When customers say their money was stolen on Zelle, banks often refuse to pay

Chuck Ruoff in New York on June 2, 2022. Ruoff says his mobile phone number was hijacked by a thief who was then able to steal $3,450 through Zelle. (Photo: NYT)
Argelys Oriach was on his way home one evening in March when he was robbed at gunpoint. The thief demanded his iPhone and passcode. Oriach turned them over and fled.اضافة اعلان

The next morning, Oriach, who lives in New York City, said he discovered that the thief had drained $8,294 from his bank accounts at Capital One, using multiple money transfer apps including Zelle. He contacted Capital One, expecting the bank to refund him the stolen cash, as required by federal law. The bank refunded only $250, saying it found no evidence that the rest of the money was stolen. Oriach was stunned.

“I filed a police report, identified the suspect at a precinct and even testified at a grand jury,” he said. “But none of that seems to have helped my case.”

After The New York Times asked Capital One about Oriach’s case, bank representatives said they had determined there was fraud and would repay him.

“We reached out to the customer to apologize for any additional stress this matter has caused,”  said Capital One

In recent years, payment apps like Zelle, Venmo and Cash App have become the preferred way for millions of customers to transfer money from one person to another. Last year, people sent $490 billion on Zelle, the country’s most popular payments app, and $230 billion through Venmo.

But the same reasons that have drawn customers to these apps — they are free, fast and convenient — have made them easy targets for scammers and thieves. While banks argue that they should not have to refund customers who inadvertently granted a scammer permission to use their accounts, they have also often been reluctant to refund customers like Oriach whose money was stolen. That could be a potential violation of the law.

Under a 1978 federal rule called Regulation E, banks are required to make clients whole if their money is stolen from a consumer account through an electronic payment initiated by another person, as in Oriach’s case.

Since Reg E was written well before payment apps existed, the Consumer Financial Protection Bureau last year issued guidelines saying that all unauthorized online money transfers — meaning any payment initiated by someone other than the customer and done without the customer’s permission — were the bank’s liability.

But despite the updated guidance, banks in many cases are refusing to refund customers who claim — often with supporting documentation — that money was stolen from their accounts. The banks rarely provide clear explanations for their decisions, leaving victims with little recourse.

In early February, Chuck Ruoff said, a thief transferred his mobile phone number to another device through an attack technique called “SIM swapping”. The thief then used Ruoff’s number to extract $3,450 through Zelle. Ruoff reported the theft as soon as he discovered it, but his claim was denied. The bank said the transaction did not appear to be unauthorized.

Ruoff sent the bank additional documentation, including a police report, and asked for the case to be reconsidered. He was told to wait 45 days for a response. When that deadline passed, he was told to keep waiting. Ruoff spent hours on the phone for an update on his claim.

“I said repeatedly, ‘I’ve never used Zelle. I never authorized this’,” said Ruoff, who has been a Bank of America customer for 34 years.

“I said to the lady I spoke with once, do you think I would go to the police department and file a false report? That is a crime.”

After the Times contacted Bank of America, it refunded Ruoff’s money, after taking into account additional information provided by Ruoff, said Bill Halldin, a bank spokesperson.

Zelle is owned and operated by Early Warning Services, a company based in Scottsdale, Arizona. Early Warning is owned by several banks,  but each of the 1,600 banks and credit unions that offer Zelle uses its own security settings and policies.

Neither the banks nor Early Warning publicly release any data on fraud, so it is hard to tell how prevalent theft  is on Zelle. Incidents like the ones described by Oriach and Ruoff are “rare” and make up a small portion of the activity on the platform, said Meghan Fintland, a spokesperson for Early Warning.

In a survey of nearly 1,400 people whose accounts were accessed without their consent last year, one-quarter said Zelle or other payment services were used to make unauthorized money transfers, according to a report by Shirley Inscoe, a financial services consultant.

Outright theft is just one aspect of the much bigger problem of fraud on Zelle and other payments apps. In March, the Times reported that scammers often trick people into making payments themselves — such as by posing as bank employees or selling fraudulent goods. In those cases, banks usually refuse to make refunds, arguing that since customers themselves initiated the transfer, it is not “unauthorized” under the definition of the law.

Some lawmakers are beginning to take note.

Asked by the House Financial Services Committee about surging online payment scams after the Times report, Rohit Chopra, director of the consumer bureau, said that “fraud is piling up, and it is a major problem”.

Customers have filed separate lawsuits seeking class-action status against  different banks, claiming that the lenders did not do enough to protect consumers from fraud  on payment apps. Wells Fargo and Capital One declined to comment. Bank of America said it disagreed with the allegations.

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