Menendez, colleagues urge regulators to hold Zelle accountable for inadequate protections to stop fraudulently induced payments to crooks
WASHINGTON, D.C. – U.S. Senator Bob Menendez (D-N.J.), alongside Sens. Jack Reed (D-R.I.), Elizabeth Warren (D-Mass.), Sherrod Brown (D-Ohio), and Mark Warner (D-Va.), led an effort urging financial institutions and regulators to help people keep their hard-earned cash safe from fraud and scams, especially as scammers find new ways and employ sophisticated schemes to dupe customers using instant peer-to-peer payment systems like Zelle to send money on the platform under fraudulent pretenses.
“We write to urge your agencies to take several specific steps to protect consumers who use the nation’s largest instant payment app from falling victim to scams and fraud. In particular, we urge the Federal Reserve Board, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency (OCC) to closely review and examine the customer reimbursement and anti-money laundering (AML) practices of depository institutions that participate in the Zelle network,” wrote the senators to the four agencies responsible for supervising financial institutions.
Further, the Senators are urging the OCC and Federal Reserve Board to more rigorously examine Early Warning Services, LLC (EWS) on an ongoing basis in coordination with the Consumer Financial Protection Bureau (CFPB). EWS operates the Zelle network and is owned by seven of the Nation’s largest banks, including Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, US Bank and Wells Fargo.
In the letter, the lawmakers noted that although Zelle is marketed as a convenient and inexpensive way to transfer money within the supervised banking system, its model has opened the door to fraud and scams on a tremendous scale.
“As the federal regulators of the seven banks that own and operate Zelle, as well as the 1,800 depository institutions that participate in the Zelle network, you have authority to supervise their activities to ensure they comply with key consumer protection and AML laws, including the Electronic Fund Transfer Act (EFTA) and the Bank Secrecy Act (BSA),” the senators said. “Supervision for compliance means ensuring that neither EWS nor other regulated institutions that make Zelle available to millions of Americans engage in practices that would increase the risks to the safety and soundness of those institutions.”
Sens. Menendez, Reed, Warren, Brown, and Warner also warned that if bank or credit union communications lead customers to expectations of safety that are not met, it can create real risk of unfair, deceptive, or abusive practices for both customers and banks and credit unions.
“We believe the agencies should do more to examine depository institutions’ risk management when they receive fraudulent Zelle payments in order to protect our Nation’s payment systems from abuse by criminals,” the senators said. “In addition, ongoing supervision of EWS is particularly important to protect consumers. That’s why we urge the OCC and Federal Reserve Board to use their existing authority under the National Bank Act and the Bank Holding Company Act to directly examine EWS on an ongoing basis. This examination should evaluate safety and soundness risks as well as the company’s compliance with consumer protection and AML laws.”
