Democrats Call on NCUA, Financial Regulators to Focus on Zelle

Senate Banking Committee members call for review of all credit unions and banks using the payment system.

Financial regulators, including the NCUA, must do more to protect members and customers who fall victim to scams and fraud when using the Zelle payment network, five Democratic senators told the regulators last week.

“Although Zelle is marketed as a convenient and inexpensive way to transfer money within the supervised banking system, its model has opened the door to fraud and scams on a tremendous scale,” Senate Banking Committee Chairman Sherrod Brown of Ohio and committee Democrats Elizabeth Warren of Massachusetts, Jack Reed of Rhode Island, Robert Menendez of New Jersey and Mark Warner of Virginia, wrote.

The issue, the senators said, is particularly serious because credit unions and banks contend that they are not responsible for making members and customers whole when they fall victim to fraudsters using the payment platform.

Inside the Letter

The senators urged the regulators to review the customer reimbursement policies and the anti-money laundering practices of any credit unions and banks that participate in the Zelle network. In addition, they asked the agencies to coordinate their activities with the CFPB.

Although the network is owned by the nation’s largest banks, credit unions and banks that are not owners may still participate in the payment network. The senators said therefore that the regulatory agencies have the authority to ensure the depository institutions working with Zelle comply with consumer protection laws.

“Supervision for compliance means ensuring that neither EWS nor other regulated institutions that make Zelle available to millions of Americans engage in practices that would increase the risks to the safety and soundness of those institutions,” they wrote.

Ultimately, the senators concluded that “the agencies should do more to examine depository institutions’ risk management when they receive fraudulent Zelle payments in order to protect our Nation’s payment systems from abuse by criminals.”

Earlier Report

The letter follows a report issued by Warren’s staff in October, which found that while depository institutions claim Zelle is safe, customers often fall victim to fraud.

Warren said information provided to her staff revealed that an estimated $440 million was lost by Zelle users through fraud and scams in 2021. She added that the CFPB has authority to strengthen rules to ensure the payment network is safe and that consumers are reimbursed when money is stolen—an authority she called on the bureau to use.

NAFCU Letter

But even before Warren released her report, NAFCU President/CEO B. Dan Berger wrote a letter to CFPB Director Rohit Chopra in August, saying that an expansion of credit union liability when members use peer-to-peer payment systems would “stretch the statutory language” of federal law and have negative consequences for consumers.

He went on to suggest that rather than issuing a new interpretation of federal rules, the CFPB should redirect its focus to investigating solutions that can help stop fraud before it occurs.