Zelle is a peer-to-peer platform owned by seven of the nation's nine largest retail banks through Early Warning Services. It drove $490 billion in transactions in 2021 — more than twice the $230 billion in volume that rival Venmo reported last year, according to American Banker.  

The lawmakers, both of whom are members on the Senate Banking Committee, asked Early Warning Services in the letter how it has adjusted its procedures in light of “widespread fraud” reported by the New York Times last month in a piece that said 18 million Americans were affected by such deception in 2020.

“Your company and the big banks who both own and partner with the platform have abdicated responsibility for fraudulent transactions, leaving consumers with no way to get back their funds," Warren and Menendez wrote to Ko.

The immediacy of transfers through the platform serve as a draw for users, the senators asserted, but also make scams more effective "as consumers have no option to cancel a transaction even moments after authorizing it," the senators added.

The April 25 letter explained that banks have argued that they have no obligation to return money to fleeced customers, so long as the affected users authenticated the transfers themselves, citing the Consumer Watchdog advocacy organization. 

The senators pointed to a clarification the Consumer Financial Protection Bureau (CFPB) issued, noting that Regulation E of the Electronic Fund Transfer Act shields victims of fraudulent money transfers, even when they have been “induced” into transferring funds themselves.

A March report from the Federal Deposit Insurance Corp. (FDIC), meanwhile, found that both the banks and platforms like Zelle were held responsible for fraudulent electronic transfers through Regulation E.

The senators asked Ko whether Regulation E applies to scams seen on Zelle, and whether Early Warning Services or an affected customer's bank would be responsible for refunds. 

In a statement to Banking Dive, Early Warning Services said it is reviewing the letter and will provide a response "in due course."  

Early Warning Services is owned by Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, U.S. Bank and Wells Fargo. 

By Robin Bradley on April 27, 2022
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