[Senate Hearing 118-342]
[From the U.S. Government Publishing Office]
S. Hrg. 118-342
FRAUD ALERT: SHEDDING LIGHT ON ZELLE
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HEARING
before the
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
of the
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
MAY 21, 2024
__________
Available via the World Wide Web: http://www.govinfo.gov
Printed for the use of the
Committee on Homeland Security and Governmental Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
U.S. GOVERNMENT PUBLISHING OFFICE
55-976 PDF WASHINGTON : 2026
COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
GARY C. PETERS, Michigan, Chairman
THOMAS R. CARPER, Delaware RAND PAUL, Kentucky
MAGGIE WOOD HASSAN, New Hampshire RON JOHNSON, Wisconsin
KYRSTEN SINEMA, Arizona JAMES LANKFORD, Oklahoma
JACKY ROSEN, Nevada MITT ROMNEY, Utah
JON OSSOFF, Georgia RICK SCOTT, Florida
RICHARD BLUMENTHAL, Connecticut JOSH HAWLEY, Missouri
LAPHONZA BUTLER, California ROGER MARSHALL, Kansas
David M. Weinberg, Staff Director
William E. Henderson III, Minority Staff Director
Christina N. Salazar, Minority Chief Counsel
Laura W. Kilbride, Chief Clerk
Ashley A. Gonzalez, Hearing Clerk
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
RICHARD BLUMENTHAL, Chairman
THOMAS R. CARPER, Delaware RON JOHNSON, Wisconsin
MAGGIE WOOD HASSAN, New Hampshire RICK SCOTT, Florida
JON OSSOFF, Georgia, JOSH HAWLEY, Missouri
LAPHONZA BUTLER, California ROGER MARSHALL, Kansas
Jennifer N. Gaspar, Staff Director
Brian Downey, Minority Staff Director
Paul H.J. Hurton III, Subcommittee Clerk
C O N T E N T S
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Opening statements:
Page
Senator Blumenthal........................................... 1
Senator Johnson.............................................. 3
Senator Butler............................................... 14
Senator Marshall............................................. 24
Prepared statements:
Senator Blumenthal........................................... 33
Senator Johnson.............................................. 36
WITNESSES
TUESDAY, MAY 21, 2024
Stephanie Tatar, Founding Attorney, Tatar Law Firm............... 5
Ariana Duval, Student at North Carolina Agricultural and
Technical State University, Experienced Scam on Zelle.......... 7
John Breyault, Vice President, Public Policy, Telecommunications,
and Fraud, National Consumers League........................... 9
Anne Humphreys, Retiree, Experienced Scam on Zelle............... 10
Delicia Hand, Senior Director, Digital Marketplace, Consumer
Reports........................................................ 12
Alphabetical List of Witnesses
Breyault, John:
Testimony.................................................... 9
Prepared statement........................................... 47
Duval, Ariana:
Testimony.................................................... 7
Prepared statement........................................... 45
Hand, Delicia:
Testimony.................................................... 12
Prepared statement........................................... 59
Humphreys, Anne:
Testimony.................................................... 10
Prepared statement........................................... 56
Tatar, Stephanie:
Testimony.................................................... 5
Prepared statement........................................... 38
APPENDIX
Senator Blumenthal's Zelle Visual 1.............................. 65
College graduate issues warning about `fake job offers' on
LinkedIn....................................................... 66
Investigation exposes romance scam links after man loses $100,000 68
Statement from Liam D.A.......................................... 70
Local woman says dog breeder used Catfishing Zelle scam to reel
in her money Ben Becker........................................ 72
Statement submitted by Lore Goldstein............................ 74
Pittsboro couple out $5,000 in `grandparent scam' as new twist on
ripoff emerges, officials warn................................. 76
Scammer sends death threats, gruesome photos to San Jose teen,
steals $10K.................................................... 77
Single Houston-area mom falls victim to Zelle scam, loses nearly
$8,000......................................................... 79
Teen was saving for a fishing boat. Then he lost $500 in a Zelle
scam........................................................... 81
The Great Zelle Pool Scam........................................ 84
Wells Fargo customer loses thousands in Zelle scam despite new
refund policy.................................................. 93
Zelle blamed after Lexington teen's bank account cleaned out by
money transfer hackers......................................... 95
Zelle scammers steal $3,500 saved for late Bay Area mom's
headstone, Bank of America denies claim........................ 97
Senator Blumenthal's Zelle Visual 2.............................. 100
BofA managers hear Zelle scammer as victim puts them on
speakerphone, fraud claim still denied......................... 101
Statement from Brittany Lamb..................................... 103
Statement from Marijane Valdez................................... 106
American Bankers Association, Bank Policy Institute, Consumer
Bankers Association, and National Bankers Association.......... 108
Statement from Early Warning..................................... 116
FRAUD ALERT: SHEDDING LIGHT ON ZELLE
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TUESDAY, MAY 21, 2024
U.S. Senate,
Permanent Subcommittee on Investigations,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:30 p.m., in
room SD-342, Senate Dirksen Building, Hon. Richard Blumenthal,
Chair of the Subcommittee, presiding.
Present: Senators Blumenthal [presiding], Butler, Johnson,
Scott, and Marshall.
OPENING STATEMENT OF SENATOR BLUMENTHAL\1\
Senator Blumenthal. Thank you to my Co-Chair of the
Subcommittee, the Permanent Subcommittee on Investigations
(PSI). We work together on a bipartisan basis.
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\1\ The prepared statement of Senator Blumenthal appears in the
Appendix on page 33.
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I am very pleased to welcome you to this hearing of the
Permanent Subcommittee on Investigations, entitled ``Fraud
Alert!: Shedding Light on Zelle.'' I will give an opening
statement, and it will be followed by my Ranking Member.
The banks of America have a dirty little secret. It is
called Zelle. It is not just Zelle, it is other peer-to-peer
(P2P) paid platforms, apps that people use to transfer money
among their bank accounts. In the case of Zelle, it is nearly
instantaneous, it is almost always irreversible, and it is
owned by banks.
In fact, Zelle is the largest peer-to-peer payment app. It
is actually operated by Early Warning Services, which in turn
is owned and operated by the seven largest banks. Zelle is
often integrated into consumers' existing online bank accounts
and mobile apps.
Zelle markets itself as, ``A fast and easy way to send and
receive money.'' But, as this Committee has found, a fast and
easy way to lose money is often what happens on Zelle. That is
probably a more accurate catchphrase for Zelle and for other
P2P platforms, as well.
What distinguishes Zelle is speed, permanence, and bank
ownership, and that is really the reason why we are focusing on
Zelle, but the other platforms deserve attention, as well. In
fact, it is less well-known than other payment apps like Cash
App and Venmo, but Zelle is by far the largest, several times
its nearest competitor, and it is approximately three times
larger than its nearest rival. Zelle transfers are nearly
instant and irreversible, and by the time a consumer knows they
have been scammed, usually it is too late to do anything about
it, at least according to Zelle and according to the banks that
own, control, and, in effect, operate Zelle.
Just three banks, JPMorgan Chase, Bank of America (BoA),
and Wells Fargo handled 73 percent of all Zelle transactions in
2023. All peer-to-peer payment apps are susceptible to Fraud.
No question about that fact. I want to be clear that fraud
happens on all of them, but Zelle deserves particular attention
because of its direct connection to trusted financial
institutions.
Zelle and the banks that own it offer to customers the
appearance of the trust they feel they deserve. But the risks
there are real and present, and they simply are failing to
protect consumers in the way that they deserve.
Thirteen percent of P2P platform users report sending money
to someone and later realizing it was a scam. The kinds of
scams are various--me-to-me, employment, romance, artificial
intelligence (AI). They have various categories. But the bottom
line here is literally that the banks are failing to do what
they should to protect their consumers.
This Subcommittee has heard many accounts of scams and
fraud on Zelle. In California, a teenager received escalating
death threats and lost $10,000 on Zelle simply because he
wanted to protect his family. In Florida, criminals hacked into
a woman's bank account and used her confidential information to
manipulate her into transferring almost $5,000 to Zelle
scammers. In Arizona, a man used Zelle to purchase automobile
parts he never received. I would like to enter into the record
a collection of news articles about Zelle scams and
statements\1\ that we have received from consumers about their
personal experiences with Zelle.
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\1\ The news articles and statements appear in the Appendix on page
65.
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With us today are two individuals who have personally
experienced those stories, and we thank them from their bravery
and for their initiative in coming forward. Ariana Duval, a
college student in North Carolina, will tell us her story in
receiving an exciting summer research opportunity from a
professor at her university, only to learn she was out $2,400
that she never had. Anne Humphreys is also here today to tell
her story, how her 94-year-old mother was scammed out of $3,500
after being told that her brother had been arrested and needed
bail money, and how she struggled to get their bank to realize
its insufficient safety measures allowed this scam to play out.
Again, we thank you both.
Many types of scams exist, but what they have in common is
that these stories and many other consumers entail lost money
due to fraud scams. Time and again, Zelle and the big banks
have said, ``They could not help.'' What they mean is, ``They
would not help.'' Their attitude has been, ``Not our problem.''
To the banks of America, particularly the seven that own
and operate Zelle, it is your problem. You own it, just as you
own Zelle. You have the expertise, the resources, and the
obligation to make sure you do better.
We are also going to hear from experts as part of this
bipartisan inquiry into Zelle and Early Warning Services, the
company that operates Zelle. We hope to hear from the banks. We
actually invited them to come here in June and explain how they
can do better and why they have failed to do so.
We have found that customers of JPMorgan Chase, Bank of
America, and Wells Fargo submitted claims reflecting a combined
total of $456 million lost to scams and fraud on Zelle in one
year, 2022, alone. Only a fraction were repaid, $341 million.
More than two-thirds of these losses were never repaid by those
banks.
The growth of mobile payments shows no signs of stopping.
But unfortunately, neither do the scammers who are preying on
American consumers on those apps. Criminals are increasingly
using scams tailored to individuals with AI voice cloning and
personal details pulled from hacked data, sold on the dark web,
and increasing the risk. The risks are growing, and so must the
safeguards.
Zelle and its owner banks are aware of the frightening new
trends. No question. They have been put on notice. They track
detailed information about the latest scams, but they are
failing to stop them and failing also to make their customers
whole.
There are concrete steps these institutions can take to
better protect customers. For example, banks could extend
protections available to credit card users to Zelle
transaction. They could allow customers to cancel or reverse a
payment within a certain period of time. They could, in effect,
provide for better means of authentication, more friction and
more time before a transaction is completed. Those ideas are
only a few of the possibilities.
