Congress Drills Bank Brass on Authorized Push Payments Fraud
The top brass of the country’s seven biggest financial institutions faced lawmakers in a second meeting on Capitol Hill about accountability, consumer protection, and compliance, with private peer-to-peer payment network Zelle emerging as a hot-button issue.
Zelle has been in the hot seat over authorized push payment fraud and is owned by Early Warning Services, LLC, a FinTech company owned by all but one bank in attendance — Bank of America Corp., Truist Financial Corp., J.P. Morgan Chase & Co., PNC Financial Services Group Inc., U.S. Bancorp and Wells Fargo & Co. plus Capital One Financial Corp.
Complaints are on the rise from banking customers unknowingly authorizing payments to scammers using Zelle and not being able to get their money refunded.
“Zelle is not safe. You built the system, you profit from every transaction on the system and you tell people that it is safe. But when someone is defrauded, you claim that’s the customer’s problem,” said Elizabeth Warren (D-Massachusetts), during the Senate Banking Committee hearing on Thursday (Sept. 23). The CEOs met with the House Banking Committee on Wednesday (Sept. 22).
See also: Authorized Push Payment Fraud Is Fastest Growing Scam for One Good Reason
Lawmakers grilled the CEOs about the many reports of fraud and scams on Zelle, which has processed more than 5 billion transactions and handled nearly $1.5 trillion in payments since its inception in 2017. The bankers indicated that they are working together to implement new policies to protect consumers using the network.
The owners of Zelle are collaborating to provide better guardrails on the network by closing accounts of customers who receive the fraudulent funds, Bank of America’s Brian Moynihan said during the testimony. The network also removed lenders who didn’t police clients accused of defrauding customers at other banks, he said.
Read more: CFPB Wants Banks to Pay Back Victims Scammed Using Zelle, Other P2P Services
Regulation E governs how banks handle electronic fund transfers. If a fraudster gets into a customer’s account and sends money, banks must provide a refund. But if a customer sends the money, which is what happens in a fraudulent Zelle transaction, Regulation E doesn't apply.
“Anything that’s unauthorized, we do cover,” J.P. Morgan CEO Jamie Dimon told senators. “So you’re really talking about authorized transactions that we have an enormous amount of systems to stop. And the amount of fraud relatively is very small for this free-of-charge service.”