Zelle banks refund scam victims

Reports indicate that banks utilising the Zelle payment app have initiated a process of refunding customers who have fallen victim to imposter scams. Zelle operator Early Warning Services (EWS) disclosed that since late June, the 2,100 firms on Zelle have been reimbursing customers who were deceived into sending money to fraudulent entities posing as the government, banks, or service providers. According to Ben Chance, Chief Fraud Risk Officer at EWS, these refunds surpass existing legal and regulatory requirements. The government mandates refunds only when payments are made without customer consent, not when customers initiate the transfers themselves.

In August, Zelle announced a new reimbursement benefit for specific scam types, but details of the imposter scam refund policy were not disclosed earlier due to concerns that scammers might exploit this information. Instead of requiring banks to directly reimburse customers, EWS has established a mechanism enabling lenders to recover funds from the recipient’s account and return them to the sender. Banks on Zelle are now required to use a tool that flags transfers with risky attributes, such as payments to accounts with no prior transactions on the Zelle network.

Ben Chance mentioned that Zelle has experienced a significant reduction in fraud and scams this year, although specific details were not provided. This marks a shift in perspective for banks, as they previously argued against being obligated to refund transfers initiated by customers who were deceived. The change follows a New York Times report on the rise of scams on Zelle, drawing attention from lawmakers critical of major banks.

Zelle, owned by seven of the largest U.S. banks, has become a significant player in the peer-to-peer payment network since its launch in 2017. Bank of America, one of Zelle’s owners, reported a 27% increase in transactions on the network during its latest quarter, totalling 323 million and surpassing checks written by the bank’s clients by two-fold.

This development occurs at a time when 62% of financial institutions are witnessing a rise in fraudulent transactions, particularly with credit cards and payment methods like Zelle and Venmo, according to reports.