Unfortunately, for consumers it seems like the big banks
have accepted that some of the transactions on Zelle will be
fraudulent. They have made the decision that this is just the
cost of doing business. But it is the cost to their consumers,
not them, because it is the customer who is out of pocket. That
is why we have invited Zelle and the three largest banks to
appear. Today, in addition to Ms. Duval and Ms. Humphreys, we
will be hearing from experts who have studied this issue and
can better suggest potential remedies and preventions.
I look forward to hearing from all of you, and now turn to
the Ranking Member.
OPENING STATEMENT OF SENATOR JOHNSON
Senator Johnson. Thank you, Mr. Chair. I will ask that my
written statement be entered into the record.\1\ I just have a
couple of comments.
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\1\ The prepared statement of Senator Johnson appears in the
Appendix on page 36.
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Interesting hearing. Obviously, consumer fraud, consumer
scams are a real problem in our economy, things like
cybersecurity risks. I mean, all these things are troubling.
It is noteworthy, though, to understand the differences
between, for example, credit cards, debit cards, and these
peer-to-peer. Debit and credit cards, there are interchange
fees, so the banks really rake in hundreds of billions of
dollars' worth of profit, which is why, when there are
unauthorized transactions they quickly reimburse, not to 100
percent. I am looking at Bank of America credit card about $2.2
billion worth of fraud. They reimbursed about 1.6. Debit cards,
about $1 billion worth of fraud. They reimbursed about 66
percent of that, $660 million.
There is no doubt about the fact that Zelle reimburses at a
much lower rate, but it is really just a service. It is a
software that they sell to the banks to allow for peer-to-peer
payment. I guess the other way to transact business is cash,
but people do not carry cash, so if they want instantaneous
transactions, they do not want to pay an interchange fee,
apparently they use these peer-to-peer services. They want to
do it for speed, they want to do it to avoid that interchange
fee, and as a result, a company like Zelle just does not have
the hundreds of billions of dollars in interchange fee profits
to reimburse.
Now, it does appear that they reimburse for unauthorized,
at least some unauthorized purchases, but there is a fair
amount of friction. There are many steps that you have to go
through to actually have that money transferred, and it really
is just sort of caveat emptor. I mean, caveat, user--user
beware. When you are transferring money through these peer-to-
peer, the money is gone, it is out of your checking account,
and it is going to be very difficult to recover, so the only
way you get reimbursed is it literally comes out of the hide of
the banks. For the Chair to say that you ought to extend the
same protections that credit card companies do, again, they do
not have the profit off of this system. They do not have
interchange fees, hundreds of billions of dollars of
interchange fees to use that as a cost of business. That is
what the banks and the credit card companies view it as.
This is a different system. Again, we need to be concerned
about scams and fraud. But there is a fair amount of
responsibility on the part of the users to try and prevent
that. I know we have some people who have been scammed. Again,
I have heard some things. I understand why people all of a
sudden quick transfer money. They have a loved one in trouble.
It is despicable. These are crimes that are being committed
against them. But to necessarily blame a company that is
providing a service without huge financial rewards, like the
interchange fees, again, I am not sure that is realistic to
expect.
But anyway, I am interested in listening to testimony and
hear what people have to say about this. Thank you, Mr. Chair.
Senator Blumenthal. Thanks, Senator Johnson.
I am going to introduce the witnesses. Stephanie Tatar of
the Tatar Law Firm is a consumer rights attorney who has
represented clients across the country in disputes against
credit reporting agencies, debt collectors, and financial
institutions for almost two decades.
Ariana Duval is a rising senior at North Carolina A&T State
University. Earlier this month, Ariana was targeted by a Zelle
scam that claimed to offer her employment as a university
research assistant. She ultimately lost $2,400 to that
fraudulent scheme.
John Breyault is the Vice President of Public Policy,
Telecommunications and Fraud at the National Consumers League
(NCL). He is a prominent advocate for stronger consumer
protections, particularly related to technology, data security,
privacy, and more.
Anne Humphreys is a retiree from Laurel, Maryland, and a
grandmother of five. In 2022, Ms. Humphreys' 94-year-old mother
was scammed out of $3,500 on Zelle, and she is here to share
her family story and their struggle.
Delicia Hand of Consumer Reports is the Senior Director of
Digital Marketplace, where she leads the development of testing
framework standards and policies in the digital marketplace.
She previously served for 10 years at the Consumer Financial
Protection Bureau (CFPB) in various roles.
Our custom is to swear witnesses, so if you would please
rise and raise your right hand.
Do you swear that the testimony that you are about to give
is the truth, the whole truth, and nothing but the truth, so
help you, God?
Ms. Tatar. I do.
Ms. Duval. I do.
Mr. Breyault. I do.
Ms. Humphreys. I do.
Ms. Hand. I do.
Senator Blumenthal. Thank you.
We will begin with witness statements, beginning with Ms.
Tatar.
TESTIMONY OF STEPHANIE TATAR,\1\ FOUNDING ATTORNEY, TATAR LAW
FIRM
Ms. Tatar. Good afternoon, Chair Blumenthal and Ranking
Member Johnson. Thank you very much for the opportunity to
speak with you today about Zelle fraud. I am very glad to see
that we have two consumers on the panel today. I, myself, had
hoped to bring clients to be present, to humanize the term
``victim'' for you.
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\1\ The prepared statement of Ms. Tatar appears in the Appendix on
page 38.
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But consumers, unfortunately, are reluctant to testify
against banks about Zelle fraud because they are either forced
into private arbitration proceedings, which are not available
for public review and which consumers cannot appeal, or because
of protective orders entered during litigation which prevent
the disclosure of significant information showing what the
banks do or do not do to comply with the Electronic Funds
Transfer Act (EFTA). Or because consumers are forced to sign
confidential settlement agreements, and which also further
prohibit them from continuing their banking relationships with
the defendant institutions and their affiliates.
These are some of the largest banks in America, and they
dominate the credit card markets. So not only are the consumers
forced to file lawsuits to make those banks comply with the
laws, they are then punished by doing so.
Consumers are scared to speak up, and if you do not hear
directly from a lot of consumers, please do not take that as a
sign that Zelle fraud is not important to consumers. Lack of
consumer participation in hearings such as this is due to the
shroud of secrecy financial institutions impose on consumers.
Zelle fraud is pervasive, and it is ever evolving, and it
is the gateway consumer financial crime which often leads to
other bank fraud, like wire transfers, which are largely
unchecked by current laws. Criminals employ various tactics
such as AI-generated voice impersonating phone calls, calls
spoofing bank phone numbers, Subscriber Identity Module (SIM)
card hacking, and exploiting data breaches to gain access to
bank accounts and initiate unauthorized Zelle transfers.
Criminals are constantly two steps ahead of banks when
perpetrating their fraud schemes and miles ahead of consumers
who are left to carry the burden of undoing the damage that is
done to them.
Please take note. I do not mean to say the damage that is
done to their bank accounts. I mean the cost of Zelle fraud is
not simply the dollar amount that is taken from the consumer.
There is also a significant emotional and mental component to
this fraud. Most Americans are living paycheck to paycheck. The
funds that are stolen from them are allocated for specific
living expenses like rent and transportation. Can you imagine--
would you please imagine--what you would do if 75 percent of
your checking account balance was gone because of Zelle fraud?
Then think about the impact if you are a retiree, who is no
longer in a position to enter the workforce and make up those
losses.
After Zelle fraud happens, consumers live with the ripple
effect of this fraud every minute of every hour of every day,
countless sleepless nights for months on end, worrying,
wondering, stressing, waiting for banks to do their jobs, to do
an investigation and agree that fraud was committed so that
they can get their money back. These consumers lose money in
the blink of an eye, but it takes weeks, months, and even years
to get their money back, if they are lucky.
Banks often refuse to conduct investigations or they delay
investigations into Zelle fraud because they request consumers
to complete paperwork or file police reports, contrary to their
duty under the Electronic Funds Transfer Act. Their
investigations are superficial, at best, lacking thorough
record reviews or inquiries. Banks appear to prioritize proving
transactions occurred rather than verifying that they were
authorized by consumers, also against the Electronic Funds
Transfer Act.
Crucial evidence, such as the addition of new recipients
with random names that are sequences of numbers or letters, the
addition of unfamiliar devices or Indo-Pacific addresses, and
unusual transaction patterns are frequently disregarded. Banks
neglect to analyze past spending habits, rendering their
investigations mere perfunctory examinations of limited
information, falling far short of what the EFTA requires.
Senators, if you are truly interested in effecting change,
if financial institutions really want to do better, the first
step is to stop thinking of consumers as account numbers or
names written in black and white. Educating consumers is not a
solution because you are unfairly putting the onus on every
consumer to stay ahead of fraud that not even the banks can
keep up with.
The solutions must include safeguards to flag suspicious
activity, delaying payments, putting an end to rampant victim
blaming financial institutions employ, demanding that banks
investigate all unauthorized transactions, banks must spread
the risk of Zelle fraud between the sending bank and the
receiving bank, and we must also demand transparency. Banks get
away with these shoddy investigations because so few people
know exactly what happens behind closed doors. Banks must be
held to an EFTA compliance standard because they are, after
all, the custodians of consumers' hard-earned money.
Thank you for hearing me out today on this critical issue,
and I appreciate your attention and consideration of necessary
reforms that are needed to protect consumers from the
devastating impacts of Zelle fraud.
Senator Blumenthal. Thank you so much. Ms. Duval.
TESTIMONY OF ARIANA DUVAL,\1\ STUDENT AT NORTH CAROLINA
AGRICULTURAL AND TECHNICAL STATE UNIVERSITY, EXPERIENCED SCAM
ON ZELLE
Ms. Duval. Hi. On the afternoon of May 1st, I ``applied''
to a research position from an email I received on April 30th.
I believed the hiring manager to be a research professor at my
university.
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\1\ The prepared statement of Ms. Duval appears in the Appendix on
page 45.
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After applying via email by providing my resume, I received
follow-up questions. For example, how would you rate your
communication skills, are you a U.S. citizen, and do you have
prior research experience? I was then informed that I passed
the criminal and academic background screenings. Further
instructions from that email confirmed that office supplies
would be needed for the position, and I would be sent a check
which I would then need to provide to the sales representative
who is responsible for ordering the supplies on my behalf.
I received a check in the form of a portable document
format (PDF) on May 2nd through an email that presented itself
as the payroll department at my university; it actually had the
``.edu'' domain presented in the email address. I was given
specific instructions to print the check and do a ``Mobile
Deposit Only.'' Once I deposited the check into my account, the
$400 was available immediately on May 3rd, while the $2,000
would be available the following day. I informed the fictitious
professor of this and was told to Zelle the money as it became
available.
