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The Almighty Buck Businesses Crime United States

Fraud, Scam Cases Increasing on P2P Payment Service Zelle, Senate Report Finds (apnews.com) 54

Incidents of fraud and scams are occurring more often on the popular peer-to-peer payment service Zelle, according to a report issued Monday by the office of Sen. Elizabeth Warren, giving the public its first glimpse into the growing problems at Zelle. From a report: The report also found that the large banks that partly own Zelle have been reluctant to compensate customers who have been victims of fraud or scams. For instance, less than half of the money customers reported being sent via Zelle without authorization was being reimbursed. Warren, D-Massachusetts, a long-time critic of the big banks, requested data on fraud and scams on Zelle from seven banks starting in April. The report cites data from four banks that tallied 192,878 cases worth collectively $213.8 million in 2021 and the first half of 2022 where a customer claimed they had been fraudulently tricked into making a payment. In only roughly 3,500 cases did those banks reimburse the customer, the report found.

Further, in the cases where it's clear funds had been taken out of customers' accounts without authorization, only 47% of those dollars were ever reimbursed. Since being launched in June 2017, Zelle has become a popular way for bank customers to send money to friends and family. Almost $500 billion in funds were sent via Zelle in 2021, according to Early Warning Services, the company that operates Zelle. Zelle is the banking industry's answer to the growing popularity of peer-to-peer payment services like PayPal, Venmo and the Cash App. The service allows a bank customer to instantaneously send money to a person via their email or phone number, and it will go from one bank account to another. More than 1,700 banks and credit unions offer the service. But the service has also grown more popular with scammers and criminals. Once money is sent via Zelle, it requires a bank's intervention to attempt to get that money back.

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Fraud, Scam Cases Increasing on P2P Payment Service Zelle, Senate Report Finds

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  • by NaCh0 ( 6124 ) on Wednesday October 05, 2022 @09:52AM (#62940447) Homepage

    The terms of Zelle are pretty clear. There are no reversals like you have with a credit card.

    This is good and bad. You better have the product or service in hand when paying by zelle because the only way to undo it is have the party receiving the money Zelle it back to you.

    Overall, 214m / 500B = 0.04% fraud. I think any financial service would love to have numbers so low.

    • The terms of Zelle are pretty clear. There are no reversals like you have with a credit card.

      What does that have to do with unauthorized payments?

      • by jlv ( 5619 ) on Wednesday October 05, 2022 @10:08AM (#62940495)

        What does that have to do with unauthorized payments?

        The report from Warren's office (and the article) talk about unauthorized payments to try and link that to Zelle, but then don't provide any evidence of unauthorized payments being a problem in Zelle. And that's because that isn't a problem with Zelle - bad actors aren't making unauthorized payments or taking money out of people's accounts without their knowledge.

        What is happening with Zelle is an old-school social attack: bad actors are tricking people into sending them money. It isn't unauthorized. It's no different from having the bad actor trick you in a dozen other ways.

        That isn't Zelle's fault.

        • Re: (Score:3, Interesting)

          by bobthecow ( 67269 )

          I think there's also some funniness regarding what Zelle considers fraud. My bank sent me an email one day saying Zelle was being made unavailable for certain customers, and it is still unavailable about 6 weeks later. I asked that bank to un-enroll me from Zelle, which they said they did. I opened a new checking account at another bank and tried to enroll in Zelle, but I can't because my phone number and email address are still tied to the other account.

          From what I have gathered on Reddit and conversati

        • Maybe. But it goes both ways. The warning label *clearly* states that if your business model is to provide a safe space for scam artists and fraud, at the expense of people whose basic problem is that they assume that society is supposed to be trustworthy, the government is allowed to score political points by threatening to mess with you every election cycle.

        • I had alleged bad actors send me money through Zelle. The banks tried to reverse it. They got a fair bit of my money about $1200 worth. Of course I couldn’t get the digital goods that were sold back. So the Zelle is not trustworthy.
    • Zelle is the banking industry's answer to the growing popularity of peer-to-peer payment services like PayPal, Venmo and the Cash App.

