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Zelle and other peer-to-peer payment platforms are failing to stop a wave of fraud enabled by their rapid funds-transfer technology, witnesses told members of the Senate Permanent Subcommittee on Investigations on Tuesday.

Jointly owned by Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, U.S. Bank and Wells Fargo, Zelle facilitates hundreds of billions of dollars’ worth of payments annually between accounts at 2,100 banks and credit unions. Unlike other platforms that hold funds in custody until payments settle, Zelle’s interbank transfers usually clear within minutes.

“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,” Sen. Richard Blumenthal (D-CT), said in opening Tuesday’s hearing. “The transfers are nearly instant and irreversible, and by the time a consumer knows they’ve been scammed, usually it’s too late.”

Early Warning Services LLC, the corporate vehicle that owns Zelle, disclosed in March that the platform handled 2.9 billion payments for a combined value of $806 billion between 120 million customers in 2023. Customers flagged less than one-tenth of 1 percent of those nearly 3 billion payments as fraudulent, or the end result of a scam they inadvertently authorized.

Customers and consumer-protection advocates invited to testify at Tuesday’s hearing countered that Zelle makes reporting fraud prohibitively difficult by bouncing victims back and forth between their banks and the platform’s own customer-services personnel.

The witnesses further alleged that Zelle neither investigates the suspected perpetrators of fraud nor takes step to determine how they gained access to the system.

“The solutions must include safeguards to flag suspicious activity … and demanding that banks investigate all unauthorized transactions,” Stephanie Tatar, founding attorney of the Tatar Law Firm in Chicago, told the subcommittee. “Banks get away with these shoddy investigations because so few people know exactly what happens behind closed doors.”

Spokespersons for Zelle did not respond to a request for comment by deadline.

Sen. Ron Johnson (R-WI), ranking member of the subcommittee, said Tuesday that unlike credit card networks, which reimburse customers for losses resulting from fraud or unfair charges, Zelle doesn’t collect interchange fees.

“A company like Zelle just doesn’t have the billions of dollars in interchange fee profits to reimburse,” Johnson said.

A survey of 2,000 adults conducted by the AARP, formerly known as the American Association of Retired Persons, in June and July 2023 found that nearly one in five had been targeted by fraudsters via peer-to-peer payment platforms. Half of those targets reported losing money.

The Electronic Fund Transfer Act holds banks liable for any losses that result from unauthorized account takeovers, but customers who unwittingly authorize payments to scammers have no such protection.

John Breyault, vice president of the National Consumers League in Washington, D.C., called on lawmakers to revise the law to require reimbursements for scam victims.

“Congress must create new incentives for the banks and peer-to-peer platforms to invest in more security,” said Breyault, who cited U.K. legislation that requires the victim’s bank and that of the fraudulent recipient of their savings to divide victims’ losses between themselves.

Breyault called for passage of the Protecting Consumers from Payment Scams Act, legislation authored by Rep. Maxine Waters (D-CA), ranking member of the House Banking Committee, that would amend fraud liability under the Electronic Fund Transfer Act.

Contact Fred Williams at fwilliams@acams.org