The CFPB should update rules in response to Zelle’s fraud, Warren said | Techy Kings


Dive Brief:

  • Senator Elizabeth Warren. D-MA, called on the Consumer Financial Protection Bureau (CFPB) to strengthen rules governing how banks reimburse defrauded customers, citing widespread fraud on peer-to-peer payments network Zelle.
  • Inside letter sent to CFPB Director Rohit Chopra on Wednesday, Warren said he collected personal data from several banks that showed fraud rates were rising on the platform, and offered to share the data with the bureau.
  • Zelle, which is owned by seven of the nation’s largest banks, has been a frequent target of the Massachusetts senator, who this month issue a report which found that Zelle reimbursed 47% of total customers reported in fraud in 2021 and the first half of 2022.

Dive Insights:

“My investigation, which is based on previously non-public information obtained from banks that own and operate the platform, shows that Zelle is increasingly becoming a tool for bad actors who use the platform to defraud consumers, while the big banks that own Zelle do little to stop them or give way out to their users,” Warren wrote in his letter to Chopra.

Warren, who is also a member of the Senate Banking Committee, urged regulators to amend Regulation E of the Electronic Funds Transfer Act “to increase consumer protections and interpret the guidelines surrounding peer-to-peer platforms.”

“The increase in the number of frauds and scams — combined with the failure of banks to complete consumers in more than 90% of authorized fraud cases and almost 50% of unauthorized fraud cases — is a violation of banks’ responsibility to their consumers and is inconsistent. with the goals of Regulation E,” he wrote.

Early Warning Service operator Zelle and bank trade groups have dismissed Warren’s attacks in recent months, claiming fraud makes up a small percentage of transaction activity on the platform.

“Disputes and complaints about P2P payments are common, especially for Zelle payments when compared to non-bank P2P products,” American Bankers Association writes in a letter to Chopra on Thursday. “As noted, 99.9 percent of the 5 billion Zelle transactions processed in the past 5 years were delivered without any reports of fraud or fraud.”

The group warned the bureau against taking steps that would shift liability for Zelle’s fraud to the bank.

“Shifting liability for payments authorized by customers and later claims made to fraudsters will harm consumers in the form of higher costs, fewer choices and less competition,” the group wrote.

The group said Zelle outperformed its non-bank P2P rivals, claiming the proportion of disputed transactions made using PayPal was three times higher than the bank-owned platform, and six times higher for CashApp.

The group also highlighted a campaign to educate users on how to avoid falling victim to scammers on the platform.

“More than 2,000 banks have participated since the campaign began in 2020,” the group wrote. “The free material was updated in early October 2022 and includes educational information that empowers users to spot common P2P payment scams.”


Source link