I was provided the name and email address of the sales
representative and asked to send a screenshot of it with the
confirmation code. I did as instructed, and sent the $400 on
May 3rd followed by the $2,000 on May 4th. Both were listed as
pending in my bank account which I informed the fictitious
professor of. At that point, I was told that the sales
representative would wait until it is confirmed before shipping
the office research supplies.
My mother observed something strange with my account, so
she called me to figure out what was going on. After asking me
several questions, my mother helped me to understand and
realize that I was scammed. She told me to contact the bank and
file a fraud claim.
I called the bank immediately and explained the entire
situation to the bank representative. With the representative's
assistance, I filed two fraud claims, one for the $2,000 and
another for the $400. I was told that an investigation would be
conducted, and I would receive a call back from the bank with a
status update.
On May 7th, I woke up and was preparing for one of my final
exams when I checked my bank account and found that I was in a
deficit for the $2,400 that I was scammed into receiving and
sending off. I was devastated.
In addition to the five major final projects that I had due
for four courses within the last two weeks of the school year,
where my money was already getting low and I was stressed out
of my mind staying up late to complete, I now found myself in
debt for the very first time in my life. All of this as a
result of just wanting to work and have a job with flexible
hours to accommodate my summer internship.
After reporting to my university's police, they told me to
report it to the Federal Bureau of Investigation (FBI). I was
told by the police that I was the only student that was
actually financially impacted by this phishing scam, but I
learned the following week that I was not.
I reported my situation to the FBI, and my mother and I
called the bank to see if there was any feasibility that I
would be reimbursed for the $2,400 that I was scammed out of.
Although we never received a call back from the bank on the
investigation that they were doing, we were informed at that
time that both fraudulent claims were denied.
I returned back to campus to complete one of my projects.
After returning back to my room, I filed two fraud claims with
Zelle for the $2,000 and $400. In the process of filing those
claims, the online Zelle form asked for a Zelle Payment
identification (ID). There was a note in the frequently asked
questions (FAQ) section that if you submitted the Zelle payment
via your bank's app and did not know what the Zelle Payment ID
was to contact their bank partner that I was affiliated with. I
called my bank asking for the Zelle Payment ID. However, I was
transferred to several representatives from multiple
departments, including the Zelle department. None of them were
aware of a Zelle Payment ID or where to find it.
I called Zelle's customer service line and was
automatically put through to an automated machine which hung up
on me after I was told if I am affiliated with Zelle through
one of their bank partners to contact the bank. I could not get
through to a human representative at all after calling Zelle
multiple times. Within this frustration, as the Zelle Payment
ID was supposed to be a total of 12 digits, I ended up putting
the confirmation codes of the Zelle payments with two
additional zeroes in the front. This seemed to work as the
forms were submitted. I completed both forms, only to receive a
submission of the forms in my email. I still have yet to hear
back from Zelle, and my bank denied both of my online fraud
claims.
I just want to get my money back and more importantly
prevent this from happening to anyone else. Thank you.
Senator Blumenthal. Thank you very much, Ms. Duval.
Mr. Breyault.
TESTIMONY OF JOHN BREYAULT,\1\ VICE PRESIDENT, PUBLIC POLICY,
TELECOMMUNICATIONS AND FRAUD, NATIONAL CONSUMERS LEAGUE
Mr. Breyault. Good afternoon, Chair Blumenthal, Ranking
Member Johnson, and Members of the Subcommittee. My name is
John Breyault, and I am the Vice President of Public Policy,
Telecommunications and Fraud at the National Consumers League.
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\1\ The prepared statement of Mr. Breyault appears in the Appendix
on page 47.
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Founded in 1899, NCL is the nation's pioneering consumer
and worker advocacy organization. For more than 25 years, NCL
has worked via our fraud.org campaign to educate consumers
about the warning signs of fraud and promote public policies
that protect the American public from fraud of all kinds.
Senators, fraud in the United States has reached a crisis
point. In 2023, the Federal Trade Commission (FTC) received 5.4
million complaints about fraud and identity theft, a 54 percent
year-over-year increase versus 2019, with total annual losses
of more than $10 billion. As sobering as those numbers are,
they are just the tip of the iceberg. A 2023 FTC report
estimated that true annual fraud losses were more than $137
billion annually.
The costs of fraud are not just financial. Many fraud
victims report struggling with mental health issues after the
event. Sadly, some scam victims have even committed suicide due
to the trauma. Peer-to-peer payment services play a significant
role in this problem. In 2022, four in 10 Americans reported
using a P2P service at least once a month, with 18 percent
using them at least once a week. As P2P usage has grown, so too
have fraud losses. Last year, reported losses to the FTC hit
$210 million, with more than 65,000 complaints in this
category. The true losses by consumers to criminal fraudsters
via P2P platforms is likely enrollee into the multiple billions
of dollars every year.
While fraud occurs on all major P2P platforms, fraud on
Zelle poses unique concerns. First, Zelle can be used to
transfer funds between anyone with a U.S. bank account at a
participating financial institution. Indeed, the widespread
availability of Zelle to millions of bank customers is exactly
why it has become such an attractive payment method for
criminal fraudsters.
Second, because Zelle is in competition with PayPal, Venmo,
and Cash App for transaction volume, any voluntary action that
makes it harder to use because of additional anti-fraud
requirements is likely to put Zelle at a competitive
disadvantage to its competitors.
While no payment system is immune from fraud, the scale of
fraud on the Zelle platform is unacceptably high. Just four
banks on the Zelle platform were reportedly on pace to receive
scam and fraud claims in excess of $255 million in 2022. This
is likely only a small fraction to the total fraud losses.
Based on current Zelle growth rates and reported fraud rates of
six to nine basis points, it is estimated that total fraud
rates on Zelle will likely exceed $1 billion annually by next
year.
Even when consumers recognize and report this fraud to
their banks their claims are denied in the vast majority of
cases. The three banks who provided their fraud reimbursement
rates to Senator Warren's office reported reimbursing only 10
percent of such scam complaints. Because these ``authorized''
transactions, even if all parties involved agree fraud was
involved, they are not covered under the Electronic Funds
Transfer Act's Regulation E liability protections. These losses
end up being borne by those who are least able to afford them:
individual consumers.
Warning messages and consumer education will not and have
not put a meaningful dent in fraud rates. Indeed, we hear from
victims of fraud that the scammers are incredibly adept at
coaching their marks around consumer warnings the banks
provide. Scammers get cleverer and more innovative every day.
Expecting everyday consumers to accurately spot and resist
fraudulent schemes run by sophisticated, professional criminals
is unlikely to yield a more secure P2P payment system.
To put a meaningful dent in fraud on Zelle and other P2P
platforms, Congress must create new incentives for the banks
and P2P platforms to invest in more security. Fortunately, a
bill to creates these incentives, the Protecting Consumers from
Payment Scams Act, has already been released by Congresswoman
Maxine Waters. The bill would expand the definition of
unauthorized electronic fund transfer in EFTA to cover
fraudulently induced payments. This simple fix would address
fraudulently induced payments on all payment platforms covered
by EFTA, including P2P apps and gift cards.
Such a solution would not be unprecedented. Recently
enacted rules in the United Kingdom (UK) require banks to
reimburse victims of fraud in the inducement, with issuing and
receiving banks sharing liability for making victims whole. The
UK's rules can be a model for law in this area.
Chair Blumenthal, Ranking Member Johnson, and Members of
the Subcommittee, we thank you for your continuing work to
protect consumers and for holding this hearing. On behalf of
the National Consumers League and consumers like the two
sitting next to me, across the country, thank you for including
the consumer perspective as you consider these important
issues.
Senator Blumenthal. Thanks you, Mr. Breyault. Ms.
Humphreys.
TESTIMONY OF ANNE HUMPHREYS,\1\ RETIREE, EXPERIENCED SCAM ON
ZELLE
Ms. Humphreys. Chair Blumenthal, Ranking Member Johnson,
and distinguished Members of the Subcommittee, good afternoon,
and thank you for inviting me to testify about a sophisticated
scam that targeted my family. My name is Anne Humphreys and I
live in Laurel, Maryland. Unfortunately, the type of fraud that
happened to my family is all too common, and I believe my
testimony can shed light on the tactics used by scammers and
the urgent need for stronger consumer protections.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Humphreys appears in the Appendix
on page 56.
---------------------------------------------------------------------------
On the morning of February 7, 2022, I arrived at my
mother's Baltimore County house around 11 a.m., where her
caregiver came to the door and said, ``Your brother is in
trouble.'' I found my mom on the phone with someone claiming to
be my brother. Mom saw me and said to the caller, ``Here's
Anne. Talk to her.''
Thinking this is my brother in trouble, I was horrified to
hear the story. He was in a terrible auto accident, his fault,
and the other driver, who was pregnant, was in critical
condition. He was in a courthouse in Virginia, facing arrest
and jail time. To explain why his voice sounded different than
normal, he said that he had inhaled airbag chemicals which were
causing him breathing difficulties. The caller knew enough
detail about family members to be believable, and he appeared
to be quite scared. He had answers to questions I had not even
thought to ask.
He then asked me to call his supposed lawyer, ``Mark
Ross,'' who said it was urgent that I post bond so that my
brother would avoid jail time. Throughout the day, I had
multiple phone and text exchanges with ``Mark Ross,'' who gave
seemingly plausible answers to all my questions.
``Mark Ross'' told me he needed a huge amount of money in
cash, which I told him I could not put my hands on. I
frantically tried to figure out how to get money to the bond
company. He asked me if I had access to any online payment apps
like Cash App or Zelle. I was familiar with Zelle, using it
regularly through Wells Fargo to pay for my mother's
caregivers. I agreed to make a transfer with Zelle, and was
instructed to use it to send $3,500 to someone named ``Ilenis
Jimenez'' at the bond company. That was enough to begin the
process to have my brother released. I was able to send the
$3,500 to ``Ilenis Jimenez'' through Zelle.
I discovered the fraud around 5 p.m. My real brother
stopped on his way home from work to see my mother. She told
him what had been going on, and he called me immediately. I
stopped communicating with ``Mark Ross,'' who I had also been
communicating with because there was additional bail money I
was to come up with. But I stopped communicating with him, and
I was devastated.
Looking back on it there were red flags. For example, why
didn't the supposed lawyer, ``Mark Ross,'' offer a secure legal
payment system? Why wouldn't he accept PayPal, which I had
initially offered? Why did he accept Zelle? Why was bond being
posted to an individual and not a business?
In that moment, however, my mom and I were very afraid for
my brother's well-being, and the scammers who targeted us were
very good at making the situation seem real and urgent. I think
what happened to us could happen to anyone.
Unfortunately, trying to recover from this crime has proven
to be almost as traumatic as the crime itself. There seems to
be no recourse for our loss.
