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Crime Government The Almighty Buck

Are Banks Doing Enough to Protect Customers from Zelle Scams? US Launches Federal Probe (yahoo.com) 82

Posted by EditorDavid from the magic-internet-money dept.
"Zelle payments can't be reversed once they're sent," notes the Los Angeles Times — which could be why they're popular with scammers. "You can't simply stop the payment (like a check) or dispute it (like a credit card). Now, the federal regulator overseeing financial products is probing whether banks that offer Zelle to their account holders are doing enough to protect them against scams. Two major banks — JPMorgan Chase and Wells Fargo — disclosed in their security filings in the last week that they'd been contacted by the Consumer Financial Protection Bureau. According to the Wall Street Journal, which reported the filings Wednesday, the CFPB is exploring whether banks are moving quickly enough to shut down scammers' accounts and whether they're doing enough to identify and prevent scammers from signing up for accounts in the first place...

A J.D. Power survey this year found that 3% of the people who'd used Zelle said they had lost money to scammers, which was less than the average for peer-to-peer money transfer services such as Venmo, CashApp and PayPal. The chief executive of Early Warning Services, which runs Zelle, told a Senate subcommittee in July that only 0.1% of the transactions on Zelle involved a scam or fraud; in 2023, the company said, that percentage was 0.05%. But Zelle operates at such a large scale — 120 million users, 2.9 billion transactions and $806 billion transferred in 2023, according to Early Warning Services — that even a tiny percentage of scam and fraud problems translates into a large number of users and dollars... From 2022 to 2023, Zelle cut the rate of scams by nearly 50% even as the volume of transactions grew 28%, resulting in less money scammed in 2023 than in 2022, said Ben Chance, the chief fraud risk management officer for Zelle. The company didn't disclose the amounts involved, but if 0.05% of the $806 billion transferred in 2023 involved scam or fraud, that would translate to $403 million.

Do Zelle users get reimbursed for scams? Only in certain cases, and this is where the banks that offer Zelle have drawn the most heat. If you use Zelle to pay a scammer, banks say, that's a payment you authorized, so they're not obliged under law to refund your money... Some banks, such as Bank of America, say they will put a freeze on transfers by a suspected scammer as soon as a report comes in, then investigate and, if the report is substantiated, seize and return the money. But that works only if the scam is reported right away, before the scammer has the chance to withdraw the funds — which many will do immediately, said Iskander Sanchez-Rola, director of innovation at the cybersecurity company Gen.
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Are Banks Doing Enough to Protect Customers from Zelle Scams? US Launches Federal Probe More

Are Banks Doing Enough to Protect Customers from Zelle Scams? US Launches Federal Probe

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  • Zelle? (Score:5, Informative)

    by viperidaenz ( 2515578 ) on Monday August 12, 2024 @12:05AM (#64697860)

    It's a payment system owned by the American banks, Bank of America being one of the owners.

    • Re:Zelle? (Score:5, Informative)

      by fahrbot-bot ( 874524 ) on Monday August 12, 2024 @01:21AM (#64697918)

      It's a payment system owned by the American banks, Bank of America being one of the owners.

      More specifically, it's owned by a private financial services company, Early Warning Systems*, which is owned by the banks Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, U.S. Bank, and Wells Fargo. Many other, like 1,600, banks / financial institutions are members.

      [ * A not at all a dubious name for a financial services company own by several banks. /s ]

      Adding that EWS has a new service called Paze [paze.com] for online checkout system where you can register your credit card with them (through your bank) and a Paze aware website can offer you the option of using that to provide tokenized CC information for the transaction -- like a dumbed-down virtual CC. Personally, I'm skeptical.

      • Unfortunately, the main alternative is from a company with a long history of just keeping customers' money for whatever reason they feel like.

      • Adding that EWS has a new service called Paze for online checkout system where you can register your credit card with them (through your bank) and a Paze aware website can offer you the option of using that to provide tokenized CC information for the transaction -- like a dumbed-down virtual CC. Personally, I'm skeptical.

        This is the first I'm hearing of Paze. That actually sounds pretty nice.

        Despite my best efforts, I've had my CC number snagged a couple of times over the years. Both would have been avoidab

        • Adding that EWS has a new service called Paze for online checkout system where you can register your credit card with them (through your bank) and a Paze aware website can offer you the option of using that to provide tokenized CC information for the transaction -- like a dumbed-down virtual CC. Personally, I'm skeptical.

