The free payment app Zelle is extremely popular because it allows users to transfer funds directly between bank accounts at no cost. But the popularity of Zelle – a collaboration between Capital One, JP Morgan Chase and other big banks – has also made it a major target for fraud.
Stories of Zelle users losing thousands of dollars to money transfer scams continue to make headlines.
In a letter of April 26, the senses. Elizabeth Warren and Robert Menendez, both members of the Senate Banking Committee, asked Zelle’s parent company, Early Warning Services, about “the extent to which Zelle allows fraud to thrive and what steps your company is taking to strengthen the consumer protection and help users recover lost funds.”
Read on to learn how Zelle works, how criminals use it to defraud consumers, and what to do if you fall prey to Zelle fraud.
What is Zelle and how does it work?
Zelle is a peer-to-peer (P2P) payment service created by a consortium of major US banks, including Bank of America, Chase, Capital One and Wells Fargo. It charges no fees and works with nearly 1,500 banks and credit unions.
Created to compete with other electronic payment services like PayPal, Venmo, and Cash App, Zelle allows banks to handle occasional electronic transfers without paying fees to third parties. Customers whose banks do not support Zelle can connect a debit card to the Zelle app.
Last year, people sent $490 billion through Zelle, more than double Venmo’s $230 billion, The New York Times reported.
Zelle allows users to send money electronically to anyone: all you need is the recipient’s email address or US phone number to transfer funds. Transactions are instant and irreversible once completed, which makes Zelle very attractive to criminals.
What happens in a Zelle scam?
Most of the scams reported by Zelle consist of pure: manipulate people with fraudulent information and scare tactics. Scammers use false claims and representations to trick people into unknowingly authorizing money transfers.
A common scam involves an email or text asking a user to confirm a large, bogus Zelle payment. When the user replies that they did not authorize the transfer, the scammer initiates a phone call claiming to represent the bank and spoofing the financial institution’s phone number. They guide the caller through bogus instructions on how to cancel unauthorized claims which instead transfer money to the criminals.
Another popular scam starts with a message claiming that your bank account has been compromised and you need to act immediately to fix the problem. If you answer, the scammers call you by phone, pretending to be your bank and walking you through the money transfer process.
In addition to impersonating your bank, scammers can also impersonate institutions such as utility companies. A Lorain, Ohio woman faced threats of service disconnection from someone posing as her power company, who then demanded Zelle payments from her to keep power going.
Former Major League Baseball first baseman Keith Hernandez nearly fell for the same utility scam. He was targeted by a fraudster claiming to represent Florida Power & Light:
How can I protect myself from Zelle scams?
Since most Zelle scams are socially engineered, there are concrete steps you can take to avoid them.
Do not respond to unsolicited text messages or emails.
This advice applies to all suspected scams, not just those involving Zelle. If you get a message saying it’s from your bank, but you haven’t contacted them first, don’t reply. Instead, call your financial institution directly to inquire about your account and any potential security issues.
Assuming there are no problems with your account, you can also notify your bank that you have been. If you provided personal information because of the phishing attempt, you can work with your bank to protect your account
Watch for “urgent” deadlines or requests for new recipients.
If someone says you need to act immediately to solve a financial problem, alarm bells should ring. Scammers use scare tactics and a sense of urgency to make you panic and less likely to think critically. With the utility scams described in the section above, users were told they only had 30 minutes to act before their power was cut off.
If you notice suspicious behavior from someone claiming to represent your bank, utility, or other organization asking for immediate payment, hang up immediately and call the company directly.
Also be aware of requests from any bank, company or utility for new Zelle payments, especially if you have never paid them through Zelle before. If you receive payment requests with Zelle, contact the organization directly through its official website or phone number for more information.
Never give anyone your two-factor authentication code.
Also known as multi-factor authentication, two-factor authentication (2FA) adds an extra layer of security to your accounts. Each time you log into your account, you’ll receive an additional one-time password, usually sent by email or text message, that lasts 30-60 seconds.
Once you have configured 2FA for your bank accounts, never give your one-time access codes to anyone. Criminals pretending to be your bank or utility company can pressure you with many fake reasons to give them your password, but real institutions will never ask you for it.
Only use Zelle for transfers to people or companies you know and trust.
If you make a payment with Zelle, you may not be able to get the money back if you were scammed into authorizing the payment by mistake. Although Zelle provides a convenient and easy payment service, limiting its use to people you know personally will reduce your risk of getting scammed.
What should I do if I’ve been the victim of a Zelle scam?
First, immediately contact the financial institution that participated in the transaction. This allows the company to start investigating as soon as possible. Due to Zelle’s instantaneous nature, you’ll want to react quickly.
According to numerous local reports, banks have been reluctant to reimburse losses from Zelle phishing scams because the transactions were actually approved by account holders. Several recent victims only recovered money after reports of their scams pressured banks to do so.
In June 2021, the Consumer Financial Protection Bureau clarified its position on banks’ required compliance with the Electronic Funds Transfer Act 1978, also known as Regulation E. The CFPB states that “if a third party fraudulently induces a consumer to share account access information”, that consumer should have the same protections as if the money came from a stolen debit card or other banking “access device”.
EFTA also includes a great reason to report your Zelle scam immediately. The law requires consumers to notify their bank of the loss or theft within two business days to receive full protection.
Note that the CFPB guidelines only protect consumers who are unwittingly tricked into transferring money.
If your bank refuses to reimburse you for a Zelle scam, your only recourse (other than taking your story to local media) is to file a complaint with the CFPB.
To learn more about fraud protection, seeand find out about .