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Transcript
00:00:00El, thank you to my co-chairman of the subcommittee, the Permanent Subcommittee on Investigation.
00:00:15We work together on a bipartisan basis.
00:00:19Very pleased to welcome you to this hearing of the Permanent Subcommittee on Investigation
00:00:25entitled Hearing on Fraud Alert Shedding Light on Zelle.
00:00:32And I will give an opening statement to be followed by my ranking member.
00:00:39The banks of America have a dirty little secret.
00:00:42It's called Zelle.
00:00:44And it's not just Zelle, it's other P2P pay platforms, apps that people use to transfer
00:00:52money among their bank accounts.
00:00:56In the case of Zelle, it's nearly instantaneous.
00:01:00It's almost always irreversible.
00:01:04And it is owned by banks.
00:01:06In fact, Zelle is the largest peer-to-peer payment app.
00:01:13It's actually operated by Early Warning Services, which in turn is owned and operated by the
00:01:20seven largest banks.
00:01:22And Zelle is often integrated into consumers' existing online bank accounts and mobile apps.
00:01:30Zelle markets itself as, quote, a fast and easy way to send and receive money, unquote.
00:01:38But as this committee has found, a fast and easy way to lose money is often what happens
00:01:45on Zelle.
00:01:47And that is probably a more accurate catchphrase for Zelle and for other P2P platforms as well.
00:01:57What distinguishes Zelle is speed, permanence, and bank ownership.
00:02:04And that's really the reason why we are focusing on Zelle, but the other platforms deserve
00:02:10attention as well.
00:02:12In fact, it's less well-known than other payment apps like Cash App and Venmo.
00:02:19But Zelle is by far the largest, several times its nearest competitor.
00:02:27And it is approximately three times largest than its nearest rival.
00:02:33Zelle transfers are nearly instant and irreversible.
00:02:39And by the time a consumer knows they've been scammed, usually it's too late to do
00:02:45anything about it, at least according to Zelle and according to the banks that own, control,
00:02:51and in effect operate Zelle.
00:02:55Just three banks, JP Morgan, Chase, Bank of America, and Wells Fargo, handled 73 percent
00:03:05of all Zelle transactions in 2023.
00:03:09All peer-to-peer payment apps are susceptible to fraud, no question about that fact.
00:03:17And I want to be clear that fraud happens on all of them.
00:03:20But Zelle deserves particular attention because of its direct connection to trusted financial
00:03:25institutions.
00:03:28Zelle and the banks that own it offer to customers the appearance of the trust they feel they
00:03:40deserve.
00:03:42But the risks there are real and present.
00:03:48And they simply are failing to protect consumers in the way that they deserve.
00:03:55Thirteen percent of P2P platform users report sending money to someone and later realizing
00:04:03it was a scam.
00:04:05And the kinds of scams are various, me-to-me, employment, romance, AI.
00:04:11They have various categories.
00:04:14But the bottom line here is literally that the banks are failing to do what they should
00:04:21to protect their consumers.
00:04:25This subcommittee has heard many accounts of scams and fraud on Zelle.
00:04:28In California, a teenager received escalating death threats and lost $10,000 on Zelle simply
00:04:34because he was happy to pay for their initiative in coming forward.
00:04:53Mariana Duvall, a college student in North Carolina, will tell us her story in receiving
00:05:03an exciting summer research opportunity from a professor at her university, only to learn
00:05:15that she was out $2,400 that she never had.
00:05:45Her mother was scammed out of $3,500 after being told that her brother had been arrested
00:05:55and needed bail money, and how she struggled to get their bank to recognize how its insufficient
00:06:01safety measures allowed the scam to play out again.
00:06:05We thank you both.
00:06:07Many types of scams exist, but what they have in common is that these stories and many other
00:06:14consumers entail lost money due to fraud, scams, time and again, Zelle and the big banks
00:06:23have said they couldn't help.
00:06:26What they mean is they wouldn't help.
00:06:30And their attitude has been, not our problem.
00:06:34Well, to the banks of America, particularly the seven that own and operate Zelle, it is
00:06:40your problem.
00:06:43You own it, just as you own Zelle, and you have the expertise, the resources and the
00:06:50obligation to make sure that you do better.
00:06:58We are also going to hear from experts as part of this bipartisan inquiry into Zelle
00:07:07and Early Warning Services, the company that operates Zelle.
00:07:11And we hope to hear from the banks.
00:07:16We've actually invited them to come here in June and explain how they can do better and
00:07:26why they have failed to do so.
00:07:29We have found that customers of JPMorgan Chase, Bank of America and Wells Fargo submitted
00:07:36claims reflecting a combined total of $456 million lost to scams and fraud on Zelle in
00:07:45one year, 2022 alone.
00:07:50And only a fraction were repaid, $341 million, more than two-thirds of these losses were
00:08:01never repaid by those banks.
00:08:06The growth of mobile payments shows no signs of stopping, but unfortunately neither do
00:08:15the scammers who are preying on American consumers on those apps.
00:08:22Criminals are increasingly using scams tailored to individuals with AI voice cloning and personal
00:08:28details pulled from hacked data sold on the dark web and increasing the risk.
00:08:36Those risks are growing, so must the safeguards.
00:08:40Zelle and its owner banks are aware of these frightening trends.
00:08:43No question they've been put on notice.
00:08:46They track detailed information about the latest scams, but they're failing to stop
00:08:51them and failing also to make their customers whole.
00:08:57There are concrete steps these institutions can take to better protect customers.
00:09:02For example, banks could extend the protections available to credit card users to Zelle transactions.
00:09:10They could allow customers to cancel or reverse a payment within a certain period of time.
00:09:18And they could, in effect, provide for better means of authentication, more friction, and
00:09:28more time before a transaction is completed.
00:09:32Those ideas are only a few of the possibilities.
00:09:36Unfortunately for consumers, it seems like the big banks have accepted that some of the
00:09:40transactions on Zelle will be fraudulent.
00:09:43They've made the decision that this is just the cost of doing business, but it's the cost
00:09:50to their consumers, not them, because it's the customer who is out of pocket.
00:09:58That's why we have invited Zelle and the three largest banks to appear.
00:10:04And today, in addition to Ms. Duval and Ms. Humphreys, we will be hearing from experts
00:10:09who've studied this issue and can better suggest potential remedies and preventions.
00:10:15And I look forward to hearing from all of you, and now turn to the Ranking Member.
00:10:20Hey, Mr. Chairman.
00:10:20I'll just ask that my written opening statement be entered in the record.
00:10:23I just have a couple comments.
00:10:25Interesting hearing.
00:10:27Obviously, consumer fraud, consumer scams are a real problem in our economy.
00:10:33Things like a cybersecurity risk, I mean, all these things are troubling.
00:10:38It is noteworthy, though, to understand the differences between, for example, credit cards,
00:10:45debit cards, and these peer-to-peer.
00:10:48Debit and credit cards, they're interchange fees, and so the banks literally rake in hundreds
00:10:52of billions of dollars' worth of profit, which is why,
00:10:55when there are unauthorized transactions, they quickly reimburse, not to 100%.
00:11:00I'm looking at Bank of America here.
00:11:03Credit card, about $2.2 billion worth of a fraud, they reimbursed about 1.6.
00:11:09On debit cards, about $1 billion of a fraud, they reimbursed about 66% of that, 660 million.
00:11:15There's no doubt about that Zelle reimburses at a much lower rate,
00:11:20but it's really just a service, it's a software that they sell
00:11:24to the banks to allow for peer-to-peer payment.
00:11:28I guess the other way to transact business is cash, but people don't carry cash,
00:11:33so if they want instantaneous transaction, if they don't want to pay an interchange fee,
00:11:38apparently they use these peer-to-peer services, and they want to do it for speed,
00:11:44they want to do it to avoid that interchange fee, and as a result,
00:11:50a company like Zelle just doesn't have the hundreds of billions of dollars
00:11:52in interchange fee profits to reimburse.
00:11:56Now, it does appear that they reimburse for unauthorized,
00:11:58or at least some unauthorized purchases, but there is a fair amount of friction.
00:12:02There's many steps you have to go through to actually have that money transferred,
00:12:08and it really is to a certain extent caveat emptor.
00:12:10I mean, I'll say caveat book sell that user, user beware.
00:12:15You are, when you're transferring money through this peer-to-peer,
00:12:19the money's gone inside your checking account, and it's going to be very difficult to recover,
00:12:23so the only way you get reimbursed is it literally comes out of the hide of the banks,
00:12:27and for the chairman to say that you ought to extend the same protections
00:12:31that credit card companies do, again, this is, they don't have the profits off of this system.
00:12:39They don't have the interchange fees.
00:12:40Hundreds of billions of dollars worth of interchange fees to use that as a,
00:12:44again, a cost to business.
00:12:46That's what the banks and the credit card companies view it as,
00:12:49so this is a different system.
00:12:51Again, we need to be concerned about scams and fraud,
00:12:54but there's a fair amount of responsibility on the part of the users to, you know, try and prevent that,
00:13:00and I know we've got some people that have been scammed.
00:13:03Again, I've heard some things that are, I understand why people all of a sudden quit transfer money.
00:13:09You know, they've got a loved one in trouble.
00:13:11It's despicable.
00:13:12These are crimes that are being committed against them,
00:13:14but to necessarily blame a company that's providing a service without huge financial rewards,
00:13:22like the interchange fees, again, I'm not sure that's realistic to expect,
00:13:26but anyway, I'm hearing, willing, you know, interested in listening to testimony
00:13:30and hear what people have to say about this.
00:13:33Thank you, Mr. Chairman.
00:13:38Thanks, Senator Johnson.
00:13:39I'm going to introduce the witnesses.
00:13:42Stephanie Tatar of the Tatar Law Firm is a consumer rights attorney who has represented clients
00:13:50across the country in disputes against credit reporting agencies, debt collectors,
00:13:55and financial institutions for almost two decades.
00:13:59Ariana Duval is a rising senior at North Carolina A&T State University.
00:14:05Earlier this month, Ariana was targeted by a Zelle scam that claimed to offer her employment
00:14:13as a university research assistant.
00:14:16She ultimately lost $2,400 to that fraudulent scheme.
00:14:21John Rao is the Vice President of Public Policy, Telecommunications,
00:14:26and Fraud at the National Consumers League.
00:14:29He is a prominent advocate for stronger consumer protections,
00:14:34particularly related to technology, data security, privacy, and more.
00:14:41Anne Humphreys is a retiree from Laurel, Maryland, and a grandmother of five.
00:14:47In 2022, Ms. Humphreys' 94-year-old mother was scammed out of $3,500 on Zelle,
00:14:57and she's here to share her family's story and their struggle.
00:15:02Delicia Hand of Consumer Reports is the Senior Director of Digital Marketplace,
00:15:09where she leads the development of testing frameworks,
00:15:12standards, and policies in the digital marketplace.
00:15:16She previously served for 10 years at the Consumer Financial Protection Bureau in various roles.
