Scammers Exploit Zelle To Steal Millions — And Congress Pushes Banks To Reimburse Victims
Transferring money with apps like Zelle, Cash App, and Venmo is usually quick and easy — until it turns into a nightmare you never saw coming. In recent years, scams and phishing campaigns targeting these payment apps have ballooned, taking aim at Americans’ bank accounts. But one platform appears more dangerous than any other — podcaster Clark Howard calls it “Big Bad Zelle.”
Big Bad Zelle: As a product of seven major US banks, Zelle has created a convenient way for people to make instant transfers from their bank accounts. Its popularity has made it the most-used money transfer platform in the US. But its speed and ease-of-use has proven dangerous — and costly. A new report published by American Banker says Zelle scams have cost customers of America’s three largest banks nearly $1B since 2021, with many never seeing their money again. Congress could change that.
- Banks are required to protect customers from unauthorized transfers — such as those from stolen debit or credit cards — but this protection does not cover payment apps like Zelle.
- Proposed legislation could amend the Electronic Funds Transfer Act to include fraudulent or unauthorized Zelle transactions in these protections.
Zelle-Out
Zelle claims it has a policy requiring banks to reimburse certain scams — including unauthorized activity and impersonation fraud. They argue they shouldn’t be on the hook because of people’s inability to recognize scams.
- Zelle representatives emphasize that 99.9% of the $806B in Zelle transfers last year were legitimate, underscoring that fraud is just a small fraction of transactions.
- However, amid a fire-fight on Capitol Hill, Congress accused Zelle’s three largest banks of reimbursing only 12% of scam cases in 2023 — with refund approvals declining over time.
No quick fix: Bill sponsor Sen. Richard Blumenthal says that requiring banks to reimburse scam victims will give them “a financial incentive to impose stronger measures.” However, saddling banks with covering the costs for customers with poor scam literacy could backfire, with Bloomberg’s Marc Rubinstein warning that it could bring an end to free payment apps.