      Sorry, that should have said:

      Zelle is the banking industry's answer to the popularity of RegE and RegZ which protects customers against this type of problem.

      Debit cards were the dry run, this is the practice. A fairly straightforward fix is to get Congress to agree to extend RegE and RegZ to Zelle, just like they did for debit cards.

      Oh, wait a minute...

    • by fermion ( 181285 ) on Wednesday October 05, 2022 @10:23AM (#62940523) Homepage Journal
      Typically if there is fraud you can sometimes get your money back. But it is correct that there is no expectation of a refund,

      My issue with Zelle is it was designed for banks not customers, and security sucks. Other money transfer services have some level of verification. Zelle is like giving a check to a random stranger.

      • Some level of verification and some level of Lena Evans, et al. v. PayPal Inc levels of total fuckery.

        The moment you let private companies handle escrow and charge back it causes problems too. Protect people from themselves with a ton of private censorship and capricious locking of accounts, or just rely on caveat emptor. Both have problems.

      • Zelle does have "some level" of verification. Before you actually send money, it makes a point of telling you the name under which the recipient is registered. I'm not saying that's a great mechanism, but it is better than just giving money to a random stranger.

    • by PastTense ( 150947 ) on Wednesday October 05, 2022 @11:44AM (#62940751)

      "Overall, 214m / 500B = 0.04% fraud. I think any financial service would love to have numbers so low."

      No. The $214 million fraud loss is from 4 banks while the $500 billion total transactions is from the 1500 or so banks which take Zelle.

    • Reversals? Yep they take place. I sold some digital goods, got the zelle payment and so released them from escrow. Later my bank US Bank, to be exact, drained every penny from my checking and savings accounts. They said it was reported as fraudulent. And took out what they could. I’d moved some out already. I tried to get information on which Zelle transaction, the bank on the other end and the owner of the account. The bank wouldn’t part with the information. I went a couple days later to close
  • Context Matters (Score:4, Insightful)

    by Voyager529 ( 1363959 ) <voyager529.yahoo@com> on Wednesday October 05, 2022 @09:56AM (#62940461)

    From the article:

    The report cites data from four banks that tallied 192,878 cases worth collectively $213.8 million in 2021 and the first half of 2022 where a customer claimed they had been fraudulently tricked into making a payment.

    There's a massive difference between "scammers pulled money from bank accounts without user intervention" and "account holders were socially engineered into willingly sending money to scammers".

    This has been happening for decades with Western Union and Moneygram; I'm hard pressed to believe there isn't either social convention or case precedent for this that somehow doesn't apply because it's "on an app".

    • There's a difference but if the platform doesn't have protections the line can get blurred.

      I'm not so confident selling a vehicle any more that there is any way to get paid for sure. Better forgeries, complex electronic payment systems that might pull the money back, or might not when they should... it's confusing.

      A few years ago I thought somebody selling me a vehicle was a turd for making us meet at a later date at a bank to settle up instead of accepting cash or a cashier's check on the spot, but n

  • Fake retailers (Score:5, Insightful)

    by MBGMorden ( 803437 ) on Wednesday October 05, 2022 @10:04AM (#62940481)

    I've seen several retailers for things like firearms cropping up lately that have either hard to find items all in stock or really low prices but then on the checkout page Zelle is the only method of payment accepted. To anyone with a brain that should be an obvious red-flag but some people are gullable and some are just old and unaware of modern stuff.

    Bottom line - credit cards already work well for online shopping. Alternative payments like Venmo and Zelle are to try and solve the problem of cash being less of a thing. You need to chip in $5 for the pizza order to your friend or pay $40 for that used desk on FB Marketplace? Use them. Don't use them for mail order shopping.