00:15:24Our custom is to swear witnesses, so if you would please rise and raise your right hand.
00:15:32Do you swear that the testimony you're about to give is the truth,
00:15:35the whole truth, and nothing but the truth, so help you God?
00:15:38Thank you.
00:15:40We will begin with witness statements, beginning with Ms. Taker.
00:15:47Good afternoon, Chairman Blumenthal and Ranking Member Johnson.
00:15:50Thank you very much for the opportunity to speak with you today about Zelle fraud.
00:15:54I'm very glad to see that we have two consumers on the panel today.
00:15:57I myself had hoped to bring clients to be present to humanize the term victim for you,
00:16:05but consumers, unfortunately, are reluctant to testify against banks about Zelle fraud
00:16:09because they're either forced into private arbitration proceedings,
00:16:12which aren't available for public review and which consumers can't appeal,
00:16:17or because of protective orders entered during litigation,
00:16:20which prevent the disclosure of significant information
00:16:24showing what the banks do or don't do to comply with the Electronic Funds Transfer Act,
00:16:30or because consumers are forced to sign confidential settlement agreements,
00:16:34and which also further prohibit them from continuing their banking relationships
00:16:39with the defendant institutions and their affiliates.
00:16:43These are some of the largest banks in America, and they dominate the credit card markets.
00:16:48So not only are the consumers forced to file lawsuits
00:16:52to make those banks comply with the laws, they are then punished by doing so.
00:16:57So consumers are scared to speak up.
00:17:00And if you don't hear directly from a lot of consumers,
00:17:03please don't take that as a sign that Zelle fraud is not important to consumers.
00:17:08Lack of consumer participation in hearings such as this
00:17:11is due to the shroud of secrecy financial institutions impose on consumers.
00:17:19Zelle fraud is pervasive, and it is ever-evolving,
00:17:22and it is the gateway consumer financial crime
00:17:26which often leads to other bank fraud like wire transfers,
00:17:29which are largely unchecked by current laws.
00:17:32Criminals employ various tactics such as AI-generated voice impersonating phone calls,
00:17:38calls spoofing bank phone numbers, SIM card hacking,
00:17:42and exploiting data breaches to gain access to bank accounts
00:17:45and initiate unauthorized Zelle transfers.
00:17:48Criminals are constantly two steps ahead of banks when perpetrating their fraud schemes
00:17:54and miles ahead of consumers who are left to carry the burden
00:17:59of undoing the damage that is done to them.
00:18:01And please take note, I do not mean to say that damage that is done to their bank accounts.
00:18:07I mean that the cost of Zelle fraud is not simply the dollar amount
00:18:12that's taken from the consumer.
00:18:14There is also a significant emotional and mental component to this fraud.
00:18:19Most Americans are living paycheck to paycheck.
00:18:22The funds that are stolen from them are allocated for specific living expenses
00:18:25like rent and transportation.
00:18:28Can you imagine, would you please imagine,
00:18:31what you would do if 75% of your checking account balance was gone because of Zelle fraud?
00:18:39And then think about the impact if you're a retiree
00:18:42who's no longer in a position to enter the workforce and make up those losses.
00:18:48After Zelle fraud happens, consumers live with the ripple effect of this fraud
00:18:52every minute of every hour of every day,
00:18:56countless sleepless nights for months on end,
00:19:00worrying, wondering, stressing, waiting for banks to do their jobs,
00:19:05to do an investigation and agree that fraud was committed so that they can get their money back.
00:19:11These consumers lose money in the blink of an eye,
00:19:15but it takes weeks, months and even years to get their money back if they're lucky.
00:19:21Banks often refuse to conduct investigations or they delay investigations into Zelle fraud
00:19:27because they request consumers to complete paperwork or file police reports
00:19:31contrary to their duty under the Electronic Funds Transfer Act.
00:19:36Their investigations are superficial at best, lacking thorough record reviews or inquiries.
00:19:42Banks appear to prioritize proving transactions occurred
00:19:47rather than verifying that they were authorized by consumers,
00:19:50also against the Electronic Funds Transfer Act.
00:19:54Crucial evidence such as the addition of new recipients with random names
00:19:58that are sequences of numbers or letters,
00:20:01the addition of unfamiliar devices or IP addresses
00:20:04and unusual transaction patterns are frequently disregarded.
00:20:09Banks neglect to analyze past spending habits,
00:20:12rendering their investigations mere perfunctory examinations of limited information,
00:20:17falling far short of what the EFTA requires.
00:20:20Senators, if you are truly interested in effecting change,
00:20:25if financial institutions really want to do better,
00:20:28the first step is to stop thinking of consumers as account numbers
00:20:32or names written in black and white.
00:20:35Educating consumers is not a solution
00:20:38because you are unfairly putting the onus on every consumer to stay ahead of fraud
00:20:44that not even the banks can keep up with.
00:20:46The solutions must include safeguards to flag suspicious activity,
00:20:50delaying payments,
00:20:51putting an end to rampant victim-blaming financial institutions employ,
00:20:56demanding that banks investigate all unauthorized transactions.
00:21:00Banks must spread the risk of Zell fraud between the sending bank and the receiving bank
00:21:04and we must also demand transparency.
00:21:07Banks get away with these shoddy investigations
00:21:10because so few people know exactly what happens behind closed doors.
00:21:14Banks must be held to an EFTA compliance standard
00:21:17because they are, after all, the custodians of consumers' hard-earned money.
00:21:22Thank you for hearing me out today on this critical issue
00:21:25and I appreciate your attention in consideration of necessary reforms
00:21:29that need to protect consumers from the devastating impacts of Zell fraud.
00:21:33Thank you so much.
00:21:36Ms. Duval.
00:21:37Hi.
00:21:43On the afternoon of May 1st,
00:21:46I applied to a research position from an email I received on April 30th.
00:21:49I believe the hiring manager to be a research professor at my university.
00:21:53After applying via email by providing my resume,
00:21:56I received follow-up questions.
00:21:58For example, how would you rate your communication skills?
00:22:01Are you a U.S. citizen?
00:22:02And do you have prior research experience?
00:22:04I was then informed that I passed the criminal and academic background screenings.
00:22:08Further instructions from that email confirmed that office supplies would be needed
00:22:12for the position and I would be sent a check which I would then need to provide
00:22:16to the sales representative who is responsible for ordering the supplies on my behalf.
00:22:21I received a check in the form of a PDF on May 2nd through an email that presented itself
00:22:26as the payroll department at my university.
00:22:28It actually had the period EDU domain presented in the email address.
00:22:33I was given specific instructions to print the check and do a mobile deposit only.
00:22:37Once I deposited the check into my account,
00:22:39the $400 was available immediately on May 3rd
00:22:42while the $2,000 would be available the following day.
00:22:45I informed the fictitious professor of this and was told to Zell the money as it became available.
00:22:52I was provided this name and email address of the sales representative and asked
00:22:55to send a screenshot of it with confirmation code.
00:23:01I did as instructed and sent the $400 on May 3rd followed by the $2,000 on May 4th.
00:23:06Both are listed as pending in my bank account which I informed the fictitious professor of.
00:23:11At that point, I was told that the sales representative would wait
00:23:14until it's confirmed before shipping the office research supplies.
00:23:18My mother observed something strange in my account.
00:23:21So she called me to figure out what was going on.
00:23:24After asking me several questions, my mother helped me to understand
00:23:27and realize that I was scammed.
00:23:29She told me to contact the bank and file a fraud claim.
00:23:32I called the bank immediately and explained the entire situation to the bank representative.
00:23:37With the representative's assistance, I filed two fraud claims,
00:23:40one for the $2,000 and another for the $400.
00:23:44I was told that an investigation would be conducted
00:23:46and I would receive a call back from the bank with a status update.
00:23:50On May 7th, I woke up and preparing for one of my final exams when I checked my bank account
00:23:56and found that I was in a deficit for the $2,400 that I was scammed
00:23:59into receiving and sending off.
00:24:01I was devastated.
00:24:03In addition to the five major final projects that I had due for four courses
00:24:07within the last two weeks of the school year where my money was already getting low
00:24:10and I was stressed out of my mind staying up late to complete,
00:24:14I now found myself in debt for the very first time in my life.
00:24:18All of this as a result of just wanting to work and have a job
00:24:21with flexible hours to accommodate my summer internship.
00:24:25After reporting to my university's police, they told me to report it to the FBI.
00:24:29I was told by the police that I was the only student that was actually financially impacted
00:24:33by this phishing scam, but I learned the following week that I was not.
00:24:37I reported my situation to the FBI and my mother and I called the bank to see
00:24:41if there was any feasibility that I would be reimbursed for the $2,400 that I was scammed out of.
00:24:47Although we never received a call back from the bank on the investigation that they were doing,
00:24:51we were informed at that time that both fraudulent claims were denied.
00:24:55I returned back to campus to complete one of my projects.
00:24:59After returning back to my room, I filed two fraud claims with Zelle for the $2,000 and $400.
00:25:05In the process of filing those claims, the online Zelle form asked for a Zelle payment ID.
00:25:10There was a note in the FAQ section that if you submitted the Zelle payment via your bank's app
00:25:15and did not know what the Zelle payment ID was, to contact their bank partner that I was affiliated with.
00:25:22I called my bank asking for the Zelle payment ID.
00:25:25However, I was transferred to several representatives from multiple departments,
00:25:28including the Zelle department.
00:25:30None of them were aware of what a Zelle payment was or where to find it.
00:25:36I called Zelle's customer service line and was automatically put through to an automated machine,
00:25:40which hung up on me after I was told if I'm affiliated with Zelle through one
00:25:43of their bank partners to contact the bank.
00:25:46I could not get through to a human representative at all after calling Zelle multiple times.
00:25:51Within this frustration, as the Zelle payment ID was supposed to be a total of 12 digits,
00:25:56I ended up putting the confirmation codes of the Zelle payments with two additional zeros in the front.
00:26:01This seemed to work as the forms were submitted, and I completed both of those forms,
00:26:06only to receive a submission of the forms in my email.
00:26:12I still have yet to hear back from Zelle, and my bank denied both of my online fraud claims.
00:26:18I just want to get my money back, and more importantly, prevent this from happening to anybody else.
00:26:23Thank you.
00:26:26Thank you very much, Ms. Duval.
00:26:28Mr. Breaux.
00:26:31Good afternoon, Chairman Blumenthal, Ranking Member Johnson, and members of the subcommittee.
00:26:35My name is John Breaux, and I'm the Vice President of Public Policy, Telecommunications,
00:26:39and Fraud at the National Consumers League.
00:26:42Founded in 1899, NCL is the nation's pioneering consumer and worker advocacy organization.
00:26:48For more than 25 years, NCL has worked via our Fraud.org campaign to educate consumers
00:26:54about the warning signs of fraud and promote public policies
00:26:57that protect the American public from fraud of all kinds.
00:27:02Senators, fraud in the United States has reached a crisis point.
