Raising Zelle: Furious P2P Users Take FIs to Court

Source: American Banker

Five years after Zelle’s launch, banks and credit unions are getting hit by a flurry of class actions from consumers who say they aren’t properly protected from scams that make use of the peer-to-peer service.

The lawsuits underscore the rising popularity of Zelle — which saw a strong increase in adoption during the pandemic — and its use by scammers who target consumers unaware of its risks.

Zelle is advertised as a speedy P2P service for friends and family, and is primarily accessed through a bank or credit union's website or mobile app. Typical Zelle P2P payments are treated like cash — once the money's gone, it's gone, and it's up to the consumer to make sure the funds went to the right place. 

Because Zelle is connected to the victim's bank, scammers can trick consumers into believing there are protections in place similar to those for credit and debit cards. But P2P losses are not necessarily covered by existing regulations or bank policies.

Experts say U.S. financial regulators will eventually need to extend consumer protections to P2P services, though it's unclear what shape they might take.

“There is no protection for consumers who want to repudiate payments with these P2P services — the onus is on the settlement banks, and this will likely result in some kind of enforcement eventually,” said Richard Crone, a principal with Crone Consulting.

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