Zelle to refund customers who fell victim to imposter scams

Zelle, a popular payment app owned by seven major U.S. banks, has announced that it will refund customers who lost money to imposter scams, a type of fraud where criminals pretend to be someone else and ask for money. The policy change comes after pressure from lawmakers and consumer advocates who criticized Zelle for not protecting its users from fraud.

How Zelle’s new policy works

According to Reuters, Zelle’s parent company, Early Warning Services (EWS), said that more than 2,100 financial firms on the network have begun reversing transfers made by customers who were tricked by imposter scams as of June 30. These scams involve fraudsters posing as government officials, bank representatives, or service providers and asking for money through Zelle.

Zelle to refund customers who fell victim to imposter scams
Zelle to refund customers who fell victim to imposter scams

EWS said that the new policy offers consumer protection services “well above existing legal and regulatory requirements.” Federal rules only require banks to reimburse customers for unauthorized payments, such as those made by hackers, but not for payments that customers themselves approved.

To refund customers, EWS has implemented a mechanism that allows banks to claw back funds from the recipient’s account and return them to the sender, said Ben Chance, chief fraud risk officer at EWS. He added that the company has not publicly disclosed the details of the new policy due to worries that doing so might encourage criminals to make false scam claims.

Why Zelle faced criticism

Zelle was launched in 2017 by seven large banks, including Bank of America, JPMorgan Chase, and Wells Fargo, to compete with other payment apps like PayPal and Venmo. Zelle allows users to send and receive money instantly using their bank accounts, without any fees or registration.

However, Zelle also became a target for scammers who exploited its speed and convenience to defraud unsuspecting customers. A New York Times report in March 2022 revealed that scams were flourishing on Zelle, and that many victims had little recourse to recover their money.

The report caught the attention of lawmakers, including Senator Elizabeth Warren, who launched an investigation into Zelle’s fraud prevention practices. The lawmakers estimated that Zelle users had lost $440 million to all types of fraud in 2021 alone, and that banks had reimbursed less than a quarter of them.

During a Senate hearing last year, Warren told the bank CEOs that they had created a “perfect weapon” for criminals but had not stood by their customers. She also urged the Consumer Financial Protection Bureau (CFPB) to investigate Zelle and issue rules to protect consumers from fraud.

What Zelle is doing to combat fraud

In addition to refunding customers who fell victim to imposter scams, Zelle has implemented other measures to combat fraud on its network, Reuters reported. For example, lenders on Zelle have introduced a tool that flags risky transfers, such as those involving recipients that have never processed transactions on the network. The tool has lowered the number of frauds on the platform, Chance said.

Zelle has also updated its terms of service to include a new reimbursement benefit for “specific scam types,” which it announced on Aug. 30. However, the company did not specify which types of scams are covered by the benefit, or how customers can apply for it.

Zelle has also advised its users to only send money to people they know and trust, and to verify the identity of the recipient before making a payment. The company has also warned its users to never share their personal or financial information with anyone who contacts them unsolicited, and to report any suspicious activity to their bank or Zelle.

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