Zelle Implements Changes to Combat Imposter Scams
In response to consumer protection concerns raised by U.S. lawmakers and the federal consumer watchdog, banks on the payment app Zelle have begun refunding victims of imposter scams, marking a significant policy change.
The financial firms on Zelle began reversing transfers as of June 30 for customers who were duped into sending money to scammers posing as representatives from government agencies, banks, or other service providers, according to Early Warning Services (EWS), the company that owns Zelle.
This new policy, which goes above existing legal and regulatory requirements, is a change from last year when bankers, including JPMorgan CEO Jamie Dimon, told lawmakers it was unreasonable to require banks to refund transfers that customers were tricked into approving.
In a major shift, Zelle is now reversing transfers, making its new imposter scam refund policy public after much criticism. According to Ben Chance, chief fraud risk officer at EWS, the shift comes after lawmakers estimated that Zelle users had lost $440 million to all types of fraud in 2021 alone.
There has been a growing concern from lawmakers over the flourishing scams on Zelle, which has marked a significant change as Zelle processed $629 billion worth of payments in 2022, with 99.9% of transfers made without a fraud or scam report.
While Zelle argues its fraud and scam rates are low, it now has new reimbursement benefits for specific scam types, which is a crucial step in the right direction, according to Senator Elizabeth Warren.
However, banking institutions worry that extending refunds for authorized transactions will encourage more fraud and put them on the hook for potentially billions of dollars. Zelle’s recent changes might be met with further legislation, as the Consumer Financial Protection Bureau (CFPB) is working on ensuring that financial institutions are living up to their investigation and error-resolution obligations.
Zelle’s policy change has been seen as a “good first step” by some, but others believe that regulations mandating imposter fraud protections would provide consumers with more clarity and security. Payment fraud is expected to be a topic of discussion when bank CEOs appear before the Senate next month.