Blumenthal Calls on CFPB to Investigate Zelle and Big Banks for Mishandling Fraud

[WASHINGTON, DC] – U.S. Senator Richard Blumenthal (D-CT), Chair of the Permanent Subcommittee on Investigations (PSI), is calling on the Consumer Financial Protection Bureau (CFPB) to investigate dispute resolution practices of Early Warning Services (EWS), the operator of Zelle, as well as JPMorgan Chase, Bank of America, and Wells Fargo (the “Three Banks”), which collectively represent 73 percent of all Zelle transactions. Blumenthal’s letter comes as CFPB has launched an inquiry into JPMorgan Chase and payments made on Zelle. 

Last month, PSI released a majority staff report detailing the findings of its investigation into EWS and the Three Banks’ handling of scams and fraud on Zelle. Of these findings, PSI was particularly alarmed to discover that reimbursements for transactions disputed by Zelle users as unauthorized or “fraud” fell significantly over a five-year period. In light of these findings and recent Congressional testimony from EWS and the Three Banks, Blumenthal is calling on CFPB to investigate potential violations of the Electronic Fund Transfer Act and Regulation E, which protects consumers when they use electronic fund transfers and requires banks to reimburse customers when they lose funds through an unauthorized transaction.

“PSI’s investigation of the Three Banks indicates that they provide their respective employees with broad discretion to determine whether a disputed transaction is unauthorized, and, in turn, whether a consumer is entitled to reimbursement,” wrote Blumenthal. “Unfortunately, last week’s testimony provided little insight into the processes these institutions use to investigate transaction disputes. Beyond vague anecdotes, none of the witnesses offered details about why so many consumers who complained to their bank of fraud were turned away empty handed.”

Blumenthal continued, “The Three Banks’ circuitous answers to questions regarding whether they have ever had a third-party review of their dispute resolution processes further increased our concerns that, not only has such a review never occurred, but that the opaque processes applied by these banks are being used to deny rightful claims.”

“I further urge you to take appropriate action to ensure that these institutions fully and promptly address consumer reports of fraud, as required by law.  If your investigation finds that an institution has violated the Electronic Fund Transfer Act ‘knowingly and willfully,’ I encourage you to take the strongest appropriate action,” concluded Blumenthal.

The full text of the letter is available here and below. PSI’s majority staff report is available here. A recording of PSI’s hearing with EWS and the Three Banks is available here.

August 4, 2024

The Honorable Rohit Chopra

Director 

Consumer Financial Protection Bureau

1700 G Street NW 

Washington, DC 20552

Dear Director Chopra:

Last week, the Senate Permanent Subcommittee on Investigations (“PSI” or the “Subcommittee) held a hearing with Cameron Fowler, the CEO of Early Warning Services (“EWS”), and executives from the three largest banks that own EWS and participate in the Zelle Network: JPMorgan Chase, Bank of America, and Wells Fargo (collectively “the Three Banks”).[1] The hearing followed the release of a majority staff report detailing findings from PSI’s 15-month investigation into how Zelle and the Three Banks are handling fraud on Zelle.[2] Of these findings, PSI was particularly alarmed to discover that, over a five-year period, the total percentage of transactions disputed by Zelle users as unauthorized (sometimes referred to as “fraud”) that were ultimately reimbursed by the Three Banks fell from 62% in 2019 to 38% in 2023.[3]

The witnesses provided deflections and excuses, but few answers, when asked to explain the low percentage of fraud disputes reimbursed on Zelle. Despite EWS’s role in enforcing rules on the Zelle Network, which requires compliance with Regulation E, Mr. Fowler told the Subcommittee that he was “not in a position to comment on” why so few fraud disputes are reimbursed.[4] Mr. Fowler has previously stated in the press that the conversation about scams and fraud “needs to move beyond reimbursement.”[5] When Subcommittee Members pressed Mr. Fowler on these remarks last week, he said he would “stand by” his prior statements.[6]

            PSI’s investigation of the Three Banks indicates that they provide their respective employees with broad discretion to determine whether a disputed transaction is unauthorized, and, in turn, whether a consumer is entitled to reimbursement. Unfortunately, last week’s testimony provided little insight into the processes these institutions use to investigate transaction disputes. Beyond vague anecdotes, none of the witnesses offered details about why so many consumers who complained to their bank of fraud were turned away empty handed.

The Three Banks’ circuitous answers to questions regarding whether they have ever had a third-party review of their dispute resolution processes further increased our concerns that, not only has such a review never occurred, but that the opaque processes applied by these banks are being used to deny rightful claims. In short, the findings of PSI’s investigation and the evasive testimony received by the Subcommittee raises the distinct and troubling possibility that Zelle and the Three Banks may be in violation of the Electronic Fund Transfer Act and Regulation E.[7]

I therefore request that the Consumer Financial Protection Bureau review the Subcommittee’s report, which is enclosed with this letter, and conduct a thorough investigation of the dispute resolution practices of EWS, the Three Banks, and any other financial institutions as warranted, including but not limited to practices of other peer-to-peer payment platforms. I further urge you to take appropriate action to ensure that these institutions fully and promptly address consumer reports of fraud, as required by law.[8] If your investigation finds that an institution has violated the Electronic Fund Transfer Act “knowingly and willfully,” I encourage you to take the strongest appropriate action.[9] Thank you for your attention to this matter.

Sincerely,

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