          This is the first I'm hearing of Paze. That actually sounds pretty nice.

          Despite my best efforts, I've had my CC number snagged a couple of times over the years. Both would have been avoidable if the merchant hadn't had a reusable credit card number.

          Unfortunately, it's only available on Paze aware websites. At checkout, they check the email address you provide against the Paze database (containing the email you use at your bank) and if you have a Paze wallet, the site shows the option to use a Paze generate tokenized CC information to complete the transaction -- which is approved using a regular, unsecure SMS/text message to your phone. That last bit doesn't sit well with me.

          Here's something else that irks me. Many of the partner banks may have al

      • Re: (Score:2)

        by zlives ( 2009072 )

        paze is there replacement for applepay tokens for transactions.

      • Re: (Score:2)

        by hawk ( 1151 )

        >Personally, I'm skeptical.

        I'm not particularly skeptical.

        Zelle wasn't started up as a profit center, but to cut down on the screwiness of other systems by the for-profit middlemen.

        You can think of Zelle as either an instantly clearing check, or as a small limit bank wire.

        And I'll note that banks don't reimburse you if you pay a scammer with either check or wire, nor if you take out cash and pay a scammer.

        I really don't think this is something calling for intervention. If banks are going to have to gua

        • Personally, I'm skeptical.

          I'm not particularly skeptical.
          Zelle wasn't started up as a profit center, ...

          I'm skeptical of Paze, not Zelle.

  • RDC (Score:2)

    by dohzer ( 867770 )

    Does this include the money taken via the "refund scam" (or similar) where the victim gives a scammer access to their bank account via remote desktop, and they transfer the money directly out of their account?

    • No sometimes there is not a way to recover funds for an item that was never shipped, for example. Since the banks own part of Zelle, there is a conflict of interest in that they heavily promote it. Unlike credit cards which have vested interests to ensure transactions are legitimate, Zelle acts pretty much like a bank transfer; since the customer authorized the transfer, the bank has no more responsibilities after that. Payment systems like Venmo and PayPal have a dispute system even if it is less than rob

  • If you hand cash to a scammer... (Score:3)

    by 93 Escort Wagon ( 326346 ) on Monday August 12, 2024 @01:44AM (#64697942)

    ... as long as he can get away from you, you're screwed - the bank's not gonna refund that either.

    It seems like the same principle.

    • To be clear - I don't think the victims should be SOL; it's just that I think this is a law enforcement problem, not a bank problem.

    • Yes, but government's job is to privatize the gains and socialize the losses, so they will insist on a tx fee that you pay so dummies who fall for scams can get paid.

      They will sell taking your money as compassionate.

      And just to steelman, if you haven't been demaning that your schoolboard teach criticial thinking as a core subject maybe they should take your money.

      But that's a poor argument because the fascist Rockefeller design of the government schools is to explicitly not teach critical thinking so you wo

      • This is quite a muddled rant, sounds like a radio talk show.

        Personally, I don't trust public schools to teach critical thinking *well* because they look at every subject, including critical thinking, through the lens of group-think ideology. If a viewpoint is not politically correct, it's not going to make it into the classroom.

    • "the bank's not gonna refund that either."
      -1, offtopic
      The bank wasn't part of that transaction, so it's reasonable that they would not be part of the recovery.

    • The difference is, Zelle is in a position to know (or find out) whether the recipient is a scammer, while cash is not.

  • Hate to mention it (Score:3)

    by Slashythenkilly ( 7027842 ) on Monday August 12, 2024 @02:45AM (#64698014)
    Banks dont care. Even in person fraud schemes where someone walks into a branch with a washed check to cash, they just give them the money. Victims file their claim and are at least initially denied with no real investigation meanwhile theyre out thousands of dollars.

  • I think a decent compromise would be to have escrow for internet payments and instant only for NFC.

    • I think a decent compromise would be to have escrow for internet payments and instant only for NFC.

      Yes we can't brook any delays with those bored apes!

    • I think a decent compromise would be to have escrow for internet payments and instant only for NFC.