  • by Petersko ( 564140 ) on Wednesday October 05, 2022 @10:05AM (#62940483)

    If the bank is hacked, that's their responsibility. If some steals your payment details (i.e. credit card number and CVS) banks usually reverse it, which makes sense - you're living in a technical world not of your own design, and this is where the cracks show. If somebody (as described) removes funds without authorization, that's also probably a system flaw that the user can do nothing about, and the banks should probably step in.

    However, if somebody scammed you and you sent them money in a willing transaction, I fail to see why this is their problem.

    • However, if somebody scammed you and you sent them money in a willing transaction, I fail to see why this is their problem.

      The banks don't reverse transactions out of the goodness of the tiny, black little hearts of their executives. They do it because otherwise they're aiding and abetting criminal activity.

      Zelle is handling both ends of the transaction. They are both collecting and disbursing payments. They are actually more responsible than a bank for the processing of your transaction.

      If Zelle refuses to reverse transactions which are literally fraudulent, they open themselves up to be sued for aiding in the commission of a crime, especially since they profited from the transaction.

      • The money is gone, there is no reverse.

        • Then they've created a situation they can't fix, but that doesn't mean they're going to evade responsibility forever.

          • By supplying physical money government are creating a situation where fraudulent non reversible transactions can take place, much like Zelle they could replace it with a digital service with escrow.

            • By supplying physical money government are creating a situation where fraudulent non reversible transactions can take place, much like Zelle they could replace it with a digital service with escrow.

              Is that what you want?

              The thing about real cash transactions is that they are face to face and you have the opportunity to verify identity and collect other information, like license plate numbers, or just what someone looks like.

              • I want private industry to have the freedom to provide digital transactions which are only reversible with cooperation by both parties or through force, same as physical transactions.

                My point is there's no absolute moral high ground here, the difference between physical and digital irreversible transactions is a matter of degree, not fundamental. It's all a compromise and we just want to compromise on different things.

                • Their business is based on enabling fraud. The government isn't collecting a transaction fee every time cash changes hands. If they were doing it out of the goodness of their hearts or because it was necessary for commerce to work, I would agree with you, but since they're charging for it they're just a business based on enabling the kind of criminal activity that actually harms people.

    • Chargebacks didn't use to be a thing with credit cards either. It wasn't until fraud became prevalent enough that it was a big problem, that the law changed, requiring credit card companies to refund money to who filed a dispute. Just because Zelle hasn't been regulated to this extent yet, doesn't mean they shouldn't be.

  • by Anonymous Coward

    In Canada, inter-banking stuff is handled by Interac, and Interac has had email money transfers since the late 90ies (from debit to debit). Has the US never had something equivalent until Zelle?

    While Canada is a more modern country than the US in regards to healthcare, education, and over all quality of life and happiness, Canada has always lagged behind the US, Europe, and others, with its banking industry. So I'm surprised that Canada actually had a banking feature before the US did.

    • by dohzer ( 867770 )

      I've heard of "Zelly", but only through scambaiting videos & streams. The Indian scammers seem to love it.

  • This is what happens when people are never taught to think through a situation but just react immediately. Seems that all the messages we are bombarded with regarding social engineering just don't register with some people as well as the phishing messages do. Scams have been with us forever. The earliest I recall hearing about had something to do with a snake and an apple tree.
    • I had a woman email me that she sent me several hundred dollars by mistake on PayPal and asked if I could send it back. She had a sob story about trying to buy an exercise bike and needed the money back right away to complete her transaction. I explained the situation to PayPal and asked them to reverse the transaction. They told me to do it myself in order to be a good merchant (I am not a merchant). I then talked to an actual bank and was told not to touch the money or engage with the woman in any way
  • Do any legitimate transactions happen over Zelle? The only time that name pops up is when someone was scammed.

