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Politicians want to crack down on payment systems like Zelle. Here’s why.

Peer-to-peer payment networks, like Zelle or Cash App, allow users to send money immediately using phone apps. However, some US senators want better protections for consumers.Bloomberg Creative Photos/Bloomberg

Peer-to-peer payment networks — known as P2Ps — allow you to immediately send money to friends and family using a phone app.

When you link your P2P to a checking account or debit card, the transfers are free. (Fees may apply when linked to a credit card.)

P2Ps like Zelle, Venmo, Cash App, and PayPal became extremely popular as the pandemic dragged on, in part because many people wanted to avoid the physical contact of handing over cash, a check, or a credit card.

Many consumers now use a P2P network because it’s so convenient. Splitting a restaurant tab among friends, for example, is easy when everyone uses their phone to reimburse the one friend who pays the bill.


Consumers happy with the speed and ease of P2P gradually started asking businesses to accept their P2P payments, too.

But quick and easy payment is also what makes P2P a favorite of fraudsters because consumers, once they have authorized a transfer, have no ability to cancel it and little chance of getting a refund from their P2P networks. Other kinds of transfers usually take at least one day to clear.

One P2P network that has attracted a lot of attention lately is Zelle, which is owned by seven of the country’s biggest banks and is now the largest such network. In a recent letter to Zelle, a group of US senators led by Massachusetts’s Elizabeth Warren said it isn’t doing enough to protect consumers.

Here are some things you should know about Zelle and other P2Ps:

Q. What is the concern about Zelle?

A. The main concern has to do with a distinction that Zelle (and other P2Ps) makes between two types of fraud. It says it will cover consumer losses when fraudsters obtain and use a consumer’s access credentials, like usernames and passwords, to steal money.

But it usually won’t cover losses when scammers use deception to trick or scare a consumer into transferring money. So long as it’s the consumer who physically “hits the button” on the transfer, Zelle says it isn’t responsible for the loss.


Q. What is that distinction based on?

A. Federal law says banks and other entities engaged in electronic transfers must reimburse victims for unauthorized transfers, such as in cases of identity theft. When that happens on its platform, Zelle provides full refunds, according to a letter Zelle wrote in reply to questions from Warren and the other senators.

But Zelle doesn’t cover fraudulent transactions it considers to be “authorized and initiated” by the consumer, no matter that the authorization came as a result of a scammer’s ruse. In those cases, Zelle interprets the law to say its participating banks “may” reimburse consumers, but are not mandated to do so, according to Zelle’s reply to the senators.

Q. How important is this distinction?

A. To Warren and the other senators, it’s crucial because it leaves many consumer transactions unprotected. By drawing such a distinction, Zelle “ignores how consumers actually suffer financial loss on Zelle,” leaving only “a narrow set of transactions” as protected, the senators wrote to Zelle this month, their second letter asking questions of Zelle in three months.

Q. What’s an example of a scam deemed outside the protection of the law?

A. Scammers who impersonate a bank representative to trick a bank customer into sending them money via Zelle. Scammers in these schemes often utilize “spoofing,” a technique that allows them to display the bank’s name on the customer’s caller ID. They tell the customer the transfer is needed to clear up some supposedly unauthorized transactions on the customer’s bank account. But it’s a scam and once the money is sent, there’s no way to get it back, no matter how quickly victims realize they’ve been scammed and contact Zelle in an attempt to halt it.


Customers are on the hook because they executed the transfer, no matter that it was under false pretenses.

In a similar vein, scammers sometimes impersonate a landlord or government agency to induce customers to make fraudulent transfers.

Q. What other scams are common?

A. “Romance” scammers develop fake online profiles on dating apps and other social media sites like Facebook and Instagram and then try to strike up an online “relationship.” When they think the time is right, after they have groomed the target, the scammers make an urgent request for money.

Scammers also make fake posts on social media for the sale of concert tickets, pets, and other items, only to disappear after the “sale” is completed on Zelle or other P2P networks.

Q. What do the senators want Zelle to do?

A. In its recent four-page letter, the group of eight senators (all Democrats) cited news media reports to conclude fraud on Zelle is “a widespread problem,” and that it is “imperative” that Zelle “do more to protect consumers.”

In the letter, the senators criticized “the distinction [Zelle] draws between fraud (transactions not authorized by the account owner) and scams (transactions authorized by the account owner, but induced through deception).”

“Given the sheer number of consumers using online payment services such as Zelle and the amount of money at risk, the absence of protective measures is unacceptable,” the letter says.


The senators demanded that Zelle provide data on the frequency of frauds and scams, its policies and procedures, and other information.

Q. What does Zelle say about protecting consumers?

A. It says it has already taken steps to protect consumers, including by sending real-time alerts that ask Zelle users to carefully consider whether they truly trust the person to whom they are about to send money.

Q. Why are the senators focusing on Zelle?

A. Zelle has become by far the country’s most widely used money transfer service. (It is embedded in many banking apps.) Last year, consumers transferred almost $500 billion on Zelle alone, about a 50 percent increase over the previous year.

Got a problem? Send your consumer issue to sean.murphy@globe.com. Follow him on Twitter @spmurphyboston.