I immediately called Wells Fargo. I spoke to a
representative in the fraud department and described what had
taken place. I gave him names, phone numbers, and addresses. He
sympathized with me, and told me it sure sounded like fraud. He
said they would investigate it, and I would have an answer
within 10 days.
Ten days went by without any updates or communication. I
called Wells Fargo repeatedly. I still thought I was going to
get our money back. On March 10, my claim was denied. They said
I had processed the transaction successfully and there was no
fault found. Within 24 hours of the scam I had filed paperwork
with the FTC and the local police. Neither of them gave me any
reason to think that they were going to be able to resolve this
case. In fact, both of them just told me, ``We will take this
information in case we get those numbers on a hit someplace
else.''
Looking back on it, Wells Fargo's website did have warnings
about sending payments to people, similar to ``make sure you
have the right number, because once it's sent, it's gone,'' but
no big warnings like there are now.
Not long after this scam happened to us, Wells Fargo did
send updated notices for Zelle transfers, spelling out that
they are not responsible for certain electronic transfers. None
of that existed when we were defrauded. Now they ask you a ton
of questions before you can send money via Zelle to a new user,
so they know what is going on. Still, though, they have no
financial accountability.
My questions are these. If Wells Fargo knew there were no
consumer protections on Zelle, why did, and do, they offer it
to their consumers? Since Wells Fargo, along with Bank of
America and the other major banks, has financial interests in
Zelle, why don't they have some financial accountability for
the protection of their customers? Why is Zelle allowed to
operate this way, knowing the high probability of fraud? I feel
taken, twice, by the scammers and by Wells Fargo and Zelle.
Chair Blumenthal, Ranking Member Johnson, I share my story
to raise awareness and to advocate for stronger safeguards. The
emotional and financial toll of this scam on my family was
significant, and it is still being felt. I am sure that I am
just one of hundreds of thousands, if not millions, of
consumers who are being targeted this way. Action by you and
your colleagues here in Congress is urgently needed to stop
these scammers.
Thank you.
Senator Blumenthal. Thank you, Ms. Humphreys. Ms. Hand.
TESTIMONY OF DELICIA HAND,\1\ SENIOR DIRECTOR, DIGITAL
MARKETPLACE, CONSUMER REPORTS
Ms. Hand. Chairman Blumenthal, Ranking Member Johnson, and
members of the Subcommittee, thank you for the opportunity to
testify on this critical issue of consumer protection in the
peer-to-peer marketplace. My name is Delicia Hand, and I work
for Consumer Reports, where over 88 years we ensure that
consumer marketplaces, product, and services are safe, fair,
and just.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Hand appears in the Appendix on
page 59.
---------------------------------------------------------------------------
In 2022, Consumer Reports conducted a comparative
evaluation of four of the most widely used P2P payment apps:
Apple Cash, Cash App, Venmo, and Zelle. Our study, published in
2023, found that all four services lacked clear, accessible
disclosures about the availability of Federal Deposit Insurance
Corporation (FDIC) insurance and a full scope of their fraud
and error resolution policies. Notably, Zelle stood out for
providing the least comprehensive information to users about
their rights and protections.
There are several aspects of Zelle's business model which
create unique risks for users compared to other P2P services.
For example, there are not clear, published fraud liability
policies. Unlike Venmo or Cash App, Zelle does not have a
public-facing policy detailing consumer protections and
reimbursement rights for all unauthorized transactions. As you
have heard, this leaves victims unclear on where to turn for
help.
As you have also heard, they provide a fragmented customer
service experience. The support is split between the network
operator and participating banks, which can bounce victims back
and forth. A centralized, consistent process is needed to help
consumers when they fall victim to fraud and scams.
There are also weaker authorization safeguards. Zelle
enables instant transfers, as you have heard, with less upfront
friction. It is less secure and can enable faster fraud
compared to other P2P apps, which in-app, two-factor and
multifactor authentication. Additionally, there is lack of
transparent data. Zelle does not regularly publish statistics
on the volume and resolution of fraud and scam complaints. This
hinders effective oversight of how well its policies are
working.
In the context of increasingly sophisticated scams,
particularly those leveraging the most advanced technologies
such as generative AI, it is increasingly difficult for
consumers to detect and avoid fraud. Scammers can create highly
convincing deepfake videos, impersonating individuals known to
the victims, and deceiving them into transferring large sums of
money, as you heard from today's consumers. In such cases, a
consumer who sends money under duress cannot be said to have
truly authorized that payment in any meaningful sense.
The scale of this issue is significant. In the United
States consumers reported losing over $10 billion to fraud in
2023, representing a 14 percent increase from the previous
year. Bank transfers and payments, which include P2P
transactions, accounted for $1.86 billion in losses.
To better protect consumers we recommend that Zelle and
participating banks adopt and publish a clear policy
guaranteeing reimbursement for all unauthorized transactions,
including fraud and the inducement. We also recommend
implementing stronger transaction monitoring and identity
verification safeguards, creating a streamlined process for
consumers to report fraud and seek reimbursement so that they
do not have to bounce between the bank and Zelle. We recommend
providing greater transparency about fraud trends and
reimbursement rates, and additionally, that banks establish a
robust framework for sharing fraud information across the
industry.
Congress should also clarify, through legislation, that
Regulation E applies to fraudulently induced payments, not just
unauthorized transfers. Because as financial services grow more
complex and scams become more sophisticated, it is banks, not
consumers, who are best positioned to prevent and absorb losses
from fraud. Just as manufacturers are expected to implement
robust safety measures and bear the costs of product defects,
banks should also be required to invest in advanced fraud
prevention technologies and reimburse consumers for losses
resulting from increasingly sophisticated scams.
We look forward to working with the Subcommittee, industry
stakeholders, and consumer advocates to create a fair and
sustainable P2P payment ecosystem that truly protects consumers
while harnessing the benefits of fast, convenient movement of
money.
Thank you so much for the opportunity to be here today.
Senator Blumenthal. Thank you, Ms. Hand.
We are going to have questions now, seven-minute rounds. We
have also just begun a vote, so Senator Johnson has gone to
vote. When he comes back I will go to vote. But we are going to
keep the hearing going, and I understand that Senator Butler
has another obligation she needs to attend, so I am going to
call on her first.
OPENING STATEMENT OF SENATOR BUTLER
Senator Butler. I so appreciate the flexibility, Chair
Blumenthal, and thank you so much for having this hearing. It
is just another demonstration of your career of public service
as a consumer advocate really showing up for the American
people.
Thank you all for coming here, Ms. Duval, Ms. Humphreys,
for sharing what I think a lot more people have gone through
and tend to keep to themselves because they are ashamed. They
think that how could they have fallen for this. But the fact
that the two of you have come here, representing such a
diversity of both experience, geography, and community
representation, helps to give a face to the vulnerability of
all communities to be targeted toward these scams, and even
when they are trusted tools that show up on a device that we
love the most. They are tools that should be interrogated, and
we should be making sure, as public servants, that we are doing
everything to put in place the protections that you need.
Ms. Duval, I would love to start with you, just as a fellow
Historically Black Colleges and Universities (HBCU) graduate,
making sure to lift up your courage of sharing what happened to
you. I am sure it is not unfamiliar to other that you might
know on campus or in and around your community. You spent, it
seems like a considerable amount of time trying to, with your
mom, sort of figure out a way to communicate, to over-
communicate, and to communicate more.
Can you just share a little bit. I read your written
submitted testimony, even as I missed the payment on a final
bit of what you were offering. Could you share just a little
bit more what you were able to find out relative to how these
kinds of scams were directed toward you and others on your
campus. Trying to get to that sort of student vulnerability
population, and if there was any wider exposure to this kind of
scam on your campus.
Ms. Duval. Yes, of course, and thank you, Senator Butler. I
really appreciate that, and also HBCUs.
Senator Butler. Shout them out, girl. Shout them out.
Ms. Duval. Yes, I got the email first on my school account.
I do not know how they got my school email accounts, and I
recently learned, today actually, that six other students have
been scammed in the exact same way that I have. With that I
guess first they email us with an opening, presenting
themselves as one of our actually head research professors, but
ending with the @gmail.com kind of thing. Then they asked us to
go to another email address to keep in contact with them, and
that is when they started spoofing our payroll@NCAT.edu email
address, and that is how they further send those suspicious
checks, and then asked for that payment and things of that
nature.
Does that answer your question?
Senator Butler. Yes, it does, and it leads me right to my
next one. Thank you for answering it so well.
Ms. Hand, I would assume, just in the ways in which Ms.
Duval was just talking about the sophisticated nature, the
evolution of these scams, and in particular directed toward
young people, and in some instances young people of color, HBCU
campuses, I wonder if, in your research or your engagement in
the advocacy and research space, if there is any information
that you might have in terms of how much of this is directed
toward young people and students, given the financial
vulnerability of most young people, particularly when headed
toward the end of the school year.
Ms. Hand. Thank you for the question. I can shed a little
bit of light. In addition to testing products we also regularly
engage consumers and do representative surveys of thousands of
consumers across the country, so we are able to get a sense of
various demographics. What you do see is that the more
vulnerable consumers tend to be targeted. You do see younger
consumers, and you also see, frankly, the other end of the
spectrum, older consumers, self-reporting that they are victims
of fraud, various kinds of induced scams in these instances.
Senator Butler. Thank you for that. Ms. Tatar is that the
right way to pronounce that?
Ms. Tatar. Close enough: ``Tatar.''
Senator Butler. Well as a woman with a PH, and a Z in her
name I would like to get it right. Ms. Tatar, thank you for
that. Or, Mr. Breyault, would you add any additional insights
or information from your perspective to this line of
questioning relative to vulnerable communities, in particular
students, a particular time of year. There are so many
commencements that are happening right now, and I think this is
a time where we have the opportunity to get folks who are
watching, the five people who watch Cable-Satellite Public
Affairs Network (C-SPAN), but to really be able to get students
to understand that they are a targeted audience and group of
victims, particularly in this moment.
I open the question to both of you, as well, and I would
love to start with Ms. Tatar.
Ms. Tatar. Thank you. My experience has been that students
are probably more often targeted. You will see those numbers
and greater numbers with that population. But the older
generation, they are suffering larger losses, and significantly
larger losses. The trouble with that is they are losing money
and they are not able to make that money back because they are
retired, or they are losing significant amounts of their
retirement income.
I do agree it is time for graduation, and there are a lot
of kids looking for jobs right now, and through social
engineering they are targeted by the hordes, yes, absolutely.
Mr. Breyault. Just to add on to what Ms. Tatar had to say,
certainly we know that fraudsters look for specific
vulnerabilities and specific target audiences they go after.
