With P2P Payments Booming, U.S. Senators Spotlight Consumer Losses to Fraud

Consumers’ loss of funds to fraud and other deceptive activity on peer-to-peer payment networks has drawn the attention of U.S. Senators, who are demanding answers on the matter from the big banks that own the Zelle P2P network. The senators’ actions come as P2P activity has boomed in response to the pandemic and a general movement by consumers to use digital payment methods.

At the same time, a draft bill in the U.S. House of Representatives would amend the 44-year-old Electronic Funds Transfer Act to explicitly cover instances where consumers authorize transactions as a result of fraudulent inducement.

Eight Democratic Senators on Thursday sent letters to the seven banks that own Zelle, charging that “…as these payment networks have become ubiquitous, frauds and scams have proliferated.” The letter goes on to allege that “…[a]t least in the case of Zelle, the banks that participate in the network appear not to have provided sufficient recourse to their customers.” The letter asks the banks to answer, by Aug. 8, a series of questions about their handling of P2P fraud. The banks are Bank of America, Capital One, JPMorgan Chase, PNC, Truist, and U.S. Bank, and Wells Fargo.

The banks could not be immediately reached for comment. EarlyWarning Services LLC, which runs Zelle, did not immediately respond to a request for comment. The seven banks targeted by the Senators own Early Warning.

Activity on Zelle, which debuted in 2017, is booming. Early Warning reported in February that volume on the network increased 59% last year, to $490 billion, more than double the total sent through PayPal’s Venmo. The Senators’ letter cites a statistic from Early Warning indicating that fraud on Zelle last year totaled $440 million.

Much of the concern expressed by lawmakers has to do with the distinction between “fraud” and “scams,” or cases where consumers have been defrauded despite not authorizing a transaction as distinguished from cases where they have been induced, or “scammed,” by a fraudster to go ahead with sending money, making the transaction authorized though fraudulent.

Regulation E covers the former but not the latter, though the House bill to change the law may not go far, observers say. They point to a full agenda in the House ahead of the 2022 elections, along with a calendar busy with other matters. The letter from the eight Senators, however, could pressure the banks behind Zelle to take action of their own on the matter, they say. The lawmakers signing the letter are: Sherrod Brown of Ohio, Tammy Duckworth of Illinois, Robert Menendez of New Jersey, Jack Reed of Rhode Island, Bernie Sanders of Vermont, Chris Van Hollen of Maryland, Elizabeth Warren of Massachusetts, and Sheldon Whitehouse of Rhode Island

Payments trade groups also harbor concerns about such legislation. The Electronic Transactions Association, for example, argues restrictions could either slow down P2P transactions or make them more costly to consumers. Most P2P payments are processed in real time.