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Who's on the Hook?
The Consumer Financial Protection Bureau is reportedly investigating big banks over their reimbursement policies for Zelle platform scams.
The Zelle network is owned by the largest banks in the nation. It’s a peer-to-peer payment network that rivals the platforms of nonbanks such as PayPal Holdings’ Venmo and Block’s Cash App. While a consumer can sign up for it externally, Zelle most often is embedded directly in a customer’s deposit account within a bank’s app or website, and Zelle says it’s used at 2,100 small and large financial institutions.
Last year, Zelle handled 2.9 billion transactions valued at $806 billion, up 28% year-over-year. As a comparison, PayPal across all its payments platforms, including Venmo, recorded 25 billion in transactions totaling $1.5 trillion in 2023. The company didn’t break out Venmo’s figures.
Transactions on these platforms are generally instant and irrevocable, making them popular with scammers. If they can persuade a victim to send them money via these platforms, that money is gone, which means the platforms have fewer protections than credit or debit cards.
A U.S. Senate subcommittee recently completed an investigation into Zelle’s practices and recommended several measures, including new laws to protect consumers and clarity on what’s known as Regulation E, which requires financial institutions to reimburse customers for unauthorized transfers. The subcommittee found that banks hadn’t reimbursed a majority of Zelle scam victims because the transfers were authorized by the victim.
But interestingly, the Senate investigative report narrowly focused on Zelle, not any of Zelle’s competitors, even though more consumers complain about scams on PayPal and Cash App than on Zelle, according to a Federal Trade Commission blog post in May. Most people reporting a payment app scam said they used PayPal, followed by Cash App. Zelle was No. 3.
The CFPB takes the stance that even nonbanks are subject to Regulation E. If Congress passes a law, it should make sure all payment platforms live up to the same obligations to customers. Fintech platforms should not be exempt. Whatever regulators decide to do, targeting banks alone will leave millions of customers exposed on other platforms, and that’s not a solution.
• Naomi Snyder, editor-in-chief for Bank Director
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