Democratic senators take aim at Zelle and its bank owners amid growing fraud scrutiny

WASHINGTON — Two top Democrats on the Senate Banking Committee are demanding information from the bank-owned parent company behind Zelle detailing the payment network’s efforts to combat customer fraud. 

Sens. Elizabeth Warren of Massachusetts and Bob Menendez of New Jersey are the latest players in Washington to scrutinize Zelle, which has combated accusations allowing widespread fraud on its platform as it has grown in popularity in recent years. 

“We write regarding disturbing reports of a rise in fraud and scams on your online peer-to-peer money transfer platform Zelle, and the ongoing failure by Zelle or the banks that own this service to address these scams and provide appropriate redress to defrauded consumers,” Warren and Menendez said in a letter dated April 25. 

The letter directs particular scrutiny towards the banks that own Zelle’s parent company, Early Warning Services, specifically citing JPMorgan Chase, Bank of America and Wells Fargo. The company is also owned by Capital One Financial, PNC Financial Services Group, Truist Financial and U.S. Bancorp. 

“Banks have chosen to let consumers suffer, blaming them for authorizing fraudulent transactions,” Warren and Menendez wrote. 

A spokesperson for Early Warning Services confirmed receiving the letter and said the company was "reviewing the letter and will provide a response in due course."

Zelle, which had nearly $500 billion in transaction volume last year, has been a focal point for regulatory scrutiny in recent months. The payments company emerged as an unexpected focus of public comments amid a Consumer Financial Protection Bureau inquiry into Big Tech data practices in late 2021. 

Warren and Menendez pressed the company on whether it believed a key federal law related to electronic payment rules — Regulation E of the Electronic Fund Transfer Act — applied to Zelle and Early Warning Services and, if so, whether the company or any banks would be responsible for providing customer refunds in the event of fraud. 

Small business banking

Bank of America upgrades its digital offerings for business clients

May 5, 2022 12:08 PM

The letter also points to recent regulatory activity, including a report published by the Federal Deposit Insurance Corp. in March that suggested that banks involved with fraudulent peer-to-peer payment transactions should be responsible for making their customers whole in accordance with Regulation E.

"The FDIC concluded that Regulation E’s liability protections for unauthorized transfers apply even if a consumer is deceived into giving someone their authorization credentials. Consumer account disclosures cannot limit the protections provided for in the regulation," the agency stated in its March Consumer Compliance Supervisory Highlights report.

“Given this regulatory landscape," Warren and Menendez wrote, "your company and the banks have a clear responsibility to more aggressively protect consumers,”

Menendez asked CFPB Director Rohit Chopra about Zelle during a Senate Banking hearing Tuesday. Chopra replied that while he did not want to discuss specific companies, he was “certainly aware of the complaints."