On February 15, 2024, Senators Sherrod Brown (D-OH), Jack Reed (D-RI) and Elizabeth Warren (D-MA) sent a letter to Zelle seeking clarification of its reimbursement policy for victims of imposter scams and urging Zelle to publicize its fraud policies to consumers and clarify whether all participating banks must reimburse eligible victims. The Senators are also asking Zelle to add more reimbursement categories and streamline the process for customers to report unauthorized transactions, scams, and fraud on the Zelle Network.

The Senators ask for responses to the following questions by March 13, 2024:

Will Zelle expand its reimbursement policy to include more types of scams that occur on the platform?

Will Zelle commit to publicly sharing its policy of reimbursing customers who are victims of “qualifying” imposter scams?

Will Zelle commit to making the reporting process for fraud and scams less cumbersome for customers?

Since Zelle began to reimburse customers for “qualifying” imposter scams in November 2023, please provide:

1. The number of claims of reported imposter scams and the total dollar value of these transactions.
2. The total number of cases where Zelle provided refunds to the customers who reported these imposter scams, the total dollar value of these refunds, and the average and maximum length of time Zelle took to issue a refund.

What types of scams are most common on Zelle? For each of the last five full calendar years, please provide:

3. The number of claims of reported scams, the types of these reported scams, and the total dollar value of these transactions.
4. The total number of cases where Zelle provided refunds to the customers who reported these scams, the total dollar value of these refunds, and the average and maximum length of time Zelle took to issue a refund.

In October 2022, Zelle contested reports of rampant fraud and scams on its platform. How many reports of fraud has Zelle received from its customers for each of the last five full calendar years? For each year, please provide:

5. The total number of transactions reported as unauthorized by customers using Zelle and the total dollar value of these transactions.
6. The total number of cases where Zelle provided refunds to customers who reported unauthorized transactions and the total dollar value of these refunds.

As we blogged last November, Zelle changed its Network Rules to require financial institutions that transfer funds on the Zelle Network to reverse transfers for senders who are victims of certain scams. At that time, we expected that the changes were likely motivated by regulatory pressure from the CFPB, FDIC, and Senator Warren. Consumer-authorized transactions where a consumer is scammed into sending money to a fraudster are not considered “unauthorized electronic fund transfers” covered by the Regulation E protections for unauthorized transfers because the consumer initiated the transfer.

Instead of enacting new laws to address these financial crimes or funding federal agencies to devote more resources to investigating these crimes and educating consumers, the Democratic Senators are conducting hearings and letter writing campaigns to influence voluntary change at Zelle and other payment providers. On February 1, 2024, the Senate Banking Committee held a hearing on “Examining Scams and Fraud in the Banking System and Their Impact on Consumers.” In the hearing, Senator Brown called for banks and payment apps to provide additional protection measures and to reimburse consumers who send their money to fraudsters. Senator Brown suggested that fraud warnings and consumer education was not the solution, as “Americans do not have time for that.” By contrast, Senator Rick Scott (R-SC) commented that financial education and literacy is the best tool to combat financial crimes. Representatives from the National Consumer Law Center, the American Bankers Association and National Consumer League also provided testimony at the hearing.

It is important to understand the Zelle payment experience and the current warnings. When I enter my banking app to send a Zelle transfer, I see a warning at the top of the screen that states “Be on the alert for scammers. [Bank name] will never ask you to send money to anyone, including yourself.” The warning also includes a link to additional resources. If I select to send money to new recipient, I receive a full-page warning before I can send the funds along with a box I must check stating, “I understand that once my payment is sent, it can’t be canceled.”

Banks typically ask consumers to respond to questions intended to prevent fraud when consumers send wire transfers. Banks have limited ability, however, to gauge whether a consumer is answering these fraud questions truthfully. Notably, banks do not have sufficient information to confirm that a consumer really has a legitimate personal or business relationship with whomever they willingly give their money. Nevertheless, while there is no question that a bank is not liable if a consumer withdraws $500 from an ATM and gives the cash to a fraudster, the Democratic Senators apparently believe that the bank should be liable if the same consumer transfers $500 through the Zelle Network to a fraudster.

At the committee hearing, Senator Brown further commended the Consumer Financial Protection Bureau for its proposed rulemaking to supervise nonbank providers of digital wallets and payment apps. We previously blogged about the proposed rulemaking here and here. In December, Senators Brown, Reed, and Warren sent letters to Venmo, PayPal, and Cash App asking them to adopt new policies to reimburse consumers and requesting responses to a series of questions by January 31, 2024.

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