Early Warning Services (Zelle) Sued Over Lack of Early (or Any) Warnings
Consumers lost almost a billion dollars to Zelle fraud between 2017 and 2023.
While that sounds like a lot, Zelle transferred over a trillion dollars last year.
Zelle – officially Early Warning Services – is owned by the big banks including Wells, Chase, Bank of America and a few others.
While many kinds of bank transactions used by consumers such as checks, credit cards and debit cards are protected to differing degrees by federal law, Zelle transactions are not covered under the laws.
Almost all Zelle fraud is some form of social engineering. Usually the fraud goes like this. Often elderly or disadvantaged individuals are the targets and they get a phone call saying they have a past due ticket or utility bill or whatever and if they don’t pay it right now they will be arrested or their utilities will be shut off. Something that creates a lot of fear and urgency. The hackers are counting on people who don’t understand the system and who can be manipulated.
They then tell the victim to pay them by Zelle. The hackers will walk them through the Zelle process, if needed.
When the victims realize they have been hoodwinked they go to their bank to get their money back and the bank, almost all of the time, says no. You voluntarily sent that money the bank says. Since there is no federal law that requires banks to reimburse consumers for Zelle fraud, they don’t. Occasionally, people go to their local TV station and then, in almost every case, the bank gives them back their money. The negative PR is not worth it.
Early Warning Services itself knew about the fraud but did nothing to stop it for the same reason – there was no law and they just wanted the revenue.
Plus, anything that the banks or Zelle did to reduce fraud adds friction to the transaction – the last thing they want to do. If the consumer abandons the transaction, no one makes any money. Even though the consumer doesn’t pay a fee for Zelle transactions, the banks and EWS do make money on it.
Last year the Consumer Financial Protection Bureau sued Zelle, but this administration has no interest in consumer protection so, to the maximum extent possible, it shut down the CFPB. The lawsuit was dropped as a result.
Specifically as a result of the feds dropping their lawsuit, a new suit is being filed in New York State court. The New York AG you may remember was who got the 34 fraud convictions against the president, making him the very first convicted felon president, so I doubt they send each other Christmas cards.
Since this was filed in state court the president has very little power to affect it. The administration has gone after the AG for some things that she did that she should not have done like, potentially, mortgage fraud and a civil rights case against her for the prosecution of the president, but even if these turn into real cases it is unlikely to change the course of this lawsuit. The mortgage fraud issue, in my opinion, is a case where public officials think they can get away with anything. Hopefully, she does not. The civil rights cases, again in my opinion, are just an effort to shut her up. She has to defend herself in the first instance, the State of New York has to defend her in the second case.
Even if she leaves office it is likely this lawsuit will continue. New York and Washington are not friends.
If you use Zelle you probably have noticed the wide range of warnings and even click agreements you have to go though that have been added recently. While they won’t admit it, these are due to the lawsuits, almost guaranteed.
If you have Zelle questions, please contact us.
Credit: The Record
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