Regulators probe big banks on Zelle’s fraud policies as payment-app scams pile up

What the Zelle… Big banks are getting heat from regulators as scammers cash in on money-transfer service Zelle. Launched in 2017, Zelle is owned by seven of America’s largest banks, including JPMorgan Chase, Bank of America, and Wells Fargo (it’s auto-included in many banking apps). Today, Zelle is one of the biggest players in mobile payments, processing nearly 3x as many transactions as PayPal’s Venmo last year. But Zelle users have been complaining about scams for years. Now the Consumer Financial Protection Bureau is investigating Zelle’s partner banks over how they've handled the fraud surge.

• The CFPB is said to be looking into whether banks are shutting down scammers’ accounts quickly enough and doing thorough screens of their customers.

• Banks say that most Zelle transactions are legitimate and that they’ve been taking steps to boost safety (like: warning users about scams before they transfer $$).

• FYI: 2B+ people worldwide use mobile payments, and 60% of Americans use payment apps to shop.

Zelle’ing into the void… Last year US consumers lost $210M in scams across all payment apps. Deception methods have included fraudsters posing as bank employees, dog breeders, and FB Marketplace merchants (and lots of email phishing links). The problem: payment apps operate in a legal gray area. Banks can avoid reimbursing customers for funds lost to scams because users approved those transactions, even if they were conned into doing so. A recent report said that JPMorgan, Wells Fargo, and Bank of America reimbursed only 38% of “unauthorized” transactions reported last year (nearly half of what they approved in 2019).

• Check-out: Legislators introduced a bill this month that would update electronic money transfer laws to protect customers from payment-app fraud.

• I(don’t)OU: Banks are required to refund customers only for transactions they didn’t authorize (like: charges on a stolen credit card).