Zelle has experienced billions of dollars in fraud! JPMorgan Chase, Bank of America, and others are facing investigations...

According to foreign media reports, the Consumer Financial Protection Bureau (CFPB) is investigating customer fund processing issues on the payment platform Zelle. It is reported that the platform has been facing questions and complaints regarding fraud, fraudulent transaction reviews, and other issues.

Because Zelle is composed of the seven largest financial consortia in the United States, including JPMorgan Chase, Wells Fargo, and Bank of America, the main targets of CFPB's investigation also include large banks such as JPMorgan Chase, Bank of America, and Wells Fargo, aiming to examine how banks should respond when customers raise objections to transactions conducted through Zelle. It can be seen that the scope of this investigation is considerable.

Zelle, an instant payment platform, is suspected of fraud and scam involving hundreds of millions of dollars, and JPMorgan and other banks are being investigated...

As usual, let's first understand the beginning and end of the event.

Recently, due to the alleged fraudulent transactions involving hundreds of millions of dollars on the well-known instant payment platform Zelle, CFPB has launched an investigation into "how banks should handle disputed transactions online." As a result, complaints about "related banks not thoroughly preventing illegal transfers, especially in preventing fraud," have been incessant. The term 'fraud' here also has a substantive definition, that is, the authorized actions taken by someone under deception.

During the investigation, the investigators found that three banks, namely JPMorgan Chase, Wells Fargo, and Bank of America (these three banks are also the largest owner banks of Zelle), did not do well enough in reviewing customers and terminating fraudulent accounts.

The Investigative Committee found that in 2023, these three banks reimbursed victims of Zelle eyewash for 38% of the cost, significantly lower than the 62% in 2019. The Committee also stated that these three banks jointly refused to repay $880 million in disputed Zelle transactions between 2021 and 2023.

Zelle clearly cannot accept such accusations. During the Senate hearing, Cameron Fowler, CEO of Zelle's parent company Early Warning Services, stated that over 99.9% of Zelle transactions are executed without any fraud reports. He also emphasized that the reimbursement rate for fraudulent Zelle transactions is less important than the crime itself, and increasing reimbursements cannot solve the problem. This means urging everyone to focus on the criminals, which is the most important solution for the entire society, industry, and government.

It's difficult to say whether such statements are avoiding the main issue and changing the subject.

Turn the tables! JPMorgan Chase considers suing regulatory agencies.

In the face of such doubts, JPMorgan Chase was the first to come forward with rebuttals and comments. The bank stated that it is going beyond legal requirements and warned that it may have to challenge the actions of regulatory agencies in court.

JPMorgan has two options, according to the CFPB: either seek a settlement or face enforcement action. The company is evaluating next steps, including litigation.

The spokesperson also stated that the CFPB believes that several banks, including JPMorgan Chase, have violated relevant legal requirements by providing reimbursements for all unauthorized transactions, even for certain types of eyewash. Such a statement itself is irresponsible, "CFPB should anticipate challenges to ensure that their actions are within the legal scope".

JPMorgan also raised a very worthy point for discussion: should banks compensate their clients when their accounts suffer losses due to hacker intrusion?

According to federal regulations, banks are required to reimburse customers for unauthorized payments, one of which is 'account being hacked'. However, in the eyes of banks, it is highly unreasonable to demand a refund for a payment made by the customer that was approved but turned out to be a scam. According to their argument, 'covering fraud costs will only encourage more fraudulent behavior and result in greater losses'.

But in fact, for a long time, "being scammed with Zelle transfers, the bank filing for compensation" seemed to be an unwritten rule.

There have been cases of fraud in Zelle transfers, with nearly 200,000 suspicious transactions involving over 200 million yuan in just 2021 and 2022, involving only four banks. At that time, in order to further enhance the security of online transfers and prevent fraud, several major banks participating in Zelle transfers discussed the formulation of compensation guidelines and refunded the losses of deceived users and illegal transfers between banks, including JPMorgan Chase.

It is understood that thousands of Financial Institutions allow customers to transfer money through the Zelle system. Scammers often send emails, text messages, or make direct calls to users in the name of banks, asking users to transfer money to an account, and users mistakenly believe that this account is their own. In general, this type of phone call is displayed as the bank's customer service hotline, but in reality, it is connecting the victim's phone to the fraudulent account. According to regulations, banks should refund unauthorized transfers, but if users are deceived and have already sent the money, these amounts cannot be protected.

What is Zelle, which has received support and endorsement from many banks?

Speaking of this, we need to talk about the "initiator" of this incident - Zelle.

Zelle is an instant transfer system between banks in the United States, initially initiated and established by several major banks. Users can register for this service using their email and mobile phone number. After successful registration, no transfer fees are required between different banks (as long as both banks used are partners of Zelle). When transferring money, users only need to enter the email or phone number used by the recipient when registering for Zelle, and the transfer will be processed in real time. Since there are no transaction fees for using Zelle for transfers, more and more banks have started integrating this service. Even Huamei (East West Bank) and Guotai (Cathy Bank), the two largest US-based Chinese banks, have launched Zelle transfer functionality.

However, just like regular transfers, unless the email or phone number receiving the Zelle transfer is not registered with Zelle, the funds will go directly into the other party's bank account, and cannot be withdrawn or canceled. Once transferred incorrectly, you can only hope that the other party is willing to refund you. If the recipient is unwilling to refund, the bank has no way to resolve it, even if you report it to the police. For this reason, some people suggest that when using Zelle for transfers, try to have the recipient initiate a payment request (Request) as much as possible, and try to avoid initiating the transfer yourself (Send).

However, when using Zelle for transfers, there is a pending status that can be utilized to mitigate risks. There are usually two situations where pending can be used: first, when the bank considers the transfer to be risky and needs to investigate, the bank may choose to lock the bank account and the customer will need to call the bank to unlock it; second, when the recipient receives a large number of Zelle transfers, the bank may consider it to be high risk and will investigate the recipient's account, which will only be marked as completed after the investigation is completed.

Fundamentally, the fundamental reason why several banks including JPMorgan Chase were embroiled in the investigation storm this time is that everyone has questioned and disputed the banking regulatory methods, regulatory efforts, and regulatory content.