00:27:05In 2023, the FTC received 5.4 million complaints about fraud and identity theft,
00:27:12a 54% year-over-year increase versus 2019, with total annual losses of more than $10 billion.
00:27:20And as sobering as those numbers are, they are just the tip of the iceberg.
00:27:24A 2023 FTC report estimated that true annual fraud losses were more than $137 billion annually.
00:27:33The costs of fraud are not just financial.
00:27:36Many fraud victims report struggling with mental health issues after the event.
00:27:41Sadly, some scam victims have even committed suicide due to the trauma.
00:27:46Peer-to-peer, or P2P payment services, play a significant role in this problem.
00:27:51In 2022, 4 in 10 Americans reported using a P2P service at least once a month,
00:27:57with 18% using them at least once a week.
00:28:00As P2P usage has grown, so too have fraud losses.
00:28:04Last year, reported losses to the FTC hit $210 million,
00:28:10with more than 65,000 complaints in this category.
00:28:14The true losses by consumers to criminal fraudsters via P2P platforms
00:28:18is likely well into the multiple billions of dollars every year.
00:28:23While fraud occurs on all major P2P platforms, fraud on Zelle poses unique concerns.
00:28:30First, Zelle can be used to transfer funds between anyone
00:28:33with a U.S. bank account at a participating financial institution.
00:28:37Indeed, the widespread availability of Zelle to millions of bank customers
00:28:42is exactly why it has become such an attractive payment method for criminal fraudsters.
00:28:47Second, because Zelle is in competition with PayPal, Venmo, and Cash App for Transaction Volume,
00:28:53any voluntary action that makes it harder to use because of additional anti-fraud requirements
00:28:59is likely to put Zelle at a competitive disadvantage to its competitors.
00:29:03While no payment system is immune from fraud,
00:29:06the scale of fraud on the Zelle platform is unacceptably high.
00:29:10Just four banks on the Zelle platform were reportedly on pace to receive scam and fraud claims
00:29:16in excess of $255 million in 2022.
00:29:20This is likely only a small fraction of the total fraud losses.
00:29:25Based on current Zelle growth rates and reported fraud rates of six to nine basis points,
00:29:30it is estimated that total fraud rates on Zelle will likely exceed $1 billion annually by next year.
00:29:38Even when consumers recognize and report this fraud to their banks,
00:29:41their claims are denied in the vast majority of cases.
00:29:45The three banks who provided their fraud reimbursement rates to Senator Warren's office
00:29:49reported reimbursing only 10% of such scam claims.
00:29:53Because these authorized transactions, even if all parties involved agree fraud was involved,
00:29:59they are not covered under the Electronic Funds Transfer Act's Regulation E liability protections.
00:30:05These losses end up being borne by those who are least able to afford them, individual consumers.
00:30:12Warning messages and consumer education will not and have not put a meaningful dent in fraud rates.
00:30:18Indeed, we hear from victims of fraud that the scammers are incredibly adept at coaching their marks
00:30:25around consumer warnings the banks provide.
00:30:27Scammers get cleverer and more innovative every day.
00:30:31Expecting everyday consumers to accurately spot and resist fraudulent schemes
00:30:35run by sophisticated professional criminals is unlikely to yield a more secure P2P payment system.
00:30:42To put a meaningful dent in fraud on Zelle and other P2P platforms,
00:30:46Congress must create new incentives for the banks and P2P platforms to invest in more security.
00:30:54Fortunately, a bill to create these incentives, the Protecting Consumers from Payment Scams Act,
00:31:00has already been released by Congresswoman Maxine Waters.
00:31:04The bill would expand the definition of unauthorized electronic fund transfer in EFTA
00:31:09to cover fraudulently induced payments.
00:31:11This simple fix would address fraudulently induced payments on all payment platforms covered by EFTA,
00:31:17including P2P apps and gift cards.
00:31:20Such a solution would not be unprecedented.
00:31:23Recently enacted rules in the United Kingdom require banks to reimburse victims of fraud in the inducement
00:31:29with issuing and receiving banks sharing liability for making victims whole.
00:31:34The UK's rules can be a model for law in this area.
00:31:37Chairman Blumenthal, Ranking Member Johnson, and members of the subcommittee,
00:31:41we thank you for your continuing work to protect consumers and for holding this hearing.
00:31:46On behalf of the National Consumers League and consumers, like the two sitting next to me,
00:31:50across the country, thank you for including the consumer perspective as you consider these important issues.
00:31:56Thank you, Mr. Brio.
00:31:57Ms. Humphrey.
00:32:01Chairman Blumenthal, Ranking Member Johnson, and distinguished members of the subcommittee,
00:32:06good afternoon, and thank you for inviting me to testify about a sophisticated scam that targeted my family.
00:32:13My name is Anne Humphreys, and I live in Laurel, Maryland.
00:32:16Unfortunately, the type of fraud that happened to my family is all too common,
00:32:20and I believe my testimony can shed light on the tactics used by scammers
00:32:25and the urgent need for stronger consumer protections.
00:32:29On the morning of February 7th, 2022, I arrived at my mother's Baltimore County house around 11 o'clock,
00:32:35where her caregiver came to the door and said, your brother is in trouble.
00:32:39I found my mom on the phone with someone claiming to be my brother.
00:32:43Mom saw me and said to the caller, here's Anne, talk to her.
00:32:48Thinking this was my brother in trouble, I was horrified to hear the story.
00:32:52He was in a terrible auto accident, his fault, and the other driver who was pregnant was in critical condition.
00:32:59He was in a courthouse in Virginia facing arrest and jail time.
00:33:03To explain why his voice sounded different than normal, he said that he had inhaled airbag chemicals,
00:33:09which were causing him breathing difficulties.
00:33:12The caller knew enough details about my family members to be believable, and he appeared to be quite scared.
00:33:19He had answers to questions I hadn't even thought to ask.
00:33:23He then asked me to call his supposed lawyer, Mark Ross,
00:33:27who said it was urgent that I post bond so that my brother would avoid jail time.
00:33:31Throughout the day, I had multiple phone and text exchanges with Mark Ross,
00:33:37who gave seemingly plausible answers to all my questions.
00:33:41Mark Ross told me he needed a huge amount of money in cash, which I told him I couldn't put my hands on.
00:33:48I frantically tried to figure out how to get money to the bond company.
00:33:52He asked me if I had access to any online payment apps like Cash App or Zelle.
00:33:57I was familiar with Zelle, using it regularly through Wells Fargo to pay for my mother's caregivers.
00:34:04I agreed to make a transfer with Zelle and was instructed to use it to send $3,500
00:34:10to someone named Elenis Jimenez at the bond company.
00:34:14That was enough to begin the process to have my brother released.
00:34:18So I was able to send the $3,500 to Elenis Jimenez through Zelle.
00:34:24I discovered the fraud around 5 o'clock that evening.
00:34:27My real brother stopped on his way home from work to see my mother.
00:34:30She told him what had been going on, and he called me immediately.
00:34:35So I stopped communicating with Mark Ross, who I had also been communicating with
00:34:39because there was additional bail money I was to come up with.
00:34:43But I stopped communicating with him, and I was devastated.
00:34:49Looking back on it, there were red flags.
00:34:52For example, why didn't the supposed lawyer, Mark Ross, offer a secure legal payment system?
00:34:58Why wouldn't he accept PayPal, which I had initially offered?
00:35:01Why did he accept Zelle?
00:35:04And why was Bond being posted to an individual and not a business?
00:35:08In that moment, however, my mom and I were very afraid for my brother's well-being,
00:35:14and the scammers who targeted us were very good at making the situation seem real and urgent.
00:35:21I think what happened to us could happen to anyone.
00:35:24Unfortunately, trying to recover from this crime has proven to be almost as traumatic as the crime itself.
00:35:31There seems to be no recourse for our loss.
00:35:34I immediately called Wells Fargo.
00:35:36I spoke to a representative in the Feral Department and described what had taken place.
00:35:41I gave him names, phone numbers, and addresses.
00:35:44He sympathized with me and told me it sure sounded like fraud.
00:35:49He said they would investigate it and I'd have an answer within 10 days.
00:35:53Ten days went by without any updates or communication.
00:35:57I called Wells Fargo repeatedly.
00:35:59I still thought I was going to get our money back.
00:36:02On March 10th, my claim was denied.
00:36:04They said I had processed the transaction successfully and there was no fault found.
00:36:10Within 24 hours of the scam, I had filed paperwork with the FTC and the local police.
00:36:16Neither of them gave me any reason to think that they were going to be able to resolve this case.
00:36:21In fact, both of them just told me we'll take this information in case we get those numbers on a hit someplace else.
00:36:29Looking back on it, Wells Fargo's website did have warnings about sending payments to people.
00:36:34Similar to, make sure you have the right number because once it's sent, it's gone.
00:36:40But there were no big warnings like there are now.
00:36:42Not long after this scam happened to us, Wells Fargo did send updated notices for Zelle transfers,
00:36:48spelling out that they aren't responsible for certain electronic transfers.
00:36:53None of that existed when we were defrauded.
00:36:56And now, they ask you a ton of questions before you can send money via Zelle to a new user so they know what's going on.
00:37:02Still, though, they have no financial accountability.
00:37:06My questions are these.
00:37:07If Wells Fargo knew there were no consumer protections on Zelle, why did and do they offer it to their consumers?
00:37:14And since Wells Fargo, along with Bank of America and the other major banks, have financial interest in Zelle,
00:37:20why don't they have financial accountability for the protection of their customers?
00:37:24Why is Zelle even allowed to operate this way, knowing the high probability of fraud?
00:37:29I feel taken twice by the scammers and by Wells Fargo and Zelle.
00:37:34Chairman Blumenthal, Ranking Member Johnson, I share my story to raise awareness and to advocate for stronger safeguards.
00:37:42The emotional and financial toll of this scam on my family was significant, and it is still being felt.
00:37:50And I'm sure I'm just one of hundreds of thousands, if not millions, of consumers who are being targeted this way.
00:37:56Action by you and your colleagues here in Congress is urgently needed to stop these scammers.
00:38:04Thank you.
00:38:06Thank you, Ms. Humphreys.
00:38:08Ms. Hand.
00:38:11Chairman Blumenthal, Ranking Member Johnson, and members of the subcommittee,
00:38:15thank you for the opportunity to testify on this critical issue of consumer protection in the peer-to-peer marketplace.
00:38:22My name is Delicia Hand, and I work for Consumer Reports, where for 88 years,
00:38:27we ensured that consumer marketplaces, products, and services are safe, fair, and just.
00:38:34In 2022, Consumer Reports conducted a comparative evaluation of four of the most widely used P2P payment apps,
00:38:43Apple Cash, Cash App, Venmo, and Zelle.
00:38:47Our study, published in 2023, found that all four services lacked clear,
00:38:52accessible disclosures about the availability of FDIC insurance and the full scope of their fraud and error resolution policies.
