Banks on the payment app Zelle have recently implemented a new policy to address consumer protection concerns raised by U.S. lawmakers and the federal consumer watchdog. The policy change involves refunding victims of imposter scams, which has been a major point of contention in the industry.
Zelle, a peer-to-peer network owned by seven banks including JPMorgan Chase and Bank of America, has started reversing transfers for customers who were deceived into sending money to scammers posing as government agencies, banks, or service providers. Early Warning Services (EWS), the company that owns Zelle, stated that this action goes “well above existing legal and regulatory requirements.”
Previously, banks were only required to reimburse customers for unauthorized payments made by hackers, but not when customers themselves made the transfer. However, Zelle has now introduced a reimbursement benefit for specific scam types. The details of this new imposter scam refund policy were not disclosed earlier due to concerns that it could potentially encourage false scam claims.
The shift in policy is significant, as it contradicts the stance taken by bank executives just last year when they argued against refunding transfers. The attention garnered by Zelle users’ losses through scams, estimated to be $440 million in 2021, prompted lawmakers to push for investigations and changes in the industry.
Impersonator fraud is currently the most reported scam across all payment methods in the U.S., with losses amounting to $2.6 billion according to the Federal Trade Commission. While banks are concerned about the potential cost of covering authorized transactions and the potential for increased fraud, EWS has implemented safeguards to prevent such incidents. These safeguards include the ability to claw back funds from the recipient’s account and a requirement for lenders to flag transfers with risky attributes.
Zelle has grown to become one of the largest peer-to-peer payment networks in the U.S., with over 100 million people having access to the platform. As fraud and scam rates have been a cause for concern, Zelle’s new policy changes aim to protect consumers and address these issues.
What is Zelle’s new policy change?
Zelle has implemented a new policy to refund victims of imposter scams, going beyond existing legal and regulatory requirements.
What prompted this policy change?
Lawmakers and the federal consumer watchdog raised concerns about consumer protection regarding imposter scams on Zelle, prompting the need for such a policy change.
How does Zelle plan to prevent future scams?
Zelle has introduced safeguards such as the ability to claw back funds from the recipient’s account and a requirement for lenders to flag transfers with risky attributes.
Is Zelle the only peer-to-peer payment platform affected by scams?
No, other peer-to-peer payment platforms like PayPal and Venmo also face scams, but Zelle’s u-turn shows that banks are feeling competitive pressure to enhance their fraud protection measures.
Will there be regulations to protect customers from imposter scams?
While regulations mandating imposter fraud protections would be beneficial for customers, currently there are none in place. However, Zelle’s policy change is seen as a positive first step in addressing the issue.