By: Nabila Sudha

Technological advances in modern society undoubtedly betters the life of the average person, providing many conveniences at the palms of our hands that would otherwise be unthinkable just two or three decades ago.[1]  For example, mobile banking has quickly become commonplace in the twenty years since its initial development, with over sixty percent of Americans using such platforms. [2]  Yet, as benefits of such resources become more apparent, so do the dangers.  Peer-to-peer payment services, such as Zelle and Venmo, are facing increased scrutiny due to their failure to protect users against frauds and scams.[3]

As commercial traffic across peer-to-peer payment platforms increase, so does the presence of scams targeting vulnerable users.[4]  Though many consider platforms like Venmo and Cash App to be a “Zelle clone,” there remain some vital distinctions.[5]  Unlike Venmo, where transferred funds are held in the consumer’s account, Zelle only transfers funds from one bank account to another.[6]  Additionally, Zelle is owned by Early Warning Services, LLC, which is comprised of several of America’s largest banks.[7]  This distinction in ownership makes the role of banks especially troublesome when concerning frauds or scams on Zelle specifically, since federal banking regulations provide an array of protections for consumers.[8]  Typically, when fraud occurs on bank accounts, consumers are only liable for a certain amount of the fraud depending on when it is reported.[9]  However, because Zelle’s platform does not hold funds directly, fraud protections on the platform are essentially nonexistent.

The regulations that govern electronic transactions are known as “Reg E,” implemented by the Consumer Financial Protection Bureau (“CFPB”).[10]  Reg E was designed to protect consumers in instances of fraud, and even in instances where consumers themselves make a mistake, otherwise referred to as scam.[11]  Specifically, when unwanted persons gain unauthorized access to information or funds, it is fraud; whereas when victims are deceived to authorize the payment themselves, it is a scam.[12]  Though ‘fraud’ and ‘scam’ seem synonymous, banking institutions utilize the slight distinction to avoid liability protections for consumers.[13]  Essentially, if the consumer is scammed on a checking or savings account, there are protections in place for the consumer; however, if the consumer is scammed on Zelle, then no protection exists and the consumer is out of luck.

Because of banking institutions’ use of this distinction as a legal loophole, victims of Zelle scams are suffering significantly.  For example, when a Zelle user’s phone was stolen from his hospital room while he was suffering from Covid-19,  Bank of America, which is one of the banks that owns Zelle via Early Warning Services, LLC, refused to take responsibility for the  thefts executed through the app, claiming this incident did not constitute “fraud” since authentication codes were used to validate the transfer of funds.[14]  In this case, the authentication code was texted to the victim’s cell phone, which the thief already had in his possession and prompted the Zelle transfer to occur in the first place.[15]  Despite the victim having no fault, Bank of America avoided legal liability.[16]

CFPB holds that the burden falls on the banking institution to prove that the consumer themselves authorized a transfer in cases of alleged fraud.[17]  However, banks have the upper-hand given the irrevocable nature of Zelle, since funds are taken directly from the consumer’s bank account.[18]  Given that the banking institutions comprising Early Warning Services, LLC are seven of the largest U.S. banks, consumer trust and confidence in the industry is at a decline.[19]  Though consumers may not generally understand the distinction between Zelle and other peer-to-peer payment services, alongside the existing decline of consumer trust, banking institutions might want to reconsider their approach.[20]  This steady decline may have a considerable impact on the role of financial institutions as trust in the crypto-world increases.[21]  Banking institutions will evidently do what they can to avoid liability, even if consumer confidence is on the line.  So long as the CFPB does not take direct action to address this legal loophole of Reg E, banking institutions will continue to refuse liability, and consumers’ legal protections will be at stake.


[1] 10 Ways Smartphones Changed Our Lives in the Last 10 Years, Robinsons Bank Corporation (Last Visited: Apr. 8, 2022),have%20them%20within%20our%20reach (listing mobile banking, navigation, and healthcare as some examples of drastic smartphone enhancements).

[2] See Mobile Banking, Corp. Fin. Inst. (Last Visited Apr. 3. 2022); see also Benefits and Risks of Online Banking, Young Am. Ctr. for Fin. Educ. (Last Visited Apr. 3, 2022)

[3] See Paige Pidano Paridon & Tara Payne, Fraud on P2P Payment Apps Like Zelle and Venmo: A Primer, Bank Pol’y Inst. (Feb. 23, 2022)

[4] Scammers increasingly turning to P2P payment apps, (Last Visisted: Apr. 8, 2022)

[5] John Egan & Daphne Foreman, Zelle vs. Venmo: Which To Use And When, Forbes (Dec. 7, 2021)

[6] Id.

[7] See Ben Gran & Daphne Foreman, What Is Zelle and How Does It Work?, Forbes Advisor (Nov 2, 2021),U.S.%20Bank%20and%20Wells%20Fargo.

[8] Bob Sullivan, Know your rights on bank account fraud, NBC News (Aug. 12, 2005)

[9] Id.

[10] See Rebecca Lake & Daphne Foreman, What is Regulation E?, Forbes Advisor (Feb 16, 2021)

[11] Bob Sullivan, Know your rights on bank account fraud, NBC News (Aug. 12, 2005) (providing examples of scams as consumers falling for phishing scams or writing their PIN number where scammers can find it).

[12] See Understanding Fraud & Scams, Zelle (Last Visited: Mar 30, 2022)

[13] Id.

[14] See Stacy Cowley & Lananh Nguyen, Fraud Is Flourishing on Zelle. The Banks Say It’s Not Their Problem, N.Y. Times (Mar 6, 2022)

[15] Id.

[16] Id.

[17] See Ben Bradley & Andrew Schroedter, As scams soar on Zelle, so does debate over who’s to blame, WGNTV (Mar. 31, 2022)

[18] Id.

[19] Gallup: Confidence in Banks Dips Amid Broad Decline in Institution Trust, ABA Banking Journal (July 19, 2021),-on%20July%2019&text=Americans’%20confidence%20in%20banks%20dipped,Gallup%20survey%20released%20last%20week.

[20] E.g., Michael Finney & Renee Koury, Wells Fargo quietly replaces money customers lost in huge Zelle scam, ABC7 News (Apr. 7, 2022) (explaining that Wells Fargo quietly replaced consumers’ money despite initially denying refund claims, stating that it was “impossible” to reverse the Zelle transactions).

[21] See Kate Rooney, After the crisis, a new generation puts its trust in tech over traditional banks, CNBC (Sep. 14, 2018)

Share this post