00:39:02Notably, Zelle stood out for providing the least comprehensive information to users about their rights and protections.
00:39:11There are several aspects of Zelle's business model which create unique risks for users compared to other P2P services.
00:39:19For example, there aren't clear, published fraud liability policies.
00:39:24Unlike Venmo or Cash App, Zelle does not have a public-facing policy detailing consumer protections and reimbursement rights for all unauthorized transactions.
00:39:35So as you've heard, this leaves victims unclear on where to turn for help.
00:39:40As you've also heard, they provide a fragmented customer service experience.
00:39:45The support is split between the network operator and participating banks, which can bounce victims back and forth.
00:39:54A centralized, consistent process is needed to help consumers when they fall victim to fraud and scams.
00:40:01There are also weaker authorization safeguards.
00:40:05Zelle enables instant transfers, as you've heard, with less upfront friction.
00:40:10It's less secure and can enable faster fraud compared to other P2P apps, which employ in-app two-factor and multi-factor authentication.
00:40:22Additionally, there's lack of transparent data.
00:40:24Zelle does not regularly publish statistics on the volume and resolution of fraud and scam complaints.
00:40:31This hinders effective oversight of how well its policies are working.
00:40:36In the context of increasingly sophisticated scams, particularly those leveraging the most advanced technologies, such as generative AI,
00:40:45it is increasingly difficult for consumers to detect and avoid fraud.
00:40:52Scammers can create highly convincing, deepfake videos impersonating individuals known to the victims
00:41:00and deceiving them into transferring large sums of money, as you've heard from today's consumers.
00:41:06In such cases, a consumer who sends money under duress cannot said to have truly authorized that payment in any meaningful sense.
00:41:16And the scale of this issue is significant.
00:41:20In the U.S., consumers reported losing over $10 billion to fraud in 2023, representing a 14% increase from the previous year.
00:41:30Bank transfers and payments, which include P2P transactions, accounted for $1.86 billion in losses.
00:41:39To better protect consumers, we recommend that Zelle and participating banks adopt and publish a clear policy guaranteeing reimbursement
00:41:47for all unauthorized transactions, including fraud in the inducement.
00:41:53We also recommend implementing stronger transaction monitoring and identity verification safeguards,
00:42:00creating a streamlined process for consumers to report fraud and seek reimbursement
00:42:05so that they don't have to bounce between the bank and Zelle.
00:42:10We recommend providing greater transparency about fraud trends and reimbursement rates.
00:42:16And additionally, that banks establish a robust framework for sharing fraud information across the industry.
00:42:24Congress should also clarify through legislation that Regulation E applies to fraudulently induced payments, not just unauthorized transfers.
00:42:35Because as financial services grow more complex and scams become more sophisticated,
00:42:40it is banks, not consumers, who are best positioned to prevent and absorb losses from fraud.
00:42:46Just as manufacturers are expected to implement robust safety measures and bear the cost of product defects,
00:42:54banks should also be required to invest in advanced fraud prevention technologies
00:43:00and reimburse consumers for losses resulting from increasingly sophisticated scams.
00:43:06We look forward to working with the subcommittee industry stakeholders and consumer advocates
00:43:11to create a fair and sustainable P2P payment ecosystem
00:43:15that truly protects consumers while harnessing the benefits of fast, convenient movement of money.
00:43:22Thank you so much for the opportunity to be here today.
00:43:25Thank you, Ms. Hand.
00:43:26We're going to have questions now, seven-minute rounds.
00:43:30We've also just begun a vote, so Senator Johnson has gone to vote.
00:43:35When he comes back, I'll go to vote, but we're going to keep the hearing going.
00:43:39And I understand that Senator Butler has another obligation she needs to attend,
00:43:44so I'm going to call on her first.
00:43:47I so appreciate the flexibility, Chairman Blumenthal, and thank you so much for having this hearing.
00:43:54And it's just another demonstration of your career of public service
00:43:59as a consumer advocate really showing up for the American people.
00:44:03Thank you all for coming here.
00:44:05Ms. Duvall, Ms. Humphreys for sharing, you know, what I think a lot more people have gone through
00:44:13and tend to keep to themselves because they're ashamed.
00:44:17They think that how could they have fallen for this?
00:44:21But the fact that the two of you have come here representing such a diversity of both experience,
00:44:29geography, and community representation helps to give a face to the vulnerability of all communities
00:44:37to be targeted towards these scams.
00:44:40And even when they are trusted tools that show up on the device that we love the most,
00:44:45they are tools that should be interrogated and we should be making sure as public servants
00:44:52that we are doing everything to put in place the protections that you need.
00:44:57Ms. Duvall, I would love to start with you just as a fellow HBCU graduate,
00:45:01making sure to lift up your courage of sharing, you know, what happened to you
00:45:09and I'm sure is not unfamiliar to others that you might know on campus or in and around your community.
00:45:18You spent, it seems like, a considerable amount of time trying to, with your mom,
00:45:23sort of figure out a way to communicate, to over-communicate, and to communicate more.
00:45:29Can you just share a little bit? I read your written, submitted testimony,
00:45:34even as I missed, came in on a final bit of what you were offering.
00:45:38Could you share just a little bit more how you, or what you were able to find out relative to how
00:45:46these kinds of scams are directed towards, or were directed towards you and others on your campus?
00:45:57Trying to get to that sort of student vulnerability population,
00:46:01and if there was any wider exposure to this kind of scam on your campus.
00:46:08Yes, of course, and thank you, Senator Butler. I really appreciate that, and also HBCU.
00:46:14Shout them out, girl, shout them out.
00:46:17But yeah, I got the email first from my school account. I don't know how they got my school email accounts,
00:46:22and I recently learned today, actually, that six other students have been scammed the exact same way that I have.
00:46:28And with that, I guess they, at first, they email us with the opening,
00:46:34presenting themselves as one of our, actually, head research professors,
00:46:38but ending with the at gmail.com kind of thing, and then they ask us to go to another email address
00:46:44to keep in contact with them, and that's when they start spoofing our payroll at ncat.edu email address,
00:46:52and that's how they further send those fictitious checks, and then ask for that cell payments,
00:46:58and things of that nature. Does that answer your question?
00:47:00Yes, it does, and it leads me right to my next one. Thank you for answering it so well, Ms. Hand.
00:47:05I would assume, just in the ways in which Ms. Duvall was just talking about the sophisticated
00:47:11nature, the evolution of these scams, and in particular, directed towards young people,
00:47:18and in some instances, young people of color, HBCU campuses. I wonder if in your research,
00:47:24or in your engagement in the advocacy space, if there's any, or advocacy and research space,
00:47:31if there's any information that you might have in terms of how much of this is directed towards
00:47:39young people and students, given the financial vulnerability of most young people,
00:47:45particularly when headed towards the end of the school year.
00:47:51Thank you for the question. I can show a little bit of light. So, in addition to testing products,
00:47:57we also regularly engage consumers and do representative surveys of thousands of consumers
00:48:04across the country, so we're able to get a sense of various demographics. And what you do see
00:48:10is that the more vulnerable consumers tend to be targeted. And so, you do see younger consumers,
00:48:19and you also see, frankly, the other end of the spectrum, older consumers who, self-reporting
00:48:27that they are victims of fraud, various kinds of induced scams in these instances.
00:48:34Thank you for that. And Ms. Tatar, is that the right way to pronounce that?
00:48:39Close enough, Tater.
00:48:40Well, I mean, as a woman with a P, H, and a Z in her name, I'd like to get it right.
00:48:46Ms. Tater, thank you for that. And is there, or Mr. Braille, would you add any additional insights
00:48:55or information from your perspective to this line of questioning relative to vulnerable communities,
00:49:00in particular students, particular time of year? There's so many commencements that are happening
00:49:08right now, and I think this is a time where we have the opportunity to get folks who are watching
00:49:14the five people who watch C-SPAN, but to really be able to get students to understand that they
00:49:19are a targeted audience and group of victims, particularly in this moment. So I'd open the
00:49:27question to both of you as well, and I'd love to start with Ms. Tater.
00:49:30Thank you. My experience has been that students are probably more often targeted. You'll see
00:49:37that those numbers and greater numbers with that population, but the older generation,
00:49:43they're suffering larger losses, significantly larger losses. And the trouble with that is
00:49:50they're losing money, and they're not able to make that money back because they're retired,
00:49:55or they're losing significant amounts of their retirement income. I do agree it's time for
00:50:01graduation. There are a lot of kids looking for jobs right now, and they are, through social
00:50:08engineering, they are targeted very by the hordes. Yes, absolutely.
00:50:17And just to add on to what Ms. Tater had to say, certainly, you know, we know that fraudsters look
00:50:22for specific vulnerabilities in specific target audiences they go after, and financial distress
00:50:29is one that we see very often. And so when we think of students, we often think of the stress
00:50:34that they're beginning to feel as student debt starts to cut into what they have to spend money
00:50:40on. And so, as in Ms. Duvall's case, the offer of employment looks very promising to someone who is
00:50:48thinking about having to start paying those student loans off. And the scammers know this,
00:50:53and they target their scripts to prey on people who might be vulnerable in that way.
00:50:59So they have a script literally for every potential audience, from older people to
00:51:04younger people to everyone in between. Thank you all again for being here and
00:51:12for offering your testimony here. I think it's just such a critically important issue,
00:51:18and I think it was noted, Ms. Humphreys, in the end of your statement, the fact that this is a
00:51:24product that is majority owned by the largest financial institutions really does make it
00:51:32imperative for not only the sharing of your stories, but the action of our subcommittee
00:51:40and Congress to do everything that we can to protect the American consumer of every bit of
00:51:47the age and experience spectrum. So thank you all for being here, and thank you, Mr. Chair.
00:51:52Thanks, Senator Butler. Ms. Thayer,
00:51:58about three-quarters of the fraud claims are never reimbursed. Can you explain why?
