Democrats push stronger consumer protections for Zelle-related fraud

Bloomberg

WASHINGTON — Three Democratic lawmakers are trying to bolster the Electronic Fund Transfer Act to expand the number of instances where a consumer is protected from fraudulent or scam activity, a reaction to mounting political pressure against the bank-led payment app Zelle. 

Sens. Richard Blumenthal, D-Conn., and Elizabeth Warren, D-Mass., introduced their bill in the Senate on Thursday, while Rep. Maxine Waters, R-Calif., proposed companion legislation in the House on Friday. 

The bills aim to protect customers who are tricked into initiating a payment to a bad actor. The Electronic Fund Transfer Act currently guarantees refunds for consumers who are victims of fraud when the payment wasn't authorized. 

The Democratic-proposed expansion would mandate shared liability for unauthorized or fraudulent payments between a consumer's bank and the institution that receives the fund, alongside other institutions that "materially help facilitate the payments." 

"Zelle's speed and convenience have made it a target for bad actors looking to trick unsuspecting consumers out of their hard-earned money," Blumenthal said in a statement. "Despite this growing threat, Zelle and the banks that own it have failed to implement adequate safeguards and reimbursement policies to make consumers whole when they fall victim to scams and fraud." 

While the bills aren't limited to Zelle, they come on the heels of a hearing of the Senate Permanent Subcommittee on Investigations, where Blumenthal serves as chairman, and a report from that panel. Blumenthal questioned witnesses at the hearing, including representatives of JPMorgan Chase, Wells Fargo and Bank of America — the three largest banks that share ownership of Zelle's parent company Early Warning Services, alongside a representative of EWS. 

At that hearing, Blumenthal questioned the banks on whether they believe the EFTA should be amended to include authorized fund transfers, like scams rather than outright frauds. 

The bankers warned of "unintended consequences," such as incentivizing criminals to pursue scams and a rise in claims of scams that are not valid. 

"We all have a vested interest in protecting all of our customers from fraud and scams, and we want to work together with everybody to drive out the cause of the problem which is the criminals," said Melissa Feldsher, managing director and head of commerce enablement at JPMorgan. "Changing the reimbursement policy is actually not going to do anything to actually solve the problem, which is we actually need to prevent, identify and prosecute the criminals who are taking advantage of innocent Americans."