    • I use it to collect the first months rent until I have a free wire transfer setup at an associated bank. I also use it to reimburse my tenant for obvious little things like a snow shovel, leaf rake, or whatever. (since he volunteer to do some yard work before agreeing to move in)

    • by tomhath ( 637240 )
      Lizzie didn't mention the fact that the scammed transactions represent a very tiny fraction of the total Zelle transactions.
  • by King_TJ ( 85913 ) on Wednesday October 05, 2022 @10:24AM (#62940525) Journal

    I'm not necessarily sure all of this is as big a deal as they're making it out to be? I mean, I view Zelle as a modern and no-cost version of a wire transfer, really.
    If you wire money to someone and then you find out they scammed you? I'm not sure your bank owes you the money back... It's going to be a battle between you and the other party who defrauded you. Credit cards charge all these merchant fees (which get passed on to you by way of higher prices) and all the fees for exceeding credit limits, high interest on late payments, etc. But at least that allows them to offer ability to protect you from fraud and give you your money back in those cases, even if they haven't been able to recover it on their end.

    I used Zelle often as a way to send some money to my daughter who lives out of town. My issue w/Zelle that their relationship to the banks or credit unions seems a bit "muddled"? My kid had problems, for example, when she got a new cellphone with a new number. Since Zelle was set up under her old number, it broke the ability to send her any funds. Her bank kept saying they couldn't do anything about it and to call Zelle support. Zelle said updating that info is your bank's responsibility. I think someone finally ironed it out for her after about a month and many phone calls....

    • How does any of this put Zelle into a different category than credit card payments? Fraudsters can just as easily trick you into paying them via credit card, as with Zelle. But the law requires credit card companies to reimburse you in case of fraud. I see no reason that law shouldn't be changed to apply to Zelle too.

      • by King_TJ ( 85913 )

        I'm not sure which way they'll decide to take things? I'm just saying that in the case of credit cards, they've always gone above and beyond what's "required" to promise users some protections from fraud or problems with purchases. Some cards offer things like doubling the length of a manufacturer's product warranty, for example. And honestly, the credit card companies ALSO know that their cards are relatively easy to clone or mis-use. (Look how long they took to even go to using a chip instead of the magne

  • by jhecht ( 143058 ) on Wednesday October 05, 2022 @11:17AM (#62940659)
    When Zelle was just getting started, a big bank that was offering Zelle convinced a tenant to pay her rent via Zelle. It was a disaster. They had not told her what the recipient needed to have to receive a Zelle payment. I had never heard of Zelle, and neither had the small local Bank where I have my account. I also did not have a smartphone, which was long a requirement. They wouldn't refund her money for weeks, leaving the money in limbo until they finally realized that and refunded her money so she could pay the rent. I don't know if that's still going on, but it left me very wary of Zelle.
    • Zelle's customers are the banks, not you. 'You are the product'.
    • by tomhath ( 637240 )
      People need to take a certain amount of responsibility for their actions. Did the tenant even bother to ask you if you could accept payment via Zelle? Of course not. So it's the bank's fault.
      • by jhecht ( 143058 )
        The bank told her all she needed was my email. We had already discussed Paypal, which just required my email. They were trying to peddle Zelle services, so they misled her. Haven't you ever been misled by a company trying to sell you something?
  • by PastTense ( 150947 ) on Wednesday October 05, 2022 @11:49AM (#62940783)

    The complete report is at:

    https://www.warren.senate.gov/... [senate.gov]

  • by jvkjvk ( 102057 ) on Wednesday October 05, 2022 @11:52AM (#62940795)

    Fraud and scam on one hand and unauthorized payments on the other.

    With fraud and scams, you authorize the payments. I have little sympathy for those who Zelle fraudsters and scammers money. Just as much as I have for any other victim of fraud and scam. Should they get their money back? Sure! From the fraudsters and scammers, not an intermediary party (read, the rest of us who didn't fall for the scam) like the bank.

    Unauthorized payments, on the other hand, where the account holder did not authorize a transfer? Those indeed need to be paid for by the banks because it is their job to stop such activity.

  • Do you mean the fraudsters first compromises peoples Windows computers and then execute the fraudulent transactions.
  • These days, people don't carry cash as much as they used to, so it doesn't pay as well for crooks to try to mug you for cash. They go where the payments are. Since these days, online payments are they way people do business, crooks have followed.

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