00:52:10Much to the chagrin of consumer attorneys, it is because many banks believe that the
00:52:16Electronic Funds Transfer Act prohibits or eliminates their duty to do an investigation
00:52:23because the consumer participated in one way or the other in the fraud, meaning they were
00:52:28on the phone, they transferred the money, they clicked on a link, they clicked on a text message,
00:52:33and because ultimately they did something to perpetuate that movement of money,
00:52:39the banks are not responsible. So Regulation E, they believe,
00:52:45doesn't apply to them, to use the technical legal terminology? Correct. Because the consumer had
00:52:51something to do with the movement of the money, they believe that the Electronic Funds Transfer
00:52:55Act Regulation E does not apply to them. The mere fact that the consumer's finger was on
00:53:02the button disqualifies that consumer from any reimbursement? As frustrating as that is, yes,
00:53:08that is exactly right. Do you agree with them on the law? Absolutely not. And even if it,
00:53:17even if they continue with their, or especially if they do, with their resistance, perhaps that
00:53:23regulation ought to be clarified, correct? I agree with you, Senator, yes, the regulation absolutely
00:53:29needs to be clarified. Mr. Brayho, you mentioned that what we know about this problem is probably
00:53:36just the tip of the iceberg, because a lot of consumers either are ashamed or embarrassed to
00:53:44report this kind of fraud, is that correct? Yes, that's correct, Senator. And we know that $456
00:53:54million was actually reported in 2022 alone, the numbers have been skyrocketing, so
00:54:04the number for 2023 is probably higher, and for 2024 will be even higher. But there's no indication,
00:54:12is there, that the levels of reimbursement have increased at all? None that I've seen,
00:54:17no. So probably it'll be at the same proportion? I would anticipate yes. Would it be advantageous
00:54:24to have more people report more of this fraud, so we can know more accurately what the dimensions
00:54:30are? It certainly would, Senator, yes. How would we encourage it? Well, I think that one of the
00:54:36ways that we can encourage consumers to report this fraud is by working with the media, with
00:54:45members of Congress, with the banks themselves, to de-stigmatize this. Unfortunately, we often
00:54:51use terms like, I was duped, or I was, I can't believe I fell for this, or how could I be so
00:54:58stupid? And consumers hear this whenever they share their stories, and this really creates a
00:55:06culture of fear around reporting. And unfortunately, that trickles down into the resources that
00:55:11businesses and law enforcement devote to actually going after these scammers. Ms. Humphreys and Ms.
00:55:17Duval, let me ask you, were you reluctant to come forward? Was there a disincentive? Were you
00:55:25discouraged about it, either because of your own emotions or because of the way the system worked?
00:55:31Yes. I responded to a Consumer Reports email and thought that was it. I said, yes, I'd been
00:55:36scammed. I thought that was finished with that. And then Consumer Reports said, well, can we
00:55:41tell it to the Congress? And I said, oh, I don't know. And so here I am. I was very reluctant
00:55:47because I am ashamed. I only told my children last night when I shared with them the link,
00:55:53because I didn't want to share that with them. And the cost to you,
00:56:02regardless of the reimbursement, perhaps you could talk about those costs to you in
00:56:08emotional or psychological terms, to you and your mother.
00:56:13Well, my mother's only concern was my brother. She didn't care what it cost. She wanted that done.
00:56:19And so she was happy. Ninety-four years old, her son's in trouble, and now her son's on his way
00:56:26home. And then when he arrived at her house that night, she was thrilled because it had worked
00:56:30until he told her, I was never in trouble. I don't know what's going on. So she was just happy that
00:56:37her son was OK. I, on the other hand, was ashamed that I had fallen for this. And I asked questions
00:56:46as it went, but I was so caught up into it, I couldn't get out of my own emotions.
00:56:55I didn't know where to turn because I wanted him out of that space.
00:57:00And so when the lawyer said to me, can you get me some cash, I'm thinking,
00:57:07cash? Who has cash like that? But he lowered my bail, or my brother's bail. And for that,
00:57:14I was grateful. So as I'm reviewing all this, I'm thinking, he had my emotions in his fingertips.
00:57:23As I asked a question, and he said, well, I'd have to go to the court and ask them if they'll
00:57:27accept that. I'm waiting, and the time is passing. My brother is in jail. I'm trying to get him home,
00:57:33and I'm waiting for the lawyer to get an answer for something. So I was completely invested
00:57:38in the trouble here. And so when it was all said and done, I'm thinking, what an idiot.
00:57:45I had all that opportunity for my brain to kick in and say, wait a minute, now what? But I couldn't.
00:57:53I didn't have that in me to think anything except, I've got to get my brother home.
00:57:59And so that has been overriding most everything. It took me a very long time to forgive myself.
00:58:09And I thought I had until you asked me to respond to this. And so now I'm reliving it,
00:58:14and I'm again ashamed. And I know that people watching are going, I would never fall for that,
00:58:21which honestly is how I felt about myself when I watched other people report on their scam.
00:58:27How could they have fallen for that? What a dumbbell. And then I fall for it.
00:58:32And so there's been a great humility on my part to realize that none of us are immune to this.
00:58:40Those of you who haven't done this, and you're sitting here thinking, boy, she's old and she's
00:58:43dumb. But you just wait when that time comes. And you get so caught up into something,
00:58:50you can't do anything except respond to it. And so I did tell my children last night,
00:58:58and most of them were supportive. I haven't heard from some. But it is a hard thing to come and
00:59:05express your vulnerability. And when it's money involved, and it was my mother's money.
00:59:11I'm on account with her, but it was my mother's money. I couldn't let my mother suffer that loss.
00:59:17So I gave her the $3,500. So it's now my loss, and my husband's loss. But I couldn't see another way
00:59:26out of it. And so that's what I mean. The financial toll is there. I still lost the $3,500.
00:59:31But the emotional toll just continues. And so that's... Very well said. You know, just an
00:59:39observation. Zelle has instantaneous or near instantaneous clearing. In Venmo,
00:59:48these transactions take, I believe, one to three days to settle. So your brother would have come
00:59:57home that evening, and you would have been able to reverse the transaction because of the delay.
01:00:05Now, I recognize people want everything to happen quicker in today's society. Faster is always
01:00:11better, right? Well, not always. Right. And especially if you're paying a bill,
01:00:21faster is not always better if the bill is fraudulent. I'm going to ask Ms. Duvall the
01:00:27same questions. Were you fearful or reluctant to come forward? And what were the costs to you
01:00:36beyond the financial loss? Yes, definitely. More so than even the financial part at times.
01:00:45Because I go to a university, and it can feel like a family at times, whenever you tell them
01:00:50about your experience, and especially that I'm out of $2,400, they're like, how on earth could
01:00:55you fall for that? Even some of my own family members had the same sort of tone with me with
01:01:01that same thing. And it felt disheartening. I felt like Mrs. Humphrey was saying that I'm a big
01:01:09dumbo. How could I even fall for this? And it took a toll on my self-esteem, my intelligence in
01:01:18general, seeing as I tried my best in my academic pursuits. And it made me feel as if I was the
01:01:24only one that could go through this. Now that I've recently learned that I'm definitely not
01:01:28the only one from my own school that has been involved with this scam now, I feel more seen.
01:01:34And when I went to ABC 11 at first, I felt as if if I could help anyone just to prevent this in
01:01:42general, I would. Because I had to overcome that. But I know whenever you would close the door,
01:01:48and I'd just be alone in my room, I'd cry. I'd really cry. And I'd sit there and like, how on
01:01:53earth did this happen in this short amount of time? I had my final exams and my final projects,
01:01:59some of the like most strenuous and difficult that I've done throughout my entire school career.
01:02:06And it was just so disheartening. I was actually devastated. It was just too much piling onto me
01:02:14at once. I felt like I couldn't talk to anybody because they wouldn't understand or they would
01:02:17And so that's why I'm here. I want to let you know that you know, you have to having the courage to speak up. Number one is one thing, but to know that you are seen, and that you're not alone in this.
01:02:34Well, we thank you both for being here. And your statements are very, very powerful.
01:02:40Senator Johnson has returned. I'm going to go vote. And I will be back as quickly as my feet
01:02:46will take me. Because I do have some more questions for all of you. And I apologize that
01:02:51we have this interruption, but I'm going to leave it in Senator Johnson's very capable hands.
01:02:58Thank you, Mr. Chairman. First of all, Ms. Duvall and Ms. Humphrey, thanks for your testimony. And
01:03:03I think all of us are just thinking there but the grace of God go okay. No way should you feel
01:03:12inadequate or you know, these are very sophisticated criminals, and they are preying on people's emotions,
01:03:20they preyed on yours. And I, again, I find it totally understandable in terms of, you know,
01:03:28how they they took advantage of you. But I do have a couple first couple questions with for you,
01:03:33Mr. Duvall. So the $400 check that they sent you was just a fraudulent check as well, right? You
01:03:41deposit in good faith, you thought the money went in there probably takes a while for the bank to
01:03:45get back to you and say, hey, this, this is no good. I mean, can you just fill me on that first?
01:03:49Yes. And in addition, it was a $2,400 check in total.
01:03:54And also they send you two checks and one for 400 and also the $2,000.
01:03:58It all came into one check of $2,400. And it was okay.
01:04:04Sorry, can you repeat the question again? The one that you just asked?
01:04:09So you got these checks, they look like valid checks to you.
01:04:13Do you take them physically or did you do those? Did you also deposit those electronically?
01:04:17I deposited those electronically. It gave me strict instructions to do mobile deposit only.
01:04:22And that's how they first came into my account. And whenever I first realized it was a scam,
01:04:29my bank was telling me that it takes them five to seven days to realize the validity of a check. So
01:04:34it would appear in my account while still pending, but they would basically give me that money.
01:04:39Right, right. So when did you find out that those checks were also fraudulent and you didn't have
01:04:44the $2,400? How many days does that take? It was around, I believe, just two days or a day.
01:04:50Because it wasn't myself that realized it. It was my mother seeing my account and realizing
01:04:56something weird was going on. And then she called me and then made me realize that it was a scam.
01:05:00And this was before I was even in the deficit or they took the money out. I just knew I was
01:05:04scammed at that point. And then I filed a claim with two claims for the $400 and $2,000
01:05:10within that same hour I realized. And then three days later about, I was in deficit.
01:05:15Now, I don't believe you'd ever used Zelle before, right?
01:05:19I used it maybe once or twice just for simple transactions with actual peers that I know
01:05:24and friends. It's very simple things like some... So why did you use it? Again,
01:05:28this isn't an accusatory thing because I've never used these things. I know people who have
01:05:34and just never have. So why do people use these? I believe just because of its quick pace nature
01:05:42and how it may be affected if it could go into the bank account, especially since it is bank
01:05:46affiliated directly. That's what it made me feel as if it was more trustworthy in that aspect.
01:05:52Yeah, so it's going through your bank and you figure, okay.
01:05:54Yeah. And especially for this situation, since I did think it was somebody from my school and
01:05:58they needed these research office supplies to send to me so I could use this for this
01:06:03research opportunity that they would need it specifically in their bank because Cash App
01:06:07can take some time to actually go into the bank. I think Venmo is the same way,
01:06:11a couple of days or three days. So I think that whenever I was thinking about it, that
01:06:16if you can have that instantaneously, that that would be okay. And that because it's also bank
01:06:20affiliated that if it was not, that I could get that back easier. And again, you're not thinking
01:06:26because no consumer really thinks about the interchange fees or anything else like that.
01:06:29You're just simply not, a credit card wasn't available in this situation. They were telling
01:06:33you to use this direct payment and you'd used it in the past and just really didn't question it at all.
01:06:39I mean, I would say, I'm a bit confused in the way you said it, but because they sent a check,
01:06:47I thought, okay, this money's not my own. It's covered, right? Yeah. And they brought it to me
01:06:51so I could send it off to the sales representative. No, again, they're very good at what they do.
