The seven banks that own the Zelle payment network are preparing a major rule change early next year that will require network member banks to compensate customers who are victims of certain types of scams, according to two people familiar with the plans.
The change would reverse the network’s current policy, which generally requires customers to take the losses on any Zelle transactions that customers have physically initiated themselves, even if they were tricked into sending their money to a thief. A growing number of scams using Zelle has angered lawmakers and regulators, who have pressured banks to better protect — or compensate — their customers.
Many details of the new policy are still being worked out, said the people, who requested anonymity to describe the private discussions. The approach would, for the first time, require banks to take responsibility for certain transactions made on the Zelle network. The plan was reported earlier by the Wall Street Journal.
Zelle has become the country’s most popular peer-to-peer payment platform; last year, customers used it for 1.8 billion cash transfers totaling $490 billion. The network allows customers to instantly transfer money to others at any of Zelle’s 1,700 member banks and credit unions.
This speed is the network’s biggest selling point, but also its greatest vulnerability: under current network rules, all payments are irrevocable once made. This means that even when a transaction turns out to be fraudulent, neither the customer who sent the money nor the customer’s bank has recourse to recover it.
The problem came into the spotlight this year after a New York Times investigation found that scammers, often posing as bank representatives, were using a sophisticated combination of technical trickery and psychological manipulation to defraud clients. Victims often lost hundreds or even thousands of dollars in minutes.
Under the rules, if banks determine that a customer has been tricked into sending money, the receiving bank – the one that holds the thief’s bank account – would be responsible for returning the money to the victim’s bank. This bank would then reimburse its defrauded client.
The change would only apply to frauds in which a customer was misled – for example, by someone posing as a bank employee – into sending money they did not otherwise have. intend to transfer. This would not apply to other common frauds, such as romance scams or sellers advertising bogus products for sale, such as purebred puppies or concert tickets.
Thieves usually withdraw their stolen money from bank accounts very quickly, before the bank has time to freeze the funds. That means banks will often be required to reimburse customers, people familiar with the plan said — a move that could prompt some Zelle members to quit the network.
A representative from Early Warning Services, the Scottsdale, Arizona-based company that operates the Zelle network, declined to comment on the planned changes. “Part of our job is to work with participants at our financial institutions to evolve and improve our network-wide rules,” the company said in a written statement.
Early Warning Services is owned by Bank of America, Capital One, JPMorgan Chase, PNC, Truist, US Bank and Wells Fargo. Those banks have agreed in recent weeks to change the policy, people familiar with the plan said. It is expected to come into force early next year.
As banks work on the voluntary change, the Consumer Financial Protection Bureau, one of their key regulators, plans to issue guidelines that could force banks to take greater responsibility for their customers’ losses on fraudulent transactions. between peers.
“Fraud and scams are a growing problem on peer-to-peer payment apps,” a spokesperson for the bureau said. “CFPB will be looking closely at what changes any platform proposes to combat this pervasive problem.”
Senator Elizabeth Warren, a Massachusetts Democrat on the Senate Banking Committee, has turned the issue into a crusade. In a hearing in September, she criticized the chief executives of several major banks for taking a hands-off approach to what she called “alarming” levels of theft on Zelle: “When someone is victimized fraud, you claim it’s the customer’s problem.”
A handful of banks had already quietly decided to reimburse their customers for certain losses. JPMorgan Chase, for example, said in a letter to senators shortly after the hearing that it was reimbursing victims of a widespread attack, known as the “me to me” scam, in which a person impersonating for a bank official instructs a customer to send cash via Zelle to their own email address or phone number. Unbeknownst to the customer, the thief intercepted the victim’s email or phone and attached it, using Zelle, to the thief’s own bank account.
Bank of America also reimbursed customers for cases of “me-to-me” fraud, a bank spokesperson said.
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