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Consumers defrauded while using Zelle or other peer-to-peer payment apps might have increased reimbursement protections under a new bill introduced by Democrats in Congress on August 2.
Zelle partners with over 2,100 financial institutions and is used by major banks like Bank of America and JPMorgan Chase to facilitate direct money transfers between accounts. Consumers and small businesses sent $806 billion across 2.9 billion Zelle transactions in 2023, both up 28% from 2022.
Meanwhile, apps like Venmo — which is owned by PayPal — also provide quick ways to send money electronically. Over 2 million merchants accept Venmo, and there are over 90 million user accounts, according to the company's website.
Zelle and other payment app transactions are typically irreversible, meaning if someone accidentally sends money to a scammer, they can't always get it back. Consumers reported losing $210 million to scams across all payment apps in 2023, according to data from the Federal Trade Commission.
Fraudsters often use methods like email phishing links or posing as bank employees and calling users to get them to send money via payment apps.
The Protecting Consumers from Payment Scams Act, proposed by Rep. Maxine Waters, Sen. Richard Blumenthal, and Sen. Elizabeth Warren, aims to increase financial institutions' liability for helping consumers resolve instances of fraud disputes.
"Fraudsters are using every trick in the book to steal money from hardworking consumers through payment apps like Zelle, Venmo, or old-fashion bank wire transfers," Waters said in a statement. "That's why it is absolutely critical that we move quickly to modernize our consumer protection laws to reflect the realities of today's payment systems."
Under existing federal law, consumers are reimbursed for unauthorized transactions, like purchases on a stolen credit card. However, getting money back that was sent through Zelle or other payment apps is much more difficult.
That's because when money is voluntarily sent, even accidentally, it's classified as an authorized purchase. For example, Zelle says to treat the service like how you would give someone cash, and to only send money to people you trust.
The new bill aims to amend the law to make banks more liable for all financial transactions, whether they're authorized or unauthorized.
Specifically, the proposed bill would update the 1978 Electronic Fund Transfer Act, which regulates electronic money transfer protections. It would require financial institutions to share liability when consumers are defrauded and clarify consumer protections for bank wire and electronic transfers.
The bill comes after lawmakers' increased scrutiny of Zelle and several banks' approach to fraud cases.
In recent months, Blumenthal led a Senate investigation into how Zelle, Bank of America, JPMorgan, and Wells Fargo handled fraud cases.
The investigation's report found that in 2023, JPMorgan, Bank of America, and Wells Fargo reimbursed consumers for 38% of fraud disputes, leaving over $100 million unreimbursed. That's less than the 62% of fraud disputes the banks reimbursed in 2019, according to the report.
On July 23, executives from Zelle, Wells Fargo, Bank of America, and JPMorgan defended their fraud dispute policies and testified before the Homeland Security & Governmental Affairs Permanent Subcommittee on Investigations, which is chaired by Blumenthal.
Cameron Fowler, the CEO of Early Warnings Services, the company that owns and operates Zelle, said that reports of fraud on Zelle decreased between 2022 to 2023 while the platform increased the volume of transactions.
Over 99.95% of all Zelle transactions in 2023 were completed without instances of fraud, according to Zelle.
"Although we're proud of our efforts, we can't do it alone," a spokesperson for Early Warning Services said in a statement to Business Insider. "We encourage lawmakers to do more to support law enforcement and efforts to educate consumers to reduce financial crime."
In an August 2 SEC filing, JPMorgan said it is responding to inquiries from the Consumer Financial Protection Bureau about payments through Zelle. A spokesperson for JPMorgan told Business Insider it was considering its options against the CFPB's inquiries, including litigation.
On August 5, Blumenthal announced that he was calling on the CFPB to investigate Zelle, JPMorgan, Bank of America, and Wells Fargo for their practice of resolving fraud disputes.
"The three banks' circuitous answers to questions regarding whether they have ever had a third-party review of their dispute resolution processes further increased our concerns that, not only has such a review never occurred, but that the opaque processes applied by these banks are being used to deny rightful claims," Blumenthal wrote in a statement.
It is now up to the CFPB to decide whether or not to investigate. The CFPB declined to comment on Blumenthal's announcement.
In the meantime, the Protecting Consumers from Payment Scams Act will go to the Committee on Banking, Housing, and Urban Affairs for review.
Have you been the victim of a scam through Zelle or another payment app? Were you reimbursed? This reporter wants to hear your story. Please reach out at jtowfighi@businessinsider.com.