01:06:55Yeah. So Ms. Humphrey, maybe you can answer that question too. So you said you would use PayPal in
01:07:00the past, I think, right? Yes, I use PayPal to buy things and I have bought some fraudulent things
01:07:10and PayPal is very good about refunding my money. During COVID, I bought something and
01:07:17it came back completely, it wasn't what I purchased. And I told PayPal about it. They
01:07:24made me whole and I sent the stuff back. So why do you use PayPal rather than a credit card to
01:07:29purchase things on Amazon, that type of thing? Yeah, it was Amazon. So why do you use PayPal
01:07:33versus credit cards? Sometimes I use PayPal because I can cover my credit card number against
01:07:39to the company that's making the purchase. So if I use PayPal, I don't have to put my
01:07:44Discover card into the place where it says make payment. So it's kind of a one-step,
01:07:50my understanding of it is it's one step away from giving some company I'm not familiar with
01:07:57my credit card number. I can give the company my PayPal account and then the company gets its
01:08:04money from the PayPal account and PayPal knows my account number. So I can keep my Discover or
01:08:10whatever card away from them. Right, so you have an account at PayPal. Yes. PayPal has access to
01:08:17your bank account. That's correct. And okay, so that makes sense. So I offered that to this guy
01:08:23and he wouldn't take it. Well, now I know why he wouldn't take it. Right. Because, hello,
01:08:27it wouldn't have worked. He was cheating on you. Yeah, but I use Zelle for my mother's caregivers
01:08:31and I would have to pay them over and over and over again and it always worked fine until this
01:08:37and then I became very skeptical of it and so I began to only, I'd send a dollar, is this you?
01:08:45And they'd come back and say yes, I got it and then I would send them, you know, the amount of
01:08:49money to cover. So it has changed my already heightened distrust of electronic payment
01:08:58but to a whole new level. Now, listen, I think you're very responsible and your rationale for
01:09:02using PayPal makes an awful lot of sense. You know, rather than give that, you know, we do it,
01:09:07my wife does it, you know, you're just kind of hoping. Right. But we do know with credit cards,
01:09:13if there's a fraudulent payment, correct, they reimburse that. But again, they have
01:09:17hundreds of billions of dollars in profit off the interchange fees to make those payments. So I
01:09:20think that's, I'll go to Ms. Hand right now because I want to understand. Could I finish
01:09:26that thought then? Go ahead. But that might be your thought on it but mine as a consumer is I
01:09:31don't care about any of that stuff. Oh, I understand. I understand, I was working through Wells Fargo
01:09:35which offered me a service and so Wells Fargo should be backing up that service. Right. And
01:09:39the rest of that financial stuff, I don't care about that. I completely understand that. I
01:09:43understand, you know, you want to be made whole and. Correct. But again, I'm just looking at the
01:09:48overall business models of these things and, you know, who has the wherewithal to make those
01:09:51reimbursements. That's why I want to kind of get into these other systems because I want to compare
01:09:57them with Ms. Hand. You know, can you compare, what is the difference between PayPal, Venmo,
01:10:02and Zelle? Can you just kind of lay out what are the differences there? And speak as loud as
01:10:07possible. Sure. So I think one of the things that you've heard from various testimony is the
01:10:14friction. Both the presence of it and the absence of it. And so one of the things that is absent,
01:10:21more absent in Zelle is that absence of friction. So that's the use of it. So I want to, I want to
01:10:27focus on the difference in the business model. Okay. So PayPal, how are they, how do they make money?
01:10:37That's a really good question. How they, these companies make money is not part of our analysis.
01:10:42We test the consumer use of it. Does anybody know the business model difference between PayPal,
01:10:48Venmo, and Zelle? Mr. Prevault. So Senator, what I understand about the business models is that
01:10:57Zelle is basically a service that the banks offer as a way to basically make their service more
01:11:03attractive. To make it stickier so that you get other services from the banks. So the people don't
01:11:07use PayPal and Venmo. Right. I mean, do the banks view PayPal and Venmo as a competitor?
01:11:14Yes, they do. Okay. And apparently the parent company, they claim they make no money off of
01:11:21Zelle whatsoever. Right. And while that might be true that there's not sort of the same kind of
01:11:25fees they get off of interchange like they would in creditor debit, they do make money in other
01:11:29ways. For example, by using Zelle, it's a service that gets you to stay on your bank's website, for
01:11:35example, where you might. And that's why the banks use Zelle. Right. Right. Okay. Venmo and PayPal make
01:11:41money in other ways. So for example. So how do they make money other ways? PayPal may make
01:11:45money off of, for example, charging you a fee if you want to send money to a business, for example.
01:11:52Or if you want to, the money that are in people's PayPal's balances, they make money off the
01:11:59investment. So they have compensating balances then? By compensating balances, if you mean
01:12:04they're making money off the float on the balances, then yes. So what float is, I mean, do both
01:12:11PayPal and Venmo, do they allow their users to deposit money so it doesn't even have to go through
01:12:16a bank account? That's right. Okay. So they're making money like a bank does. They have
01:12:22deposits on hand. They don't pay interest on it, probably, right? On Venmo? Not that I
01:12:27know of. Yeah. So they've got this cash that they can go ahead and make money on themselves. Right.
01:12:32So that kind of funds it. Zelle doesn't do that, right? I mean, Zelle is just basically a
01:12:37software program that banks use so that their bank customers stay on their platform. They don't go,
01:12:42they don't take their money and deposit it into Venmo and PayPal. That's kind of how I view this,
01:12:49right? And there are other apps as well. There's a very popular one called Cash App, where they
01:12:55also, they're also, you're incented to use your Cash App balance to do things like purchase
01:12:59cryptocurrency. So there are various P2P apps. They have various business models. But your
01:13:05understanding of how Zelle operates is, I believe, correct. Okay. Again, the reason I'm pointing this
01:13:11out is if, let's say we want to pass a law, and I'm going to get to the law in terms of the
01:13:16Electronic Transfer Act, that is going to redefine unauthorized transactions, which I think is covered
01:13:24under that electronic, but I don't think fraud is. That's why Congresswoman Waters has this bill
01:13:30to include fraud. Somebody's going to have to pay for that. And the way you'd probably have to pay
01:13:36for that is Zelle or these other companies would probably have to charge fees so they have an
01:13:40amount of money to compensate people. There will be a certain percentage of fraud, there always will
01:13:45be. And so somehow, somebody's going to have to pay. It's going to come out of somebody's hide,
01:13:49and my guess is then those services will have to charge some kind of slight transaction fee or
01:13:55whatever. But, you know, Ms. Tater. Senator, if I could just respond on that point. Sure. You know,
01:14:01right now that money is coming out of somebody's hide. It's coming out of the hide of consumers
01:14:05like the one sitting next to me. Right. And so whether that, the fraud is happening and the money
01:14:10is being lost by somebody, our opinion is that it's, those losses are best absorbed by the banks
01:14:16and those costs spread across their entire Zelle network rather than coming out of the pocketbooks.
01:14:21By the way, I completely agree, but it's how do you set up the system so it works. Ms. Tater,
01:14:26so why do you believe, because you said a couple times in your testimony that Zelle's not following
01:14:31the law. But again, I don't know what percent, they do reimburse for unauthorized use. And again,
01:14:39I don't know whether that comes out of Zelle, whether that comes out of the fees that Zelle
01:14:42charges the bank and they do the calculation in terms of what percent of the transfers are
01:14:49unauthorized or they're going to have to reimburse. I mean, again, these people are smart. I mean,
01:14:53they keep track of these things. Why do you, in what way is Zelle not following the law?
01:14:59Senator, what I had said is that financial institutions routinely don't follow the law,
01:15:04and by that I mean the banks. I sue banks when they don't return the money to my consumers,
01:15:09and they routinely either don't do an investigation because they feel it's not
01:15:13covered under the Electronic Funds Transfer Act or the investigations that they conduct are terrible.
01:15:19Let's zero in on that. What is and what isn't covered? Am I correct, as I've been briefed here,
01:15:25that unauthorized transaction is covered and they have to reimburse for that, which means they have
01:15:31to investigate. But if it's fraud or if it's an authorized, and again, that's the problem with
01:15:36fraud, it's you were defrauded, crime was committed, but you authorized the transfer. So
01:15:42that, according to my briefing, is not covered under the Allied Transfer Act, which is, again,
01:15:46why Congresswoman Waters has a bill that would include fraud covered under the act. I mean,
01:15:54am I getting that wrong? Not necessarily. So the term fraud's a little tricky. I think it's
01:16:00probably easier to think about it in terms of unauthorized transactions that a consumer's had
01:16:07a hand in, by no fault of their own. I got it. But I mean, what really scares, certainly me,
01:16:14is completely unauthorized. When people have access to your personal information, they start,
01:16:19they have access to your checking account without knowledge whatsoever. You had no hand in it.
01:16:23Now, I think that's actually a pretty clear cut in terms of what's authorized or unauthorized.
01:16:29Then you have fraud that occurs and involves an authorized transaction. But I think Senator
01:16:36Marshall's ready here. So I'll let you go and I'll come back. Okay. Thank you, Senator Johnson.
01:16:44If my questions are repetitive, you'll have to forgive me. We've been bouncing back and forth
01:16:48from votes and other committees. So my first question for Mr. Brault, if you will. Look,
01:16:54I think all scams are bad. And consumers being taken advantage of is, of course, horrible as
01:16:59well. But sadly, it happens far too often in all different forms. We see it with crypto scams,
01:17:05Western Union scams, gift card scams, just to name a few. Shouldn't we be focusing our
01:17:11attention on the actual scammers and not the specific medium that they're using?
01:17:16Senator, thank you for the question. I don't believe it's an either or proposition. I believe
01:17:22that we can redouble our efforts to go after scammers and try and put them behind bars.
01:17:27And one of the best ways to do that is to give the entities that are in a best position to help
01:17:31that happen the incentives they need to do so. And I believe that the entities that are best
01:17:35positioned to provide the kind of data to law enforcement they need are the banks. Currently,
01:17:41because the costs of the fraud that are occurring are not borne by the banks, they lack that
01:17:46incentive. And I think that that is where Congress can step in. Just as Congress stepped in and made
01:17:51sure that the Electronic Funds Transfer Act had limited liability for credit and debit card
01:17:57customers. And now, if you're anything like me, the last time you found out that a scammer got
01:18:02ahold of your credit card, it wasn't because you noticed a suspicious charge on your credit card.
01:18:07It wasn't because you noticed a suspicious charge on your bank statement. It's because your bank
01:18:12called you and said, Senator, did you just spend $500 on a big screen TV in Los Angeles when you
01:18:18were just in Kansas the other day? You said no, you reimbursed the losses, and then you provided
01:18:23a new card. We think that system works very well and has given consumers a lot of faith in credit
01:18:27and debit cards. And we think that same system could apply in peer-to-peer payments. But it
01:18:32doesn't... And we should just let the scammers go on. No, I'm not saying that at all. What I'm
01:18:37saying is that the best way to create systems and incentives for the banks who are in the best
01:18:42position to go after these scammers with the help of law enforcement is to give them the incentive,
01:18:48a financial incentive, to put skin in the game when it comes to going after these scammers. And
01:18:52that incentive structure has worked great in credit and debit, and I think it worked great in
01:18:57peer-to-peer. Don't you think we could do more by going after the scammers, whether they're
01:19:02successful or not successful? It's like we let them try to rob the bank. We don't catch them.