Financial distress is one that we see very often. When we think
of students we often think of the stress that they are
beginning to feel as student debt starts to cut into what they
have to spend money on.
As in Ms. Duval's case, the offer of employment looks very
promising to someone who is thinking about having to start
paying those student loans off. The scammers know this, and
they target their scripts to prey on people who might be
vulnerable in that way. They have a script, literally, for
every potential audience, from older people to younger people
to everyone in between.
Senator Butler. Thank you all again for being here and for
offering your testimony. I think it is just such a critically
important issue, and I think it was noted, Ms. Humphreys, at
the end of your statement, the fact that this is a product that
is majority owned by the largest financial institutions really
does make it imperative for not only the sharing of your
stories but the action of our Subcommittee and Congress to do
everything that we can to protect the American consumer, of
every bit of the age and experience spectrum.
Thank you all for being here, and thank you, Mr. Chair.
Senator Blumenthal. Thanks, Senator Butler.
Ms. Tatar, about three-quarters of the fraud claims are
never reimbursed. Can you explain why?
Ms. Tatar. Much to the chagrin of consumer attorneys, it is
because many banks believe that the Electronic Funds Transfer
Act prohibits or eliminates their duty to do an investigation
because the consumer participated in one way the other in the
fraud, meaning they were on the phone, they transferred the
money, they clicked on a link, they clicked on a text message.
Because ultimately they did something to perpetuate that
movement of money the banks are not responsible
Senator Blumenthal. So Regulation E, they believe does not
apply to them, to use the technical legal terminology.
Ms. Tatar. Correct. Because the consumer had something to
do with the movement of the money, they believe that the
Electronic Funds Transfer Act Regulation E does not apply to
them.
Senator Blumenthal. The mere fact that the consumer's
finger was on the button disqualifies that consumer from any
reimbursement.
Ms. Tatar. As frustrating as that is, yes, that is exactly
right.
Senator Blumenthal. Do you agree with them on the law?
Ms. Tatar. Absolutely not.
Senator Blumenthal. Even if they continue with their, or
especially if they do, with their resistance, perhaps that
regulation ought to be clarified. Correct?
Ms. Tatar. I agree with you, Senator. Yes, the regulation
absolutely needs to be clarified.
Senator Blumenthal. Mr. Breyault, you mentioned that what
we know about this problem is probably just the tip of the
iceberg because a lot of consumers either are ashamed or
embarrassed to report this kind of fraud. Is that correct?
Mr. Breyault. Yes, that is correct, Senator.
Senator Blumenthal. We know that $456 million was actually
reported in 2022 alone. The numbers have been skyrocketing, so
the number for 2023 is probably higher, and for 2024 will be
even higher. But there is no indication, is there, that the
levels of reimbursement have increased at all.
Mr. Breyault. None that I have seen, no.
Senator Blumenthal. So probably it will be at the same
proportion.
Mr. Breyault. I would anticipate, yes.
Senator Blumenthal. Would it be advantageous to have more
people reporting more of this fraud so we can know more
accurately what the dimensions are?
Mr. Breyault. It certainly would, Senator, yes.
Senator Blumenthal. How would we encourage it?
Mr. Breyault. I think that one of the ways that we can
encourage consumers to report this fraud is by working with the
media, with Members of Congress, with the banks themselves, to
destigmatize this. Unfortunately, we often use terms like ``I
was duped'' or ``I can't believe I fell for this'' or ``How
could I be so stupid?'' Consumers hear this whenever they share
their stories, and this really creates a culture of fear around
reporting. Unfortunately that trickles down into the resources
the businesses and law enforcement devote to actually going
after these scammers.
Senator Blumenthal. Ms. Humphreys and Ms. Duval, let me ask
you. Were you reluctant to come forward? Was there a
disincentive? Were you discouraged about it, either because of
your own emotions or because of the way the system works?
Ms. Humphreys. Yes. I responded to a Consumer Reports email
and thought that was it. I said, yes, I had been scammed, and I
thought I was finished with that. Then Consumer Reports said,
well, can we tell it to the Congress, and I said, oh, I don't
know.
And so here I am. I was very reluctant because I am
ashamed. I only told my children late night, when I shared with
them the link, because I did not want to share that with them.
Senator Blumenthal. The cost to you, regardless of the
reimbursement, perhaps you could talk about those costs to you,
in emotional or psychological terms, to you and your mother.
Ms. Humphreys. My mother's only concern was my brother. She
did not care what it cost. She wanted that done. And so she was
happy. Ninety-four years old, her son is in trouble, and how
her son is on his way home. Then when he arrived at our house
that night she was thrilled because it had worked, until he
told her, ``I was never in trouble. I don't know what's going
on.'' She was just happy that her son was OK.
I, on the other hand, was ashamed that I had fallen for
this. I asked questions as it went, but I was so caught up into
it I could not get out of my own emotions. I did not know where
to turn because I wanted him out of that space. When the lawyer
said to me, ``Can you get me some cash?'' I am thinking, cash,
who has cash like that? But he lowered my bail, or my brother's
bail, and after that I was grateful. As I am reviewing all this
I am thinking, he had my emotions in his fingertips. As I asked
a question and he said, ``Well, I would have to go to the court
and ask them if they will accept that,'' I am waiting, and the
time is passing. My brother is in jail. I am trying to get him
home and I am waiting for the lawyer to get an answer for
something. I was completely invested in the trouble here.
When it was all said and done I am thinking, what an idiot.
I had all that opportunity for my brain to kick in and say,
``Wait a minute. Now what?'' But I could not. I did not have
that in me to think anything except I have to get my brother
home.
And so that has been overriding most everything. It took me
a very long time to forgive myself, and I thought I had until
you all asked me to respond to this. Now I am reliving it, and
I am again ashamed. I know that people watching are going, ``I
would never fall for that,'' which, honestly, is how I felt
about myself when I watched other people report on their scam.
How could they have fallen for that? What a dumbbell. Then I
fall for it.
There has been a great humility on my part to realize that
none of us are immune to this. Those of you who have not done
this, and you are sitting there thinking, ``Boy, she is old and
she is dumb,'' but you just wait when that time comes, and you
get so caught up into something you can't do anything except
respond to it.
I did tell my children last night, and most of them were
supportive. I have not heard from some. But it is a hard thing
to come and express your vulnerability, and when it is money
involved--and it was my mother's money. I am on an account with
her, but it was my mother's money--I could not let my mother
suffer that loss. I gave her the $3,500, so it is now my loss,
and my husband's loss. But I could not see another way out of
it.
So that is what I mean. The financial toll is there. I
still lost the $3,500. But the emotional toll just continues.
Senator Blumenthal. Very well said. Just an observation.
Zelle has instantaneous or near instantaneous clearing. In
Venmo these transactions take, I believe, one to three days to
settle. So your brother would have come home that evening and
you would have been able to reverse the transactions because of
the delay.
Now I recognize people want everything to happen quicker in
today's society. Faster is always better, right? Well, not
always.
Ms. Humphreys. Right.
Senator Blumenthal. Especially if you are paying a bill,
faster is not always better if the bill is fraudulent.
I am going to ask Ms. Duval the same questions. Were you
fearful or reluctant to come forward, and what were the costs
to you beyond the financial loss?
Ms. Duval. Yes, definitely, more so than even the financial
part, at times. Because I go to a university, we feel like a
family at times. Whenever you tell them about your experience,
and especially that I am out $2,400, like how on earth did you
fall for that? Even some of my family members had the same sort
of tone with me, with that same thing.
It felt disheartening. I felt like Mrs. Humphreys was
saying, that I am big dumbo. How could I even fall for this? It
took a toll on my self-esteem, my intelligence, in general,
seeing as I tried my best in my academic pursuits. It made me
feel as if I was the only one that could go through this. Now
that I have recently learned that I am definitely not the only
one from my own school that has been involved with this scam
now I feel more seen.
When I went to American Broadcasting Company (ABC-11), at
first, I felt as if I could help anyone just to prevent this,
in general, I would, because I had to overcome that. But I know
whenever you close a door, and would just be at one in my room,
I would cry. I would really cry. I would sit there and like how
on earth did this happen, in this short amount of time. I had
my final exams and my final projects. Some of the most
strenuous and difficult that I have done throughout my entire
school career.
It was just so disheartening. I was actually devastated.
There was just too much piling onto me at once. I felt like I
could not talk to anybody because they would not understand or
they would scrutinize me.
That is why I am here. I want to let you know that having
the courage to speak up, number 1, is one thing, but to know
that you are seen and that you are not alone in this.
Senator Blumenthal. We thank you both for being here, and
your statements are very powerful.
Senator Johnson has returned. I am going to go vote, and I
will be back as quickly as my feet will take me, because I do
have some more questions for all of you. I apologize that we
have this interruption, but I am going to leave it in Senator
Johnson's very capable hands.
Senator Johnson [presiding.] Thank you, Mr. Chair. First of
all, Ms. Duval and Ms. Humphreys, thanks for your testimony. I
think all of us are just thinking there but by the grace of
God, OK. No way should you feel inadequate. These are very
sophisticated criminals, and they are preying on people's
emotions. They preyed on yours. Again, I find it totally
understandable in terms of how they took advantage of you.
But the first couple of questions are for you, Ms. Duval.
The $400 check that they sent you was just a fraudulent check,
right? You deposited it in good faith. You thought the money
went in there. It probably takes a while for the bank to get
back to you and say, ``Hey, this is no good.'' Can you just
fill me in on that first?
Ms. Duval. Yes. In addition, it was a $2,400 check in
total.
Senator Johnson. Oh, so they did not send you two checks
then, one for $400 and also the $2,000 check?
Ms. Duval. No. It all came in one check of $2,400. Sorry.
Can you repeat the question again, the one that you just asked?
Senator Johnson. So you got these checks. They looked like
valid checks to you. Did you take them physically or did you
also deposit those electronically?
Ms. Duval. I deposited those electronically. It gave me
strict instructions to do mobile deposit only, and that is how
they first came into my account. Whenever I first realized it
was a scam, my bank was telling me it would take them five to
seven days to realize the validity of the check. It would
appear in my account while still pending, but they would
basically give me that money.
Senator Johnson. Right. When did you find out that those
checks were also fraudulent and you did not have the $2,400?
How many days did that take?
Ms. Duval. It was around, I believe two days or a day. It
was not myself that realized it. It was my mother seeing my
account and realizing something weird was going on, and she
called me, and then made me realize that it was a scam. This is
before I was even in the deficit or they took the money out. I
just knew I was scammed at that point, and then I filed two
claims, for the $400 and the $2,000, within that same hour I
realized, and then three days later, about, I was in deficit.
