Senators encourage CFPB to better protect consumers from fraud on peer-to-peer transactions

A group of Democratic U.S. senators recently called on the Consumer Financial Protection Bureau (CFPB) to update its rules for fraud on peer-to-peer digital payment networks like Zelle.

© Shutterstock

In 2020, nearly 18 million Americans were victims of scams involving Zelle and other instant payment applications. The senators contend that the banks and institutions that own these networks have not provided sufficient protection or recourse to their customers for fraudulently induced transactions. The senators want banks to ensure mechanisms are in place to reduce fraud on instant payment apps that they own, operate, control, and market to their customers.

Zelle, operated by Early Warning Services, is owned by seven major banks: Bank of America, Capital One, Chase, PNC Bank, Truist, U.S. Bank, and Wells Fargo.

“Determining liability based on whether a consumer or a fraudster physically initiates a transaction is antiquated. This approach developed when consumers transferred money electronically by providing their own bank with the recipient’s account number and routing number and then waiting days for accounts to be credited and debited. It is not suited for the current system, where consumers need only a cell phone number or username to send peer-to-peer payments from a mobile device with nearly instantaneous credits and debits. Our nation’s consumer protection rules must evolve to keep pace with the growth of instant payment services like Zelle,” the senators wrote to CFPB Director Rohit Chopra.

The letter was signed by U.S. Sens. Jack Reed (D-RI), Bob Menendez (D-NJ), Elizabeth Warren (D-MA), alongside Senators Sherrod Brown (D-OH), Catherine Cortez Masto (D-NV), and Raphael Warnock (D-GA).

“Following an investigation into reports of widespread fraud on Zelle, we wrote to Zelle’s parent company, Early Warning Services, LLC (EWS) in April 2022 and to the seven banks that own EWS in June 2022. Although EWS failed to answer many of our questions, the response letter confirmed that an existing gap in regulatory authority allowed both EWS and the financial institutions on the platform to avoid liability and deny consumers recourse for fraud, which has cost consumers hundreds of millions of dollars. Given the sheer numbers of consumers using instant payment services such as Zelle and the hundreds of billions transferred through these platforms each year, the inadequacy of current consumer protections is unacceptable,” they added.

The senators expressed their concern that if the banks allow the status quo to continue, then fraud and theft on these platforms will rise exponentially as scammers become more sophisticated.

“Given the growing marketing and use of these services, we believe it is essential that the CFPB intervene to protect consumers by more vigorously applying its existing authority under the EFTA and Regulation E, and we are pleased by reports that the agency is considering some of these actions,” the Senators concluded.