01:19:07If they don't rob the bank, we don't prosecute them. Don't you think there's more we can do to
01:19:10go after the scammers themselves? Absolutely. There's always more we can do. We could fully
01:19:15fund the enforcement agencies that are responsible for going after those scammers, like the CFPB and
01:19:21the FTC. But it's not a zero-sum game. But you would agree with me, even if we could shut down
01:19:27Zelle, or if we could make them scam-proof, these bad actors would just find another mechanism to do
01:19:33what they're doing. It's like a balloon. You push it in one place, and the air comes out some other
01:19:37part of it. Sure. They will undoubtedly look to other methods to get payment. We know that
01:19:43cryptocurrency, for example, is becoming a far bigger mechanism and venue for fraud. Gift cards
01:19:51are another way that scammers seek to get paid. But just because squeezing the balloon, as you put
01:19:56it, in one place and moving to another, doesn't mean we shouldn't squeeze the balloon in the first
01:19:59place. Rather than attacking financial infrastructure that's used by thousands of banks and
01:20:05over 100 million consumers, shouldn't our focus be on consumer education to prevent people falling
01:20:10victim to scams? I do believe that consumer education has a role to play. But I think that
01:20:16far too often, consumer education has been used as an excuse for the banks not to do more. In the
01:20:22complaints that we hear from consumers all the time, as we heard from Ms. Humphreys just a few
01:20:26minutes ago, scammers are very, very adept at coaching people around any kind of consumer
01:20:32education warnings they may get from the banks. They are professional, sophisticated criminals.
01:20:39This is what they do all day, every day, and they have an answer to every question and every warning
01:20:43message that you may see in a process. That's why they're professionals. And so while consumer
01:20:48education... But the FBI is professionals too. Why can't law enforcement crack down on these
01:20:52people more? What's keeping us from getting more of these scammers? Well, as I said, I don't think
01:20:57that the banks have the incentives they need to invest as much as they should. One of the reasons
01:21:04that we can go after bank robbers is because banks provide the information, closed-circuit
01:21:10video and everything, to law enforcement to help them go after them. The banks have skin in the
01:21:14game when there's a bank robbery. We think that banks should have more skin in the game when it
01:21:17comes to bank robbery that just happens to happen on Zelle.
01:21:25I've been told that 99.9 percent of transactions processed on Zelle have no reports of fraud or
01:21:31scams. Is that a reasonable number? Senator, I have no reason to doubt that number, but in fact,
01:21:37I think that only underscores what we think should happen. That if you create the kind of
01:21:42incentives that would require them to make consumers like Ms. Duvall and Ms. Humphreys
01:21:46whole when this fraud happens, that they should be able to absorb those losses. Either it's not,
01:21:51it's a very small problem, or it's a very big problem. If it's a very small problem like they
01:21:56claim, then they shouldn't have any trouble in reimbursing the victims. Okay, thank you so much.
01:22:04I yield back. Thank you, Senator Marshall. I want to
01:22:11pick up where I left off, and I apologize if I'm retreading some of the ground that you've covered.
01:22:21Ms. Hand, I was talking to Ms. Duvall and Ms. Humphreys about the cost to them, the emotional
01:22:31cost, but also the disincentives in emotional terms for them to come forward.
01:22:37Could the banks do more to encourage reporting of these kinds of scams?
01:22:44Sure, the banks could do more to encourage reporting. I think that's one of the things
01:22:50that we saw in the comparison as compared to Venmo, Cash App. We just had a conversation about
01:22:59education. There actually needs to be improved education. That's one of the things that we saw
01:23:04needs to be improved education. That was educational materials, not to say that education
01:23:09should suffice. It should not, but that was one of the things that we noted in terms of just the
01:23:15quality of the materials that are available to consumers. If you compared Venmo, Cash App to
01:23:22Zelle, it was a very different qualitative experience for consumers. I think the other
01:23:28thing that's different is the actual policies for reimbursement. If you are a bank customer or
01:23:34Zelle customer, you've got two days, which is within the law, but compared to Venmo, for example,
01:23:42where you have 60 days to report an incentive fraud or unauthorized transaction and the consumers
01:23:50would be made whole. What does the
01:23:57expanded use of Zelle mean for consumers? Does it put them more at risk,
01:24:03and can they do anything to protect themselves?
01:24:09It shouldn't be on the consumers. I think because you are using an app that's effectively
01:24:16integrated into your bank account, it's very different from an app that communicates with
01:24:23your bank account. There's some distance there. I think that actually creates a buffer
01:24:30for consumers and is a safer experience. Frankly, it shouldn't be on a consumer. If you make a car
01:24:36that goes 100 miles an hour, it should be on the car manufacturer to ensure that the car is safe,
01:24:43the brakes work, for example. Similarly, with respect to Zelle and other products,
01:24:50if you provide a facility for instant payments, there either should be some friction or, frankly,
01:24:59some assumption of liability when consumers are scammed.
01:25:05As you know, Zelle says, the website at least says, that it should be used only with, quote,
01:25:13friends, family, and people you trust. But increasingly, Zelle is used for commercial
01:25:20transactions with people or entities that literally there's no trust relationship, landlord,
01:25:30another seller of goods or services. And Zelle and member banks have tips on their websites for
01:25:41how businesses can encourage their clients to use Zelle for commercial or business purposes.
01:25:51If Zelle is going to expand its business model to include greater use of transactions between
01:25:57parties that are unfamiliar to each other, do you think that there ought to be some
01:26:06expansion of regulation E, as we've discussed it, or some other legal obligation to make
01:26:13sure that there's reimbursement? Yes, absolutely. I mean,
01:26:19we're not just seeing the expansion of the policy, but we're also seeing expansion of
01:26:24use. Increasingly, consumers are offered, so take this out of the fraud and scam context,
01:26:31just for regular day-to-day use. It's not just that consumers are choosing to use Zelle,
01:26:37they're being offered Zelle at the point of sale by merchants or in informal situations. So,
01:26:45for example, a contractor doing work on the house will say, well, not just take a check,
01:26:51they'll also take form via a peer-to-peer app, and that's often Zelle as well.
01:26:58You know, I'm struck with the kind of disparity between the claim that Zelle has no responsibility
01:27:10for these transactions, and then the encouragement that it be used for those kinds of transactions
01:27:17outside the relationship of trust. Is that possibly a violation of the Federal Trade
01:27:24Commission laws, Ms. Tater? Senator, I am not prepared to comment on that,
01:27:33but I think you've made an excellent point that consumers are encouraged to use something that's
01:27:39fast and safe, and it's touted as a safe transaction, and it is routinely proven not to
01:27:48be safe. You know, I notice in your testimony, Ms. Hand, you have a number of recommendations
01:28:01which include, in effect, creating more friction, possibly more delay,
01:28:08authentication. Can these kinds of measures cut down on the amount of fraud that is victimizing
01:28:18consumers? Yeah, absolutely, and they also don't require a change in the law. I mean,
01:28:23these are things that is very much under the control of companies providing the P2P services.
01:28:32Critical, and I'm quoting, critical friction and multi-layered protections offered by other P2P
01:28:40services like PayPal or Cash App, end quote, are not used by Zelle. Would they be well advised to
01:28:51adopt those kinds of mechanisms? Yes, they do at the point of entry,
01:28:59so when you are logging into your mobile banking app, yes, you do have to typically
01:29:06authenticate, but once you're in that app, you don't have that additional friction,
01:29:13and I think that's a point of distinction with the offer. Let me ask you and Mr. Breaux and
01:29:19Ms. Tater whether you've ever gone to Zelle and said, why don't you adopt these kinds of safeguards?
01:29:25So, Senator, we have conversations with Zelle member banks, and I think they have a role to
01:29:35play, and I think that advocates like me have been and will be talking to them and urging them to
01:29:41take these kinds of steps, but our urging is no substitute for regulation that creates the kind of
01:29:47incentives that would get them to take these steps in the first place. We're already seeing
01:29:51promising signs in the UK where similar reimbursement rules recently went into effect,
01:30:01and I think that that could be a model for what we and you do here in the United States.
01:30:09Ms. Tater? I would just make the quick point. I agree, and every lawsuit that I file,
01:30:15I am imploring change and asking banks to do better than what they're doing.
01:30:21The message is maybe received, but I think that strengthening the protections, the consumer
01:30:28protections and Regulation E and implementing additional protections is the only way to go.
01:30:35We've heard from victims of these frauds and scams on Zelle that not only did Zelle fail to help
01:30:44them get their money back, but they didn't seem even interested in information that could prevent
01:30:52it from happening again. A woman in Maryland wrote to us about being scammed out of $1,000
01:31:00on Zelle by someone posing as a police officer. The scammer knew a lot of her personal information
01:31:06and the phone number displayed on her caller ID was for the local police department.
01:31:13In other words, she looked at the caller ID and it was local police department.
01:31:17After the fraud was discovered, she tried to tell Zelle about this fraud,
01:31:26but here's what their reaction was. Quote, I explained to Zelle I had a police report and I
01:31:36had the name and phone number of an account that is being used for fraud. I asked if they wanted
01:31:45that information so they could shut the Zelle account down. The response was no, they don't do
01:31:52that. End quote. In other words, not our problem. As I said at the outset, it should be their
01:32:00problem. They care about their customers and consumers and we're talking here about the banks.
01:32:07Who have a relationship of trust. Would you say, Ms. Hand, that from a consumer perspective,
01:32:18Zelle is safer than other P2P payment acts?
01:32:26If you're talking about, I think it depends on what aspect of it. Certainly based on our report,
01:32:33based on their fraud policies and frankly their educational materials compared to other apps,
01:32:40it was probably, it ranked lower. Other apps did a better job of providing simple information,
01:32:48also providing more robust reimbursement policies. Again, the friction, friction is a safety
01:32:58mechanism in this instance. So the absence of that, I would say it's probably less safe.
01:33:04So as I said, again, at the outset, these kinds of problems are common to an industry that is not
01:33:12doing enough self-correction and has no real incentives now to do it. Mr. Brault has emphasized
01:33:21without the reimbursement requirement and needs to be given additional incentives or
01:33:29requirements explicitly to do it. I'll turn to the ranking member if he has any other questions.
01:33:40Okay. I'm just looking at the statistics on this and I don't think we have anywhere near
01:33:44enough information. We really ought to be talking to the banks because it appears that Zelle
01:33:49requires the banks to do the reimbursement. They don't do it themselves, so they direct
01:33:53the banks to reimburse, correct? Again, fraud, scams, these are big problems, but they're across
01:34:02all payment platforms. And I'm just looking at the difference because it's pretty striking. Banks,
01:34:08credit card versus debit card. They reimburse at a much higher percentage for credit card
01:34:14transactions versus debit cards. And then the P2P, peer-to-peer, is much lower.