Senator Johnson. Now I do not believe you had ever used
Zelle before, right?
Ms. Duval. I used it maybe once or twice, just for simple
transactions with actual peers that I know, and friends, very
simple things like----
Senator Johnson. Why did you use it? This is not an
accusatory thing, because I have never used these things. I
know people who have, and I just never have. Why do people use
these?
Ms. Duval. I believe just because of its quick pace and
nature and how quickly it can go into the bank account,
especially since it is bank-affiliated directly, that is what
made me feel as if it was more trustworthy in that aspect.
Senator Johnson. OK. So it is going through your bank, and
you are thinking, OK.
Ms. Duval. Yes. Especially for this situation, since I did
think it was somebody from my school and they needed these
research office supplies sent to me so I could use this for
this research opportunity, that they would need it specifically
in their bank, because Cash App can take some time to actually
go into the bank. I think Venmo is the same way, a couple of
days or three days.
I think that whenever I was thinking about it that
instantaneously that would be OK and because it is also bank-
affiliated that if it was not that I could get that back
easier.
Senator Johnson. Again, you are not thinking, because no
consumer really thinking about the initiating fees or anything
else like that. A credit card was not available in this
situation. They were telling you to use this direct payment,
and you had used it in the past, and you just really did not
question it at all.
Ms. Duval. I am a bit confused in the way you said it. But
because they sent a check I thought, OK, this money is on----
Senator Johnson. It is covered, right.
Ms. Duval. Yes. They brought it to me so that I could send
it off to the sales representative.
Senator Johnson. No, again, they are very good at what they
do.
Ms. Duval. Yes.
Senator Johnson. Ms. Humphreys, maybe you can answer that
question too. You said you had used PayPal in the past, I
think, right?
Ms. Humphreys. Yes, I used PayPal to buy things, and I have
bought some fraudulent things and PayPal is very good about
refunding my money. During Coronavirus Disease 2019 (COVID-19)
I bought something and it came back completely--it was not what
I purchased. I told PayPal about it. They made me whole, and I
sent the stuff back.
Senator Johnson. Why do you use PayPal rather than a credit
card to purchase things, on Amazon, that type of thing?
Ms. Humphreys. Yes, it was on Amazon.
Senator Johnson. Why do you use PayPal versus credit cards?
Ms. Humphreys. Sometimes I use PayPal because I can cover
my credit card number against the company that is making the
purchase. If I use PayPal I do not have to put my Discover card
into the place where it says, ``make a payment.'' So my
understanding of it is it is one step away from giving some
company I am not familiar with my credit card number. I can
give the company my PayPal account and then the company gets
its money from the PayPal account, and PayPal knows my account
number. I can keep my Discover or whatever card away from them.
Senator Johnson. Right. So you have an account at PayPal.
PayPal has access to your bank account.
Ms. Humphreys. That is correct.
Senator Johnson. OK. That makes sense.
Ms. Humphreys. I offered that to this guy, and he would not
take it. Now I know why he would not take it.
Senator Johnson. Right.
Ms. Humphreys. Because, hello, it would not have worked.
Senator Johnson. Yes, he was cheating on you.
Ms. Humphreys. Yes. But I use Zelle for my mother's
caregivers, and I would have to pay them over and over and over
again. It always worked fine until this, and then I became very
skeptical of it, and so I would send a dollar. Is this you?
They would come back and say, ``Yes, I got it,'' and then I
would send them the amount of money to cover.
It has changed my already heightened distrust of electronic
payment, but to a whole new level.
Senator Johnson. Listen, I think you are very responsible,
and your rationale for using PayPal makes an awful lot of
sense. We do it. My wife does it. You are just kind of hoping.
But we do know, with credit cards, if there is a fraudulent
payment they reimburse that. But again, they have hundreds of
billions of dollars in profit of the interchange fees to make
those payments.
I will go to Ms. Hand right now because I want to
understand----
Ms. Humphreys. Could I finish that and follow up then?
Senator Johnson. Go ahead.
Ms. Humphreys. But that might be your thought on it, but
mine, as a consumer, is I do not care about any of that stuff.
Senator Johnson. I understand.
Ms. Humphreys. I was working through Wells Fargo, which
offered me a service, and so Wells Fargo should be backing up
that service, and the rest of that financial stuff, I do not
care about that.
Senator Johnson. I completely understand that. I understand
you want to be made whole.
Ms. Humphreys. Correct.
Senator Johnson. But again, I am just thinking of the
overall business models of these things and who has the
wherewithal to make those reimbursements. That is why I want to
kind of get into these other systems, because I want to compare
them with Ms. Hand.
What is the difference between PayPal, Venmo, and Zelle?
Can you just kind of lay out what are the difference there? And
speak as loud as possible.
Ms. Hand. Sure. I think one of the things that you have
heard from various testimony is the friction, both the presence
of it and the absence of it. One of the things that is more
absent in Zelle is that absence of friction.
Senator Johnson. That is the use of it. I want to focus on
the difference in the business model, OK?
Ms. Hand. Yes.
Senator Johnson. So PayPal, how do they make money?
Ms. Hand. That is a really good question. How these
companies make money is not part of our analysis. We test the
consumer use of it
Senator Johnson. OK. Does anybody know the business model
difference between PayPal, Venmo, and Zelle? Mr. Breyault.
Mr. Breyault. Senator, what I understand about the business
models is that Zelle is basically a service that the banks
offer as a way to basically make their service more attractive,
to make it stickier, so that you get other services from the
banks.
Senator Johnson. So people don't use PayPal and Venmo.
Mr. Breyault. Right----
Senator Johnson. Do the banks view PayPal and Venmo as a
competitor?
Mr. Breyault. Yes, they do.
Senator Johnson. OK. Apparently, the parent company, they
claim they make no money off of Zelle whatsoever.
Mr. Breyault. Right. While that might be true that there is
not sort of the same kind of fees that they get off of
interchanges like they would in credit or debit, they do make
money in other ways, for example, by using Zelle, it is a
service that gets you to stay on your bank's website, for
example, where you might----
Senator Johnson. That is why the banks use Zelle.
Mr. Breyault. Right. Venmo and PayPal make money in other
ways.
Senator Johnson. How do they make money other ways?
Mr. Breyault. PayPal may make money off of, for example,
charging you a fee if you want to send money to a business, for
example, or the money that is in people's PayPal balances, they
make money off the----
Senator Johnson. So they have compensating balances then.
Mr. Breyault. Compensating balances, if you mean they are
making money off a float on the balances, then yes.
Senator Johnson. What float is--I mean, do both PayPal and
Venmo, do they allow their users to deposit money so it does
not even have to go through a bank account?
Mr. Breyault. That is right.
Senator Johnson. They are making money like a bank does.
They have deposits on hand. They do not pay interest on them
probably, right?
Mr. Breyault. On them, not that I know of.
Senator Johnson. Yes. They have got this cash, so they can
go ahead and make money on themselves----
Mr. Breyault. Right.
Senator Johnson [continuing]. That kind of funds it. Zelle
does not do that, right? Zelle is basically just a software
program that banks use so that their bank customers stay on
their platform. They do not take their money and deposit it
into Venmo and PayPal. That is kind of how I view this, right?
Mr. Breyault. There are other apps, as well. There is a
very popular one called Cash App, where you are incented to use
your Cash App balance to do things like purchase
cryptocurrency. There are various P2P apps. They have various
business models. But your understanding of how Zelle operates
is, I believe, correct.
Senator Johnson. OK. Again, the reason I am pointing this
out is if, let's say we want to pass a law--and I am going to
get to the law in terms of the Electronic Transfer Act--that is
going to redefine unauthorized transactions, which I think is
covered under the Electronic Act, but I do not think fraud is.
That is why Congresswoman Waters has this bill to include
fraud. Somebody is going to have to pay for that, and the way
you would probably pay for that is Zelle or these other
companies would probably have to charge fees so they have an
amount of money to compensate people. There would be a certain
percentage of fraud--there always will be--so it is going to
come out of somebody's hide, and my guess is then those
services would have to charge some kind of slight transaction
fee or whatever.
Mr. Breyault. Senator, if I could just respond on that
point.
Senator Johnson. Sure.
Mr. Breyault. Right now that money is coming out of
somebody's hide. It is coming out of the hide of consumers like
the ones sitting next to me.
Senator Johnson. Right.
Mr. Breyault. The fraud is happening, and the money is
being lost by somebody. Our opinion is that those losses are
best absorbed by the banks and those costs spread across their
entire Zelle network, rather than coming out of the----
Senator Johnson. By the way, I completely agree with you.
It is how do you set up the system so it works.
Ms. Tatar, why do you believe that Zelle was not following
the law. You said a couple of times in your testimony that
Zelle was not following the law. Again, I do not know what
percent--they do reimburse for unauthorized use, and again, I
do not know whether that comes out of Zelle or whether that
comes out of the fees that Zelle charges the bank, and they do
the calculation in terms of what percent of the transfers are
unauthorized, or they are going to have to reimburse.
Again, these people are smart. They keep track of these
things.
In what way is Zelle not following the law?
Ms. Tatar. Senator, what I said is that financial
institutions routinely do not follow the law, and by that I
mean the banks. I see banks when they do not return the money
to my consumers, and they routinely either do not do an
investigation because they feel it is not covered under the
Electronic Funds Transfer Act, or the investigations that they
conduct are terrible.
Senator Johnson. Let's zero in on that. What is and what is
not covered? Am I correct, because I have been briefed here,
that unauthorized transactions are covered and they have to
reimburse for that, which means they have to investigate. But
if it is fraud, or if it is an authorized--and again, that is
the problem with fraud. You are defrauded. A crime was
committed, but you authorized the transfer. So according to my
briefing, is not covered under the Electronic Transfer Act,
which is, again, why Congresswoman Waters has a bill that would
include fraud covered under the act. I mean, am I getting that
wrong?
Ms. Tatar. Not necessarily. The term ``fraud'' is a little
tricky. I think it is probably easier to think about it in
terms of unauthorized transactions that a consumer has had a
hand in, by no fault of their own.
Senator Johnson. I got it. But what really scares,
certainly, me, is completely unauthorized, where people have
access to your personal information, they have access to your
checking account, without knowledge whatsoever. You had no hand
in it. I think that is actually pretty clear-cut in terms of
what is authorized or unauthorized.
Then you have fraud that occurs and involves and authorized
transaction. But I think Senator Marshall is ready here, so I
will let you go and then I will come back.
OPENING STATEMENT OF SENATOR MARSHALL
Senator Marshall. OK. Thank you, Senator Johnson.
If my questions are repetitive you have to forgive me. We
have been bouncing back and forth from votes and other
committees. My first question for Mr. Breyault, if you will.
