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Lost Money to Zelle Fraud? You May Soon Be Able to Get It Back

TheStreet logo TheStreet 11/28/2022 Veronika Bondarenko
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Banks like JP Morgan and Wells Fargo have been under increased scrutiny over rising Zelle fraud.

There's the work-from-home money mule and the tearful call asking to return the $1,000 that someone "accidentally" transferred into your account. There are even the scammers impersonating bank workers and offering an account "upgrade" similar to a better credit card for a small but completely fraudulent fee.

Zelle scams take many forms and are, increasingly, on the rise. In October, Senator Elizabeth Warren (D-Mass.) published a report detailing how "rampant fraud and theft" on the platform caused users to lose over $90 million in 2020. By the time 2022 ends, that number is slated to rise to $255 million.

Over the last two months, Warren has been in a battle with the banks that own Zelle. The instant payment platform was launched in 2017 in collaboration between Bank of America  (BACXL) , JP Morgan Chase  (JPM) - Get Free Report and Wells Fargo  (WFC) - Get Free Report

A way to transfer money directly between accounts in those banks, the platform started quickly growing in users as a more instantaneous alternative to external fintech companies like PayPal  (PYPL) - Get Free Report.

At the start of 2022, Zelle reported that individuals and businesses made a combined total of 1.8 billion transactions totaling $490 billion in the preceding year.

Banks Respond To Reports Of Rampant Zelle Fraud

But as use of Zelle rose so did cases of fraud on the platform. While fraud instances account for only 0.1% of total transactions, they are both on the rise and more common than on every other payment transfer.

Zelle has also started getting a reputation for not being beholden to the same refund standards as individual banks when it comes to unauthorized transfers. Warren's report found that customers who reported unauthorized transfers received only 47% of the total dollar amount back.

Warren's battle with the banks has started gaining momentum as many customers reported losing significant savings to scammers. 

The negative publicity played a part. On Nov. 28, sources from several banks told the Wall Street Journal that they are working on a plan to both crack down on fraud and reimburse customers who lost money.

Details on what such a plan would look like are still scarce but, according to the Wall Street Journal, JP Morgan and the six other banks that currently own Zelle are working to have something in place by early 2023. 

Along with the three founding banks, Zelle is also owned jointly by Truist, Capital One  (CPFLP) , PNC Bank, and U.S. Bank.

I Lose Some Money In A Scam...How Do I Get That Back?

Preliminary plans include something similar to how fraud is dealt with in a regular bank transfer -- a bank would investigate where the transfer originated and where it went. 

If fraud is determined, the bank that received the money would reimburse the victim and have authority to block or otherwise clamp down on the fraudster.

But as anyone who has ever tried to reverse a payment made in mistake knows all too well, the process is lengthy and not guaranteed -- steering clear of suspicious requests is much easier than going through a convoluted process of fighting for a refund.

Those making transfers should also be careful to send it to the right place as those who accidentally mistype the recipient's email will still not be able to receive a refund.

"The new rules being discussed wouldn't extend to customers seeking refunds for goods or services they say they didn't receive, or for people whose errant payments are the result of typos [...]," the WSJ report reads. "Those customers still wouldn't be eligible for refunds."

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