late.
What didn't the owner do that the could have done to protect the account, besides not given a street urchin their phone? Can the Zelle app be password protected?
Getting played, be it falling for a scammer's ploy or your kid accessing your account for game level ups or whatever, isn't someone else's responsibility or accountability.
I don't have Apple's equivalent set up in Wallet mainly because I don't have a need to send "my grandson rotting in a Mexican jail" bail money etc. If my phone were stolen and somehow unlocked a thief would have access to my wallet. I wouldn't mind having an additional 5-digit PIN to access the Wallet, or payments from anything in it for an amount I choose.
There's the possibility of getting to another Apple device to erase the stolen phone before somebody starts dipping into accounts, but that's not a given. So maybe there's something the Zelle cartel can do to restricting access better. Whether or not the owner uses any additional safeguards would be their responsibility. Inconvenience is the price of enhanced security, but I'd like the option.