      I don't use Zelle or anything similar, but I've read a few articles that mention the the possibility of Zelle implementing a short transaction delay, like the practical effect of using a check or CC (but shorter), to allow more time for people to report scam/fraud, but the concern from the banks is that may drive people to use a competing service like Venmo/Paypal offering immediate transactions. Those articles also mention that Zelle apparently does now implement a warning/confirmation screen for an init

      • Sellers use paypal because buyers want it, escrow which is frozen only on a police report would for sellers still be a massive improvement over paypal. For buyers it would make no difference over no escrow.

      • but I've read a few articles that mention the the possibility of Zelle implementing a short transaction delay, like the practical effect of using a check or CC (but shorter), to allow more time for people to report scam/fraud, but the concern from the banks is that may drive people to use a competing service like Venmo/Paypal offering immediate transactions.

        Yeah. That's exactly what it would do. I use Zelle all the time. The whole point of it is the instant transfer of money. I don't use it for purchases. I use it to send money to people I already know. My girlfriend picks up dinner on the way home? I Zelle her the cost (I'm old school. I pay for the meals). Or maybe I ask one of my technicians to grab donuts on the way to work (it happens once in a while). I'll Zelle him/her the money. One tech forgot her gas card one day.. She had to fill-up out of pock

        • All of those could have been done with NFC, which is less fraud sensitive than internet transfers.

          It's a question of finding the right convenience/security balance. With Fednow most banks will offer instant bank transfers too, slightly more involved to initiate the transfer, but that's what makes it less convenient for fraud.

          • If my friend needs gas and is across town...I really don't want to have to drive to my friend. May as well just bring them the fucking gas as well. Zell is only useful because it is free and instant. As soon as it's neither, I wouldn't use it.

            It's great for transfer of money between trusted parties. No one should use it for a business. That's what a credit card is for.

        • Take the instant out of it and I'm not going to use it. Venmo has instant transfers

          Unless your bank account is nearly empty, verified instantly is good enough.

        • Yes there needs to be SOME way to receive money and know the buyer isn't going to back out retroactively, if you sell a car for example. It's getting harder and harder to know.

        • This, 100%. Well said.

        • Re: (Score:2)

          by hawk ( 1151 )

          >(I'm old school. I pay for the meals)

          nah, just partway there.

          Old school is you drive to pick her up, open the door for her, and place your coat on the ground if necessary to protect her shoes from getting dirty.

          • nah, just partway there.

            Old school is you drive to pick her up, open the door for her, and place your coat on the ground if necessary to protect her shoes from getting dirty.

            I'm GenX... I do open the door for her.

  • Why should banks be held for authorized payment? (Score:4, Insightful)

    by khchung ( 462899 ) on Monday August 12, 2024 @05:54AM (#64698238) Journal

    If you use Zelle to pay a scammer, banks say, that's a payment you authorized, so they're not obliged under law to refund your money...

    To be clear, this is about *properly authorized* payment, isn't it? Why the hell should banks be held responsible for you getting scammed?

    This isn't the other "identity theft" scam that banks pull when *they* were scammed by someone pretending to be you, right? This is about you going through the proper channels to authorize the bank to pay the scammer, whatever channel being used isn't the problem.

    Perhaps people should be more careful before authorizing payment to strangers, just like one would be careful before handing out wads of cash to a stranger?

    • I think there should be a balance somewhere. Yes, people need to be personally responsible, but on the other hand, I've seen what lengths thieves will go to, to filch someone's Bitcoin wallet info, so even if someone does everything right, they may still be defrauded.

      Maybe something like IBM's old ZTIC could be something useful, where it communicates to the bank on its own channel separate from a potentially compromised PC or phone, as a way to confirm a transaction, however the ZTIC device wouldn't be abl

    • "*properly authorized* payment"

      The bank itself gets to define "properly authorized" in this scenario, and thus the bank always finds that the bank has no liability.

    • Re: (Score:2, Informative)

      by drinkypoo ( 153816 )

      To be clear, this is about *properly authorized* payment, isn't it? Why the hell should banks be held responsible for you getting scammed?

      Chargebacks are the law [chargebacks911.com]. They were not the banks' idea. They were the government's response to credit cards being used for fraud which the banks profit from by collecting transaction fees. Perhaps you can explain how Zelle is different?

      • Zelle doesn't have fees.

        When I buy something from a stranger for delivery by mail, I use paypal. More fees but more protections.

      • Re: (Score:2)

        by hawk ( 1151 )

        >Perhaps you can explain how Zelle is different?

        start with the lack of transaction fees . . .

