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A US senator has called on the Consumer Financial Protection Board (CFPB) to investigate dispute resolution practices at Zelle, the largest peer-to-peer (P2P) payments network in the US.
On Monday (August 5), Senator Richard Blumenthal (D-CT) wrote to CFPB director Rohit Chopra to demand that the agency conduct an investigation of the dispute resolution practices of Zelle and its owner banks.
Zelle is operated by Early Warning Services (EWS), which in turn is owned by seven US banks — the three largest of which are J.P. Morgan Chase, Bank of America and Wells Fargo.
Collectively, as covered by Vixio last week, customers of these three banks generate almost three-quarters of all Zelle transactions.
Last month, the Senate’s Permanent Subcommittee on Investigations (PSI) published a majority staff report detailing the findings of its investigation into EWS and the three banks’ handling of fraud and scams on Zelle.
Following the publication of the report, the PSI held a hearing with Cameron Fowler, CEO of EWS, and executives from each of the three banks.
Blumenthal, as chair of the PSI, said he was “alarmed” by some of the findings of the majority staff report.
For example, the report found that reimbursement of unauthorised fraud claims by the three banks on behalf of Zelle users has fallen dramatically, from 62 percent in 2019 to 38 percent in 2023.
“The witnesses provided deflections and excuses, but few answers, when asked to explain the low percentage of fraud disputes reimbursed on Zelle,” Blumenthal told Chopra.
Despite EWS’ role in enforcing rules on the Zelle Network, Fowler told the subcommittee that he was “not in a position to comment on” why so few fraud claims are reimbursed.
He did, however, reiterate a previous public statement that the conversation on scams and fraud “needs to move beyond reimbursement”.
Authorised v unauthorised
Under Regulation E of the Electronic Fund Transfer Act, banks and credit unions are required to reimburse customers for unauthorised electronic funds transfers.
The regulation stipulates that financial institutions must investigate reports of unauthorised transfers and decide within ten days whether they qualify for reimbursement.
In the case of the three banks featured in the majority staff report, investigators found that fraud staff have “broad discretion” to determine whether a disputed transaction is authorised or unauthorised.
If the transaction is ruled to be an authorised transaction, the customer is not entitled to reimbursement.
“Unfortunately, last week’s testimony provided little insight into the processes these institutions use to investigate transaction disputes,” said Blumenthal.
“Beyond vague anecdotes, none of the witnesses offered details about why so many consumers who complained to their bank of fraud were turned away empty handed.”
Adam Vancini, EVP for consumer and small business banking at Wells Fargo, gave some examples during the hearing of when a transaction that is initially disputed as “unauthorised” may be ruled “authorised”.
“We start with the benefit of the doubt that it is a fraud claim, so that's how it originally gets classified,” he said.
“In some instances, the customer might have made the transaction and forgotten they've made it.
“In other instances, it might be a joint account, and you might see your wife has made a transaction on that account you don't recognise — those are some of the some of the things that can occur.”
Bluthenthal and other senators, including ranking member Ron Johnson (R-WI), the highest-ranking Republican on the subcommittee, were unsatisfied with these answers.
Blumenthal was also concerned by the three banks’ admissions that their fraud dispute resolution processes have never been subject to a third-party review.
He, therefore, called on the CFPB to review the subcommittee's report and investigate whether Zelle, and other P2P payments platforms, are upholding their obligations under the Electronic Fund Transfer Act.