Look, I think all scams are bad, and consumers being taken
advantage of is, of course, horrible, as well. But sadly it
happens far too often in all different forms. We see it with
crypto scams, Western Union scams, gift card scams, just to
name a few.
Should we be focusing our attention on the actual scammers
and not the specific medium that they are using?
Mr. Breyault. Senator, thank you for the question. I do not
believe it is an either/or proposition. I believe that we can
redouble our efforts to go after scammers and try and put them
behind bars, and one of the best ways to do that is to give the
entities that are in the best position to help that happen the
incentives they need to do so. I believe that the entities that
are best positioned to provide the kind of data that law
enforcement may need are the banks.
Currently, because the costs of the fraud that are
occurring are not borne by the banks, they lack that incentive,
and I think that is where Congress can step in, just as
Congress stepped in and made sure that the Electronic Funds
Transfer Act had limited liability for credit and debit card
customers. Now, if you are anything like me, the last time you
found out that a scammer got ahold of your credit card, it was
not because you noticed a suspicious charge on your bank
statement. It is because your bank called you and said,
``Senator, did you just spend $500 on a big-screen TV in Los
Angeles, when you were just in Kansas the other day?'' You said
no, you are reimbursed the losses, and then you are provided a
new card.
We think that system works very well and has given
consumers a lot of faith in credit and debit cards. That same
system could apply in peer-to-peer payments.
Senator Marshall. We should just let the scammers go on.
Mr. Breyault. No. I am not saying that at all. What I am
saying is that the best way to create systems and incentives
for the banks, who are in the best position to go after these
scammers, with the help of law enforcement, is to give them the
incentive, a financial incentive, to put skin in the game when
it comes to going after these scammers. That incentive
structure has worked great in credit and debit, and I think it
would work great in P2P.
Senator Marshall. Don't you think we could do more by going
after the scammers, whether they are successful or not
successful? It is like we let them try to rob the bank. If they
do not rob the bank, we do not prosecute them. Don't you think
there is more we can do to go after the scammers themselves?
Mr. Breyault. Absolutely. There is always more we can do.
We could fully fund the enforcement agencies that are
responsible for going after those scammers, like the CFPB and
the FTC. But it is not a zero sum game.
Senator Marshall. But you would agree with me, even if we
could shut down Zelle, or if we could make it scam-proof, these
bad actors would just find another mechanism to do what they
are doing. It is like a balloon. You push it in one place and
the air comes out some other part of it.
Mr. Breyault. Sure. They will undoubtedly look to other
methods to get payment. We know that cryptocurrency, for
example, is becoming a far bigger mechanism than banking for
fraud. Gift cards are another way that scammers seek to get
paid.
But just because squeezing the balloon, as you put it, in
one place and moving to another, does not mean we should not
squeeze the balloon in the first place.
Senator Marshall. Rather than attacking financial
infrastructure that is used by thousands of banks and over 100
million consumers, shouldn't our focus be on consumer education
to prevent people falling victim to scams?
Mr. Breyault. I do believe that consumer education has a
role to play, but I think that far too often consumer education
has been used as an excuse for the banks not to do more. In the
complaints that we hear from consumers all the time, as we
heard from Ms. Humphreys just a few minutes ago, scammers are
very adept at coaching people around any kind of consumer
education warnings they may get from the banks. They are
professional, sophisticated criminals. This is what they do all
day, every day, and they have an answer to every question and
every warning message that you may see in a process. That is
why they are professionals.
Senator Marshall. But the FBI is professionals too. Why
can't law enforcement crack down on these people more? What is
keeping us from getting more of these scammers?
Mr. Breyault. As I said, I do not think that the banks have
the incentives they need to invest as much as they should. One
of the reasons that we can go after bank robbers is because
banks provide the information, closed circuit video and
everything to law enforcement to help them go after them. The
banks have skin in the game when there is a bank robbery. We
think that banks should have more skin in the game when it
comes to bank robbery that just happens to happen on Zelle.
Senator Marshall. I have been told that 99.9 percent of
transactions processed on Zelle will have no reports of fraud
or scams. Does that sound like a reasonable number?
Mr. Breyault. Senator, I have no reason to doubt that
number, but, in fact, I think that only underscores what we
think should happen, that if you create the kind of incentives
that would require them to make consumers like Ms. Duval and
Ms. Humphreys whole when this fraud happens, that they should
be able to absorb those losses. Either it is a very small
problem or it is a very big problem. If it is very small
problem, like they claim, then they should not have any trouble
in reimbursing the victims.
Senator Marshall. OK. Thank you so much. I yield back.
Senator Blumenthal [presiding.] Thank you, Senator
Marshall.
I want to pick up where I left off, and I apologize if I am
retreading some of the ground that you have covered. Ms. Hand,
I was talking to Ms. Duval and Ms. Humphreys about the costs to
them, the emotional costs, but also the disincentives in
emotional terms for them to come forward.
Could the banks do more to encourage reporting of these
kinds of scams?
Ms. Hand. Sure. The banks could do more to encourage
reporting. I think that is one of the things that we saw in the
comparison, as compared to Venmo, Cash App. We just had a
conversation about education. There actually needs to be
improved education, educational materials, not to say that
education should suffice. It should not. But that was one of
the things that we noted in terms of just the quality of the
materials that are available to consumers. If you compared
Venmo and Cash App to Zelle it was a very different qualitative
experience for consumers.
I think the other thing that is different is the actual
policies for reimbursement. If you are a bank customer or a
Zelle customer you have two days, which is within the law, but
compared to Venmo, for example, where you have 60 days to
report an incident of fraud or unauthorized transaction, and
the consumers would be made whole.
Senator Blumenthal. What is the expanded use of Zelle mean
for consumers? Does it put them more at risk, and can they do
anything to protect themselves?
Ms. Hand. It should not be on the consumers. I think
because you are using an app that is effectively integrated
into your bank account it is very different from an app that
communicates with your bank account. There is some distance
there, and I think that actually creates a buffer for consumers
and is a safer experience.
But frankly, it should not be on the consumer. If you make
a car that goes 100 miles an hour, it should be on the car
manufacturer to ensure that the car is safe, the brakes work,
for example. Similarly with respect to Zelle and other
products, if you provide a facility for instant payments there
either should be some friction or, frankly, some assumption of
liability when consumers are scammed.
Senator Blumenthal. As you know, Zelle, the website at
least says that it should be used only with, ``friends, family,
and people you trust,'' but increasingly Zelle is used for
commercial transactions, with people or entities that literally
there is no trust relationship--landlord, another seller of
goods or services. Zelle and member banks have tips on their
websites for how businesses can encourage their clients to use
Zelle for commercial or business purposes.
If Zelle is going to expand its business model to include
greater use of transactions between parties that are unfamiliar
to each other, do you think that there ought to be some
expansion of Regulation E, as we have discussed it, or some
other legal obligation to make sure that there is
reimbursement?
Ms. Hand. Yes, absolutely. We are not just seeing the
expansion of the policy but we are also seeing expansion of
use. So take this out of the fraud and scam context, just for
regular day-to-day use. It is not just that consumers are
choosing to use Zelle but they are being offered Zelle at the
point of sale by merchants or in informal situations, so, for
example, a contractor doing work on the house will not just
take a check but they will also payment via peer-to-peer app,
and that is often Zelle, as well.
Senator Blumenthal. I am struck with the kind of disparity
between the claim that Zelle has no responsibility for these
transactions and then the encouragement that it be used for
those kinds of transactions outside a relationship of trust. Is
that possibly a violation of the Federal Trade Commission laws,
Ms. Tatar?
Ms. Tatar. Senator, I am not prepared to comment on that.
But I think you have made an excellent point that consumers are
encouraged to use something that is fast and safe, and it is
touted as a safe transaction, and it has routinely proven not
to be safe.
Senator Blumenthal. I notice in your testimony, Ms. Hand,
you have a number of recommendations, which include, in effect,
creating more friction, possibly more delay, authentication.
Can these kinds of measures cut down on the amount of fraud
that his victimizing consumers?
Ms. Hand. Yes, absolutely, and they also do not require a
change in the law. These are things that is very much under the
control of companies providing the P2P services.
Senator Blumenthal. I am quoting, ``Critical friction and
multilayered protections offered by other P2P service like
PayPal or Cash App,'' are not used by Zelle. Would they be well
advised to adopt those kinds of mechanisms?
Ms. Hand. Yes. They do at the point of entry. When you are
logging into your mobile banking app, yes, you do have to
typically authenticate. But once you are in that app you do not
have that additional friction, and I think that is a point of
distinction with the others.
Senator Blumenthal. Let me ask you and Mr. Breyault and Ms.
Tatar whether you have ever gone to Zelle and said, ``Why don't
you adopt these kinds of safeguards?''
Mr. Breyault. Senator, we have conversations with Zelle
member banks, and I think they have a role to play, and I think
advocates like me have been and will be talking to them and
urging them to take these kinds of steps. But our urging is no
substitute for regulation that creates the kinds of incentives
that would get them to take these steps in the first place. We
are already seeing promising signs in the UK, where similar
reimbursement rules recently went into effect, and I think that
could be a model for what we, and you, do here in the United
States.
Senator Blumenthal. Ms. Tatar.
Ms. Tatar. I would just make the quick point, I agree, and
every lawsuit that I file I am imploring change and asking
banks to do better than what they are doing. The message is
maybe received, but I think that strengthening the consumer
protections and Regulation E and implementing additional
protections is the only way to go.
Senator Blumenthal. We have heard from victims of these
frauds and scams on Zelle that not only did Zelle fail to help
them get their money back but they did not seem even interested
in information that could prevent it from happening again.
A woman in Maryland wrote to us about being scammed out of
$1,000 on Zelle by someone posing as a police officer. The
scammer knew a lot of her personal information, and the phone
number displayed on her caller ID was for the local police
department. In other words, she looked at the caller ID and it
was the local police department. After the fraud was
discovered, she tried to tell Zelle about this fraud, but here
is what their reaction was, ``I explained to Zelle, I had a
police report, and I had the name and phone number of an
account that is being used for fraud. I asked if they wanted
that information so they could shut the Zelle account down. The
response was no, they don't do that.'' In other words, not our
problem, as I said at the outset. It should be their problem,
if they care about their customers and consumers, and we are
talking here about the banks who have a relationship of trust.
Would you say, Ms. Hand, from a consumer perspective, that
Zelle is safer than other P2P payment apps?
Ms. Hand. I think it depends on what aspect of it.