  • Just do what they did in the UK... (Score:5, Interesting)

    by jonwil ( 467024 ) on Monday August 12, 2024 @05:58AM (#64698242)

    In the UK they passed laws that make banks liable for losses due to scams (I don't know exactly how it works) but if the same laws were passed in the US, the banks (and Zelle as an entity) would have a huge incentive to do everything possible to stop the scams.

    • Re: (Score:2)

      by mjwx ( 966435 )

      In the UK they passed laws that make banks liable for losses due to scams (I don't know exactly how it works) but if the same laws were passed in the US, the banks (and Zelle as an entity) would have a huge incentive to do everything possible to stop the scams.

      They just make it harder to send a bank transfer (faster payments). When I was buying a car my bank stopped me from sending 1 x £4000 so I sent them 4 x £1000 payments which got around the issue. I of course could have phoned my bank but that would have meant talking to someone and I fixed the issue on my own.

      Scammers are just developing new ways of getting hapless OAPs to send them money, it might have stopped a few old biddies sending their entire savings away but I doubt it's stopped much

      • In the US my bank restricted automatic push payments to $1,000 last year. This year I can automatically push up to $2,500 a day. To send $10,000 using our system, Zelle, would take 4 days.

        • Re: (Score:2)

          by mjwx ( 966435 )

          In the US my bank restricted automatic push payments to $1,000 last year. This year I can automatically push up to $2,500 a day. To send $10,000 using our system, Zelle, would take 4 days.

          UK faster payments is £25,000 a day (About US$30,000), this can be increased by speaking to your bank about the transaction. The strange thing is, UK money laundering regulations requires all payments over £10,000 to be tracked, so typically you need to state why you're making that transaction. At exactly what point they'll require some interaction on a transaction outside those limits depends on the policies of each bank.

  • There's a perverse incentive at work here: Banks make their profits through volume of transactions. The more security they put in place, the more inconvenient it becomes to make transactions, which tends to decrease the volume of transactions (We saw how this played out with "sub-prime mortgages"). It's in banks' interests to keep security lax. What they need is independent oversight & regulation to ensure that they're complying with statutory minimum standards of security & privacy. Failure to comp

  • Imagine that .. (Score:3)

    by satsuke ( 263225 ) on Monday August 12, 2024 @09:11AM (#64698488)

    Imagine that, a company owned by banks that doesn't have the protections of normal banking or credit cards.

    Almost as if it was setup to skirt those protections like the gig economy did with employment protections.

  • Zelle payments can't be reversed once they're sent,

    While in most cases that is probably true, it's not true all the time. I was at a restaurant with friends and we needed to split the cost of something and I lacked enough small bills to pay the other people, so we agreed I could pay them by Zelle. One guy was with a credit union instead of a bank and he could not in the end get Zelle working, so Zelle allowed me to reverse the transfer since he never picked it up after a few days. But the real issue here is probably not whether Zelle can or can't be re

  • I don't understand why the US doesn't have something between Credit Cards and Bank Transfers that has 0.5% fees and an escrow functionality. Escrow has some costs, but nothing like the 2% (net) that credit cards charge.

  • I don't know how many ways this can be said. It's right on the payment page with incorrect grammar and all: "Make sure you're sending to someone you trust, and their information is correct. Money is typically available in their account in minutes. Once you've sent money, you can't cancel it."
  • If every charge resulted immediately in a text/email/app-alert (card holder preference) of the receipt of the transaction, card holders would become very aware when an unexpected receipt appeared. This is dead simple. yet Visa's processing network does not have this feature. The Visa/Mastercard Duopoly controls 83% of the payment card network in the U.S -- the result is a failure to innovate.

    This would also mean that every single retailer would not need your email address or phone number for sending re

    • Re: (Score:1)

      by rowls ( 225157 )
      There is no need for the card companies to be involved. My bank sends me an SMS message every time a charge is authorized on my credit card (it is a Visa card). Many times the phone in my pocket buzzes with a text before the clerk has time to hand me the printed receipt.

  • The Zelle scams I've heard about is in the opposite direction. You sell something, like on say, Facebook Marketplace.

    • Scammer sends you money
    • Zelle gives you the money into your account
    • Scammer picks up the agreed upon goods
    • Scammer lies to Zelle, claiming they never received the goods
    • Zelle takes the money back out of your account
    • Zelle refunds the money to Scammer
    • Scammer never returns you the goods

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