01:34:24Again, my guess is there's more consumer responsibility the closer you get to
01:34:31peer-to-peer versus a credit card transaction. There's obviously more money made in a credit
01:34:36card transaction than a debit card versus virtually no money being made other than with
01:34:42Venmo and PayPal where they have the compensating balances. But just to throw them out here,
01:34:47debit card for this Bank of America, they reimbursed at a rate of 53 percent versus for
01:34:53Zelle of 17 percent. On the credit card, it's probably close to 80 or 90 percent reimbursement.
01:35:02For JPMorgan Chase, they reimbursed for debit cards about 62.7 percent, about 11 percent for
01:35:08Zelle, and they're probably about 80 percent on credit cards. For this Wells Fargo, very low
01:35:17reimbursement rate on debit cards, 27.4 percent, versus around Zelle, it's 24.6. So that's a real
01:35:26outlier there. So again, I'm just trying to understand the business models. Obviously,
01:35:31consumers like this peer-to-peer. It's growing. And I'm trying to figure out, you know,
01:35:37why if this is such a huge problem. I mean, according to Zelle, less than one-tenth of one
01:35:42percent of transactions are reported as fraud or scams. Again, I can say, you know, any fraud or
01:35:46scam is unacceptable. You can say that. But it's the cost of doing business. It's the cost of using
01:35:51these. And again, we're all concerned in this digital world, you know, what kind of protections
01:35:56do we have? So I have nothing but sympathy. You should not feel embarrassed about these things.
01:36:04You're up against incredibly sophisticated individuals that know how to prey on people's
01:36:08emotions. It's, you know, what should be a regulatory or governmental response to this,
01:36:14is I think what I'm trying to grapple with. And fraud, scams, unauthorized transactions
01:36:21can be a cost of doing business. That is going to be passed on to the consumer. So it's in
01:36:26everybody's best interest to limit this. It's just, you know, what's the best way of putting
01:36:31this thing into, you know, incentivize people who have some ability to track these things and warn
01:36:39consumers and try and prevent these things. I'm not disagreeing with any of the testimony. I'm
01:36:43just trying to grapple with the reality of the situation here. I can't say that I really can
01:36:49target Zelle as the bad actor here in any way, shape, or form. They're all grappling with the
01:36:54same problem. And, you know, none of them reimburse at a hundred percent rate. They
01:36:58have different criteria. So this is, from my standpoint, a relatively simple
01:37:06issue, but kind of a complex problem to solve. So, yeah, Ms. Humphreys.
01:37:13Two things. Get it as close as possible so I can hear.
01:37:17Two things. Let's see now that I'm here. What were they? Why does Wells Fargo want to use Zelle?
01:37:25Well, one thing I read was Wells Fargo likes to use Zelle because it keeps people from using
01:37:30checks, which Wells Fargo then has to process. And therefore, well, it's cheaper for Wells Fargo
01:37:37for people to use Zelle. So there's a financial benefit for Wells Fargo for people to use Zelle.
01:37:43So if Wells Fargo is reaping some financial benefit for us using Zelle, then why isn't
01:37:49Wells Fargo taking some responsibility for that?
01:37:54So they do take responsibility.
01:37:56Not the way I see it.
01:37:56You take it, well, not a hundred percent responsibility. That's what I'm saying.
01:38:03And my other point was, all I think they need to do, you know, I'm a nobody. I'm sitting here
01:38:12with these smart people and you smart people. But it seems to me when I entered Elenis Jimenez
01:38:19into my Zelle contact list and I gave the phone number for Elenis Jimenez,
01:38:26then Zelle attached that information to an account that made my transaction successful.
01:38:36And then they couldn't go find out where Elenis Jimenez and her phone number went.
01:38:43I don't believe, again, I don't know how all this works, but when I contacted them within hours
01:38:50and I said, here are all the phone numbers, the lawyer, Elenis Jimenez, all of that.
01:38:56And they said, oh, yeah, sounds like fraud, but I'm not sure what we're going to do about it.
01:39:01I was incredulous. That can't be. You know, when Google knows that I shopped for shoes
01:39:08on a different device and now I'm on another device and everything I look at is telling
01:39:12me about shoes, if they can track my Google searches, why can't Zelle keep a hold of Elenis
01:39:18Jimenez and her phone number to get my money back? It's infuriating.
01:39:24Which is a very good question, which is why I think we really need to get the banks in here
01:39:28and follow these transaction flows. My guess, my guess, it's only a guess,
01:39:33these are musings by me, you know, not serious questions. But, you know, my guess is that those
01:39:39bank accounts come and go very quickly, they're emptied out very fast and transferred probably
01:39:44into cryptocurrency accounts, part of the problem with cryptocurrency now, and they end up, they
01:39:49become very untraceable very quickly. But, you know, we're able to track cryptocurrency things
01:39:54now, too. So, again, there are pretty sophisticated investigators on this as well.
01:39:59It does depend on the size of the transaction, too, and how much, how much it costs to track
01:40:04down, you know, again, no offense, $2,400 or $3,500 fraud versus a lot of time and effort
01:40:11potentially in those investigations. Again, I'm not flacking or defending the banks here,
01:40:16I'm just trying to figure out what the reality of the situation is, what's the best way to
01:40:19grapple with these problems. Yeah, Ms. Hand. I would say if you could put the reimbursement
01:40:26issue aside for a second, and looking at, for example, credit card practices or practices
01:40:31that the bank would use with your debit card, if there's a suspicious charge or payment, right,
01:40:38I get a, that payment does not go through my credit card, I get a text, phone call, probably
01:40:44an email immediately when that charge tries to pass, right, and so I think the other perspective
01:40:53here, and we had this conversation with the P2P companies when we were doing the evaluation,
01:40:58is are you taking equivalent steps in this real-time scenario to slow down the transaction,
01:41:06to engage the consumer and say, actually, whatever this person's name is, right, that may have been
01:41:13the 20th time that they tried to scam a consumer, is that name on a list somewhere that can get
01:41:19flagged for other consumers, so things like that. Putting my business and accountant's hat on,
01:41:24okay, and it's a huge difference. Credit card companies reap in hundreds of billions of dollars
01:41:31of, you know, the fees, okay. These companies don't do that. They're trying to eke out profits by
01:41:39smaller comps, same balance, that kind of stuff, so the credit card companies, one of the
01:41:43services they offer is this fraud protection. Again, they get so much money on the
01:41:48interchange fees that they can, as a cost of doing business, figure, well, yeah, there's going to be
01:41:51x percent fraud, and no questions asked, we just reimburse the customer without having to spend
01:41:57thousands of dollars trying to investigate a particular fraud. I mean, it's just an economic
01:42:02reality, so again, it's to the banks, with credit cards, it's just a cost of doing business.
01:42:07You know, just looking at the reimbursement on debit cards, they probably don't make as much on
01:42:11debit cards, but this is why I'd like to get the banks in here to get their viewpoint on this and
01:42:16what could we potentially do to try and tighten this up, but again, unfortunately, there are
01:42:20criminals out there, and they're very sophisticated, and they're going to pray no matter what the
01:42:26payment plan is going to be. Senator Johnson, I have a draft letter, which we can send today
01:42:34to those banks, inviting them to come here for hearing in July. I agree with you totally that
01:42:40we ought to have them come in, and I'll give you the draft, so you can have a look at it, but
01:42:47I think your point is very well taken. We need to hear from them, but in the meantime,
01:42:53Mr. Braille, you know, I understand Senator Johnson's point. There's no fee in connection
01:43:01with the use of Zelle that goes to the banks, but there definitely is a business benefit
01:43:09to encouraging and inviting and, in fact, pitching people to use Zelle as they do.
01:43:21To the banks. A benefit to the banks, is there not? There is, yes, sir. And what is that benefit?
01:43:28Well, there are many benefits that the banks derive from Zelle. The ability to make people
01:43:34stay on their websites and look at other services, loans, for example, that they may take,
01:43:40other fee-bearing services they may be interested in. So certainly the banks are making money off
01:43:46of Zelle. While maybe it's not the same economic model as Venmo or Cash App or credit or debit
01:43:53cards, they are certainly making money off of it. There may not be an explicit fee that can be
01:43:59identified in an accounting sense attributed to Zelle, but the reason I have Zelle is it gets
01:44:07some more customers and the customers stay and they use the bank. And it's like any other cost
01:44:14of doing business for them. They may not see a direct flow of money from that service,
01:44:23but it is ancillary and very important to their business. And as part of the cost of doing
01:44:31business, sometimes they reimburse, but three quarters of the time they don't when there are
01:44:37losses. So they avoid the costs, the major costs, when there's fraud, but they have the benefits.
01:44:45And it's not just Zelle, it's P2P platforms generally that provide this kind of benefit
01:44:51to the banks, correct? That's right. These services are not in business to lose money.
01:44:56Ms. Tater, we talked a little bit about the requirements for reimbursement. I'm interested
01:45:03because I may not have closed the loop. Have you seen instances in which Zelle customers have not
01:45:09been repaid by their banks even when indisputably they have an obligation to do so under Regulation
01:45:20E where the customers actually push the button, so to speak?
01:45:27Senator, the cases that I bring in court, in federal court, every single time there is clear
01:45:33evidence that the consumer did not authorize the payment. It is why I sue banks for those
01:45:39transactions. That includes sending money to new participants in the Zelle app where the name is a
01:45:48sequence of random numbers and letters, transactions in the amount of $2,000 twice a day,
01:45:54four days a week. There are other indicators of fraud like IP addresses that don't match an IP
01:46:02address that the consumer is normally transacting business from. So, yes, I'm attempting to hold
01:46:11banks accountable in those very obvious instances of Zelle fraud.
01:46:15What kinds of explanations do they give for failing to provide what they owe?
01:46:21I oftentimes hear and consumers oftentimes hear that you must have participated. You must have
01:46:29left your PIN number available. You must have left your bank account open on a public computer.
01:46:35You must have somehow authorized somebody to do this to you. Or you, in fact, did send the money,
01:46:42even in the face of very clear evidence to the contrary.
01:46:49I'm going to invite anyone who has anything else to share before we close the hearing. You've been
01:46:55very, very helpful. Every one of you has contributed enormously to our investigation.
01:47:00Obviously, it's an ongoing investigation. Hopefully, the banks will cooperate.
01:47:06Zelle has said it wants to cooperate. Other P2P platforms, I think, or hope will as well.
01:47:15And I'm going to ask that victim statements be entered into the record,
01:47:27three of them, 12 news stories and eight university alerts. Universities are now
01:47:33alerting students about the dangers of P2P platforms. That's where we are. That's where
01:47:41we've come to. So thank you all for your testimony. And this record will remain open for 15 days.
01:47:53And the hearing is adjourned.
01:48:03Thank you.

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