Executives from
At the upcoming hearing, the big banks are likely to face one key question: To what extent, if at all,
Hundreds of millions of dollars are at stake. In 2022, customers of
Nearly three-quarters of those losses were never repaid by the three banks, Blumenthal said during a hearing Tuesday, though he did not provide a breakdown of the share of losses that were authorized by the victim. Blumenthal is focusing on
During Tuesday's hearing, which featured the testimony of consumers who were fraud victims, Blumenthal argued that the big banks are not doing enough to protect their customers.
"Time and again, Zelle and the big banks have said that they couldn't help. What they mean is they wouldn't help," he said.
The subcommittee opened its inquiry into Early Warning Services, the bank-owned company that operates the Zelle network, in June 2023.
On Tuesday, Blumenthal described the subcommittee's inquiry as bipartisan, and the panel's top Republican, Sen. Ron Johnson of Wisconsin, voiced his support for holding a hearing with executives from the banks.
But Johnson also expressed skepticism that banks should be held responsible for losses in situations where their customers get tricked into sending money to fraudsters. He noted that Zelle payments — unlike credit card transactions, which offer greater fraud protection — do not generate revenue.
"This is a different system. Again, we need to be concerned about scams and fraud. But there's a fair amount of responsibility on the part of the users to try to prevent that," Johnson said.
"I'm not flacking or defending the banks here. I'm just trying to figure out: What's the reality of the situation? What's the best way to deal with those issues?" Johnson added.
Blumenthal argued that even though individual Zelle transactions generally do not generate revenue, banks do profit from offering the service. Offering Zelle helps banks to attract customers and also increases customers' stickiness, he said.
An Early Warning spokesperson said in an email Wednesday that less than one-tenth of 1% of Zelle transactions are reported as fraud or scams. The spokesperson also noted that Zelle has extensive consumer education materials on its website and has launched various campaigns to help get out the word about scams.
"In addition to our consumer protection efforts, we are actively working with policymakers, regulators, and law enforcement to look across the entire ecosystem to truly address the threat of fraud and scams," the Early Warning spokesperson said. "To address this global crisis, we need to stop the abuse of digital communications, equip law enforcement to tackle every incident, and launch a coordinated national education initiative."
"We maintain active countermeasures to identify and stop scams before they harm our customers," the San Francisco-based bank said. "In 2023 alone, our enhanced security efforts detected and blocked over 1 million transactions before they could harm customers."
Of course, Zelle is not the only peer-to-peer payments network that has been plagued by scams. Others include PayPal's Venmo and Block's Cash App.
During Tuesday's hearing, Blumenthal sought to justify his panel's focus on Zelle, noting that Zelle transactions are nearly instantaneous, which makes them hard to reverse.
"What distinguishes Zelle is speed, permanence and bank ownership. and that's really the reason we are focusing on Zelle," Blumenthal said. "But the other platforms deserve attention as well."
One banking industry source who spoke on condition of anonymity argued that Blumenthal is cherry-picking data from one particular payments platform to fit a narrative.
The Early Warning spokesperson sought to broaden the discussion of payments fraud, saying that consumers who pay with checks, bank transfers, cryptocurrencies, wire transfers and gift cards can all be affected by scams.
Blumenthal is one of several Senate Democrats who have recently expressed concern about what they see as inadequate compensation for Zelle customers who are fraud victims.
In February,
Reuters reported late last year that
The Early Warning spokesperson said Wednesday that banks and credit unions that offer Zelle need to follow Zelle network rules, including rules that require refunds in connection with "qualifying" imposter scams. Such scams involve the impersonation of a financial institution, government agency or a service provider where the victim is a current customer.
"We do not publish additional details on this industry-leading consumer benefit because we do not want to provide a road map to criminal exploitation," the Early Warning spokesperson said in an email.
Impersonation scams are just one example of a scheme in which a consumer can get duped into sending money to the fraudster.
Under the Electronic Fund Transfer Act, banks have not been required to reimburse customers who authorize payments, though a consumer lawyer who testified at Tuesday's hearing expressed disagreement with that interpretation of the law and argued that the regulations need to be clarified.
Reimbursements are mandatory in situations where customer funds were transferred without authorization, such as when the customer's online banking credentials have been compromised.
Rep. Maxine Waters, D-Calif., has proposed legislation that would make banks liable for fraudulent, peer-to-peer transactions that are approved by consumers, but that legislation has drawn industry opposition.