Certainly based on our report, based on their fraud policies,
and frankly, their educational materials compared to other
apps, it ranked lower. Other apps did a better job of providing
simple information, also providing more robust reimbursement
policies. Again, friction is a safety mechanism in this
instance, and so the absence of that I would say it is probably
less safe.
Senator Blumenthal. So as I said, again, at the outset,
these kinds of problems are common to an industry that is not
doing enough self-correction and has no real incentives now to
do it. Mr. Breyault has emphasized without the reimbursement
requirement and needs to be given additional incentives, or
requirements explicitly to do it.
I will turn to the Ranking Member if he has any other
questions.
Senator Johnson. I am just looking at the statistics on
this, and I do not think we have anywhere near enough
information. We really ought to be talking to the banks because
it appears that Zelle requires the banks to do the
reimbursement. The do not do it themselves, so they direct the
banks to reimburse. Correct?
Again, fraud, scams, these are big problems, but they are
across all payment platforms. I am just looking at the
difference, because it is pretty striking, credit card versus
debit card. They reimburse at a much higher percentage for
credit card transactions versus debit cards, and then P2P is
much lower.
Again, my guess is there is more consumer responsibility
the closer you get to peer-to-peer versus a credit card
transaction. There is obviously more money made in a credit
card transaction than a debit card virtually no money being
made other than with Venmo and PayPal, where they have the
compensating balances.
But just to throw them out here, debit card for Bank of
America, they reimbursed at a rate of 53 percent, versus for
Zelle of 17 percent. On the credit card it is probably close to
80 or 90 percent reimbursement. For JPMorgan Chase they
reimburse for debit cards about 62.7 percent, about 11 percent
for Zelle, and they are probably about 80 percent on credit
cards. For Wells Fargo, very low reimbursement rate on debit
cards, 27.4 percent, versus Zelle is 24.6. That is a real
outlier there.
Again, I am trying to understand the business models here.
Obviously consumers like this peer-to-peer. It is growing. I am
trying to figure out why, if this is such a huge problem, I
mean, according to Zelle less than one-tenth of one percent of
transactions are reported as fraud or scams. Again, any fraud
or scam is unacceptable. You can say that. But it is the cost
of doing business. It is the cost of using these. Again, we are
all concerned in this digital world what kind of protections do
we have.
I have nothing but sympathy. You should not feel
embarrassed about these things. You are up against incredibly
sophisticated individuals that know how to prey on people's
emotions. What should be a regulatory or governmental response
to this is I think what I am trying to grapple with. Fraud,
scams, unauthorized transactions are going to be the cost of
doing business. That is going to be passed on to the consumer.
It is in everybody's best interest to limit this, because what
is the best way of putting this thing, incentivize people who
have some ability to track these things and warn consumers and
try and prevent these things.
I am not disagreeing with any of the testimony. I am just
trying to grapple with the reality of the situation here. I
cannot say as I can really target Zelle as the bad actor here
in any way, shape, or form. They are grappling with the same
problem. None of them reimburse at a 100 percent rate. They
have different criteria.
So this is, from my standpoint, a relatively simple issue
but kind of a complex problem to solve.
Yes, Ms. Humphreys.
Ms. Humphreys. Two things. Why does Wells Fargo want to use
Zelle? One thing I read was Wells Fargo likes to use Zelle
because it keeps people from using checks, which Wells Fargo
then has to process, and therefore, well, it is cheaper for
Wells Fargo for people to use Zelle. So there is a financial
benefit for Wells Fargo for people to use Zelle. If Wells Fargo
is reaping some financial benefit for us using Zelle then why
isn't Wells Fargo taking some responsibility for that?
Senator Johnson. So they do take responsibility.
Ms. Humphreys. Not the way I see it.
Senator Johnson. Not 100 percent responsibility. That is
what I am saying. They take some, and go ahead.
Ms. Humphreys. My other point was all I think they need to
do. I am sitting here with these smart people and you smart
people. But it seems to me when I entered ``Ilenis Jimenez''
into my Zelle contact list and I gave the phone number for
``Ilenis Jimenez'' then Zelle attached that information to an
account that made my transaction successful. Then they could
not go find out where ``Ilenis Jimenez'' and her phone number
went? I do not believe that. Again, I do not know how all this
works. But when I contacted them within hours and I said,
``Here are all the phone numbers, the lawyer, Ilenis Jimenez,
all of that,'' and they said, ``Sounds good and well but I am
not sure what we are going to do about it,'' I was incredulous.
That cannot be.
When Google knows that I shopped for shoes on a different
device and now I am on another device, and everything I look at
is telling me about shoes, if they can track my Google searches
why can't Zelle keep ahold of ``Ilenis Jimenez'' and her phone
number to get my money back. It is infuriating.
Senator Johnson. Right, which is a very good question,
which is why I think we really need to get the banks in here
and follow all these transaction flows. My guess, and it is
only a guess, and these are musings by me, not serious
questions--but my guess is that those bank accounts come and go
very quickly. They are emptied out very fast, and transferred
probably into cryptocurrency accounts--part of the problem is
cryptocurrency now--and they end up becoming very untraceable,
very quickly. But we are able to track cryptocurrency things
now, too. So again, there are pretty sophisticated
investigators on this, as well.
It does depend on the size of the transaction, too, and how
much it costs to track down--again, no offense, $2,400 or
$3,500 fraud versus, a lot of time and effort potentially in
those investigations. Again, I am not flacking or defending the
banks here. I am just trying to figure out what is the reality
of the situation, what is the best way to grapple with these
problems. Yes, Ms. Hand.
Ms. Hand. I was going to say, if you could put the
reimbursement issue aside for a second and you are looking at,
for example, credit card practices or practices that the bank
would use with your debit card, if there is a suspicious charge
or payment, that payment does not go through my credit card. I
get a text, phone call, probably an email immediately when that
charge tries to pass.
I think the other perspective here is--and we had this
conversation with the P2P companies when we were doing the
evaluation--are you taking equivalent steps in this real-time
scenario to slow down the transactions. To engage the consumer
and say, actually, whatever that person's name is, that may
have been the 20th time that they tried to scam a consumer. Is
that name on a list somewhere that can get flagged for other
consumers?
Senator Johnson. Again, putting my business accountant's
hat on, it is a huge difference. Credit card companies reap in
hundreds of billions of dollars of the fees. These companies do
not do that. They are trying to eke out profits by smaller
compensating balances, that kind of stuff.
The credit card companies, one of the services they offer
is this fraud protection. They get so much money out of
interchange fees that the cost of doing business, well, there
is going to be X percent fraud, and no questions asked, we just
reimburse the customer, without having to spend thousands of
dollars trying to investigate the particular fraud. Just an
economic reality.
Again, to the banks with credit cards it is just the cost
of doing business. Just looking at the reimbursement on debit
cards, they probably do not make as much on debit cards, but
this is why I would like to get the banks in here to get their
viewpoint on this, and what could we potentially do to try and
tighten this up.
But again, unfortunately, there are criminals out there,
and they are very sophisticated, and they are going to prey, no
matter what the payment.
Senator Blumenthal. Senator Johnson, I have a draft letter,
which we can send today, to those banks, inviting them to come
here for a hearing in July. I agree with you totally that we
ought to have them come in. I will give you the draft
Senator Johnson. OK
Senator Blumenthal [continuing]. So you can have a look at
it. But I think your point is very well taken. We need to hear
from them.
But in the meantime, Mr. Breyault, I understand Senator
Johnson's point. There is no fee in connection with the use of
Zelle that goes to the banks, but there definitely is a
business benefit to encouraging and inviting and, in fact,
pitching people to use Zelle, as they do, a benefit to the
banks, is there not?
Mr. Breyault. There is. Yes, sir.
Senator Blumenthal. What is that benefit?
Mr. Breyault. There are many benefits the banks derive from
Zelle. The ability to make people stay on their websites and
look at other services, loans, for example, that they may take,
other fee-bearing services they may be interested in.
Certainly the banks are making money off of Zelle. While
maybe it is not the same economic model as Venmo, Cash App, or
credit or debit cards, they are certainly making money off of
it.
Senator Blumenthal. There may not be an explicit fee that
can be identified in accounting sense attributed to Zelle, but
the reason they have Zelle is it gets them more customers, and
the customers stay, and they use the bank. It is like any other
cost of doing business for them. They may not see a direct flow
of money from that service, but it is an ancillary and very
important to their business. As part of the cost of doing
business sometimes they reimburse, but three-quarters of the
time they do not when there are losses. So they avoid the
costs, the major costs, when there is fraud, but they have the
benefits. And it is not just Zelle. It is P2P platforms
generally that provide this kind of benefit to the banks.
Correct?
Mr. Breyault. That is right. These services are not in
business to lose money.
Senator Blumenthal. Ms. Tatar, we talked a little bit about
the requirements for reimbursement. I am interested because I
may not have closed the loop. Have you seen instances in which
Zelle customers have not been repaid by their banks even when,
indisputably, they have an obligation to do so under Regulation
E, where the customer has actually pushed the button, so to
speak?
Ms. Tatar. Senator, in the cases that I bring in court, in
Federal court, every single time there is clear evidence that
the consumer did not authorize the payment. It is why I sue
banks for those transactions. That includes sending money to
new participants in the Zelle app where the name is a sequence
of random numbers and letters, transactions in the amount of
$2,000 twice a day, four days a week. There are other
indicators of fraud, like internet protocol (IP) addresses that
do not match an IP address that the consumer is normally
transacting business from.
Yes, I am attempting to hold banks accountable in those
very obvious instances of Zelle fraud.
Senator Blumenthal. What kinds of explanations did they
give for failing to provide what they owe?
Ms. Tatar. I oftentimes hear, and consumers oftentimes
hear, that ``You must have participated.'' ``You must have left
your personal identification nuumber (PIN) available.'' ``You
must have left your bank account open on a public computer.''
``You must have somehow authorized somebody to do this to
you,'' or ``You, in fact, did send the money,'' even in the
face of very clear evidence to the contrary.
Senator Blumenthal. I am going to invite anyone who has
anything else to share before we close the hearing. You have
been very helpful. Every one of you has contributed enormously
to our investigation. Obviously, it is an ongoing
investigation. Hopefully the banks will cooperate. Zelle has
said it wants to cooperate. Other P2P platforms, I think, or
hope will, as well.
I am going to ask that victim statements be entered into
the record,\1\ 3 of them, 12 news stories, and 8 university
alerts. Universities are now alerting students about the
dangers of P2P platforms. That is where we are. That is where
we have come to.
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\1\ The information referenced by Senator Blumenthal appears in the
Appendix on page 65.
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Thank you all for your testimony, and this record will
remain open for 15 days. The hearing is adjourned.
[Whereupon, at 4:22 p.m., the hearing was adjourned.]
A P P E N D I X
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