Last Thursday Annual supervision of the largest banks in the country hearing, Zelle’s fraud took center stage early on, when Senate Banking Committee Chairman Sherrod Brown accused the CEOs of the seven largest US banks for not doing enough to protect customers against fraud.

“All of your banks have promoted Zelle, the payment app that most of you own. You forced this on customers – but took no responsibility for the fraud that was perpetuated,” Brown said in his opening statement.

The bank payment service Cabbage acts as a quick and easy way to send money or pay for purchases, but its transactions are instant and irreversible. And because Zelle scams require authorization from a bank account holder, some scam victims have problems with getting their money back from the banks.

On September 8 Zelle released a statement claiming that its “network has achieved more than 99.9% of payments sent without any reports of fraud or scams,” but new reports of Zelle fraud are hitting local news and YouTube every week. A recurring scam involves threatening a victim with immediate utility shutdown unless they send money through Zelle.

Read on to learn how the Zelle peer-to-peer payment system works, how thieves use it to scam users, how to protect yourself from Zelle scams, and what to do if you fall victim to a Zelle scam.

What is Zelle and how does it work?

Launched in June 2017, Zelle is a peer-to-peer or P2P payment service owned by Early warning services — a consortium of major US banks, including Bank of America, Chase, Capital One and Wells Fargo. Zelle is available at 100 million bank customers (whether they know it or not).

Zelle charges no fees and works with approx 1,700 banks and credit unions. In 2021, people sent 490 billion dollars via Zelle.

Designed to compete with other electronic payment services such as PayPal, Venmo and Cash App, Zelle allows banks to process random electronic transfers without paying third-party fees. Customers whose banks do not support Zelle can link a debit card to the Zelle app.

Zelle lets users send money electronically to anyone: All you need is a recipient’s email address or a US phone number to transfer funds. Transactions are instant and irreversible once completed, making Zelle very attractive to criminals.

What happens in a Zelle scam?

More than reported Zelle scams consist of clean social engineering: manipulating people with deceptive information and scare tactics. Fraudsters use false claims and representations to trick people into unknowingly authorizing money transfers.

A common scam involves an email or text message asking a user to confirm a large, fake Zelle payment. When the user replied that he had not authorized the transfer, the fraudster followed up with a phone call, posing as a bank representative and spoofing the financial institution’s phone number. They walk the caller through bogus instructions on how to cancel the pending claims, which instead actually transfer money to the criminals.

Another popular scam begins with a message claiming that your bank account has been compromised and that you need to take immediate action to resolve the issue. If you answer, scammers make a phone call posing as your bank and guide you through the money transfer process.

In addition to impersonating your bank, fraudsters can also impersonate institutions such as utility companies. A a woman in Lorain, Ohiofaced threats to cut off service from someone posing as her electric company, who then demanded Zelle payments from her to keep the power on.

Former Major League Baseball first baseman Keith Hernandez almost fell for the same utility scam. It was spotted by a scammer claiming to be Florida Power & Light:

How can I protect myself from Zelle scams?

Since most Zelle scams are socially engineered, there are specific 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 that says it’s from your bank, but you haven’t contacted them first, don’t reply. Instead, call your financial institution directly to ask about your account and any security concerns.

Assuming there are no problems with your account, you can also inform your bank that you have been Phished. If you have provided personal information due to a phishing attempt, you can work with your bank to protect your account.

Watch for “urgent” deadlines or requests from new recipients

If someone says you need to act immediately to solve a financial problem, alarm bells should start ringing. Scammers use scare tactics and a sense of urgency to make you panic and less likely to think critically. With the utility scams in the above section, consumers were told they only had 30 minutes to act before their power was shut off.

If you notice suspicious behavior from someone claiming to be your bank, utility, or other organization that wants immediate payment, hang up immediately and call the business directly.

Also be alerted to requests from banks, businesses or utilities for new Zelle payments, especially if you’ve never paid them through Zelle before. If you receive requests to pay with Zelle, contact the organization directly through their official website or phone number to get more information.

Never give your two-factor authentication password to anyone

Also known as multi-factor authentication or two-factor authentication, 2FA adds an extra layer of security to your accounts. Each time you sign in to your account, you’ll receive an additional one-time password, usually delivered via email or text message, that lasts 30 to 60 seconds.

After you set up 2FA for your bank accounts, never distribute your OTPs to everyone. Criminals impersonating your bank or utility company may pressure you into telling them your password with many bogus reasons, but real institutions will never ask you for it.

Only use Zelle to transfer to people or businesses you know and trust

If you make a payment with Zelle, you may not be able to get a refund if you were defrauded by wrongly authorizing the payment. While Zelle provides a convenient and easy payment service, limiting its use to people you know personally will reduce the risk of fraud.

Zelle app on smartphone

Last year, $490 billion was transferred through Zelle.

SOPA images

What should I do if I’ve been scammed by a Zelle scam?

First, immediately contact the financial institution that was part of the transaction. This allows the business to start an investigation as soon as possible. Because of the immediate nature of Zelle, you’ll want to respond quickly.

According to a lot local reports, banks were reluctant to reimburse losses from Zelle’s phishing scams because the transactions were actually authorized by the account holders. A few recent victims have been refunded only after news reports of their fraud put pressure on the banks to do so.

In June 2021, The Consumer Financial Protection Bureau clarified its position regarding the banks’ required compliance with Electronic Funds Transfer Act of 1978also known as Regulation E. The CFPB says that “if a third party fraudulently induces a user to share account access information,” that user should receive the same protections as if the money were obtained from a stolen debit card or other bank “access device.” “

EFTA also includes a big reason to report your Zelle scam immediately. The law requires consumers to notify their banks of loss or theft within two business days to receive full protection.

Note that the CFPB’s guidelines only protect consumers who are unwittingly tricked into transferring money.

If your bank refuses to reimburse you for the Zelle fraud, your only recourse (besides taking your story to the local media) is to file a complaint with the CFPB.

For more information on how to protect yourself from scams, see the best identity theft protection and monitoring services and learn about social media scams on the rise.

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