InvestigatorsMatter for Mallory

Actions

Zelle's operator confirms fraud rule change, but current users lack recourse

zelle.png
Posted at 6:00 AM, Mar 21, 2023
and last updated 2023-07-23 21:20:11-04

BALTIMORE — Early Warning Services, LLC, the network operator of Zelle, the peer-to-peer payment service offered by major banks, confirmed it’s revising its rules to better protect users from fraud schemes.

In an email to WMAR-2 News Mallory Sofastaii, a spokesperson wrote:

"I can confirm that Zelle is revising its network rules as part of ongoing efforts to protect users against the most recent fraudulent schemes. We will not issue details because we then risk tipping off the fraudsters."

Sofastaii asked if the rule change would provide reimbursements to customers who are tricked into sending money via Zelle, when the change will be implemented, and if it’ll retroactively reimburse fraud victims.

The spokeswoman responded:

"Per my earlier email, we will not issue details because we then risk tipping off the fraudsters."

David Backert, a Maryland school teacher, recently fell victim to one of these fraudsters.

He received a call from someone who identified themselves as a representative of Baltimore Gas and Electric (BGE) and informed Backert that there was an issue with his recent payment.

Backert reported, "It had the actual BGE number, and they said I had about a half-hour before my electricity was shut off." The caller demanded that Backert send $150 immediately, the amount listed on his bill.

“I said, ‘Well, how can I get a payment to you as soon as possible?’ And they said, ‘Do you have a banking app?’ And I said, ‘Yes.’ And they said, ‘Well, you can use Zelle.’ And I've never used Zelle before,” Backert recalled.

Backert was hesitant, but proceeded with the transaction in his M&T banking app. Shortly after, the caller informed Backert that he actually owed $200 and that he needed to send another transfer before receiving instructions on how to process a refund.

After sending the additional transfer, Backert was instructed to enter a "refund code" to initiate the refund process. The code the caller provided, "499-REFUND," resulted in a transfer of $500.

“So, it was a $500, it was a $150, and it was a $200 [transfer],” Backert told Sofastaii.

After the third withdrawal, Backert said he received a text message from his bank that Zelle transactions on his account were paused due to suspicious transactions. Backert then tried calling M&T Bank.

“And after being on hold for 35 minutes with my bank and no answer, and I called the fraud number, I called the BGE number and he said that wasn't us, you have been scammed,” said Backert.

Backert believed that because the service was available through his bank, he'd be protected in instances of fraud.

"They said, you gave them the money that's your problem," Backert recalled.

"Would your flag have gone up if [the scammer] asked for Venmo or Cash App?" Sofastaii asked.

"Absolutely. Absolutely. No company is going to ask for those so if you're using something within the M&T app, you would think it's legitimate, but it's clearly not," Backert responded.

Backert, who has three kids and three jobs, said this situation has created a problem for him. “It makes it so right now, I have to stay on top of these three jobs, you know, maybe pause some bills," Backert added.

Zelle transactions are instant and irreversible, and scammers know it.

Although federal law requires banks to reimburse fraud victims, banks have argued that they only have to cover unauthorized transfers. If a customer sends the money, even under false pretenses, the bank is not responsible for reimbursing the victim.

U.S. Senator Elizabeth Warren (D-MA) opened an investigation into Zelle and its operator, Early Warning Services. Her office found that fraud and theft are rampant on Zelle and are increasing. And banks are not repaying the vast majority of cases where customers were tricked into making payments on Zelle.

The American Bankers Association is against shifting liability for these claims, writing that it would harm consumers in the form of higher costs, fewer options, and less competition.

Sofastaii also contacted the Consumer Financial Protection Bureau regarding this “rule change.” A CFPB spokesperson responded:

"Reports and consumer complaints of payments scams have risen sharply, and financial fraud can be devastating for victims. The CFPB is working to prevent further harm, including by ensuring that financial institutions are living up to their investigation and error-resolution obligations.

If someone believes they have been contacted by a scammer or if they have been the victim of a payments scam, they should report the scam to the Federal Trade Commission, or to their state attorney general. Consumers may also submit a complaint with the CFPB online at consumerfinance.gov/complaint or by calling (855) 411-CFPB (2372)."

And Sofastaii contacted M&T Bank about the rule change, what it does, and when it would take effect. A spokesperson responded: "There haven’t been any changes to date and we don’t know when the changes will occur."

Senator Chris Van Hollen (D-MD) sent this statement:

"Scammers have been able to defraud millions of Americans through Zelle and other payment platforms due to weak security protections and limited recourse for those who have lost money. More must be done to stop these scams and that’s why last year several of my colleagues and I urged the banks in the Zelle network to do more to protect their customers. I am glad they are heeding our calls and I hope to see them do more to safeguard consumers, enforce anti-fraud mechanisms, and increase support services when help is needed."

It's important to remain vigilant and skeptical of any calls or messages asking for immediate payment or personal information. Before making any payment or sharing any information, verify the legitimacy of the request by contacting the official company through a trusted source.

In response to these scams, the American Bankers Association has also launched the campaign #BanksNeverAskThat to remind consumers that banks will never contact them out of the blue and ask for sensitive account information. For more information, click here.