Connect with us

Business

Zelle scams prompt federal probe into whether banks are doing enough to protect customers

Published

on

Zelle scams prompt federal probe into whether banks are doing enough to protect customers

The online-payment platform Zelle is extremely popular with consumers, which helps explain why it’s also become a hit with scammers.

Another reason: Zelle payments can’t be reversed once they’re sent. They’re a nearly instantaneous transfer of cash from your account to someone else’s, and if that someone else is a scammer, you can’t simply stop the payment (like a check) or dispute it (like a credit card).

Now, the federal regulator overseeing financial products is probing whether banks that offer Zelle to their account holders are doing enough to protect them against scams. Two major banks — JPMorgan Chase and Wells Fargo — disclosed in their security filings in the last week that they’d been contacted by the Consumer Financial Protection Bureau.

According to the Wall Street Journal, which reported the filings Wednesday, the CFPB is exploring whether banks are moving quickly enough to shut down scammers’ accounts and whether they’re doing enough to identify and prevent scammers from signing up for accounts in the first place.

The CFPB declined to comment on the story, and none of the banks contacted by The Times would talk about the details of the CFPB’s probe. JPMorgan Chase’s official response, though, was combative, suggesting the bank would fight the regulators if the CFPB demanded significant new protections for consumers.

Advertisement

“The CFPB is fully aware we already go above and beyond what the law requires, reimbursing for all unauthorized transactions and even for certain types of scams, so they should expect to be challenged to ensure their actions stay within the bounds of the law,” a spokesperson for the bank said in a statement. “Our customers love Zelle, among the safest ways to pay people you know and trust, in real time and at no extra cost, and if necessary we will not hesitate to seek assistance from courts to uphold the integrity of how these services are provided.”

Here’s a rundown of the issues and how Zelle users might be affected by the CFPB’s inquiry.

Are scams a problem on Zelle?

A J.D. Power survey this year found that 3% of the people who’d used Zelle said they had lost money to scammers, which was less than the average for peer-to-peer money transfer services such as Venmo, CashApp and PayPal. The chief executive of Early Warning Services, which runs Zelle, told a Senate subcommittee in July that only 0.1% of the transactions on Zelle in 2023 involved a scam or fraud.

But Zelle operates at such a large scale — 120 million users, 2.9 billion transactions and $806 billion transferred in 2023, according to Early Warning Services — that even a tiny percentage of scam and fraud problems translates into a large number of users and dollars.

Scam activity generally is rising fast. According to the Federal Trade Commission, more than 41,000 consumers reported scams involving online-payment apps in the first half of 2024, with losses amounting to $171 million. That’s well over the pace of scams reported in 2023.

Advertisement

Early Warning Services insists that Zelle is bucking the rising tide of cons. From 2022 to 2023, Zelle cut the rate of scams by nearly 50% even as the volume of transactions grew 28%, resulting in less money scammed in 2023 than in 2022, said Ben Chance, the chief fraud risk management officer for Zelle.

The company didn’t disclose the amounts involved, but if 0.1% of the $806 billion transferred in 2023 involved scam or fraud, that would translate to $806 million.

Do Zelle users get reimbursed for scams?

Only in certain cases, and this is where the banks that offer Zelle have drawn the most heat.

If you use Zelle to pay a scammer, banks say, that’s a payment you authorized, so they’re not obliged under law to refund your money. Federal law requires reimbursement only for unauthorized transactions, such as when someone hacks into your account or surreptitiously uses an app on your phone to make payments.

In June 2023, Zelle started requiring banks to reimburse customers who were duped into paying scammers who posed as representatives of the bank, the government or a service provider with whom the customer had an existing business relationship (for example, a phone company). The policy is similar to one Bank of America adopted in 2021.

Advertisement

That change led to banks reimbursing more customers who were scammed on Zelle — according to a Senate report, reimbursements totaled $18.3 million in the last half of 2023 — but 80% to 85% of the consumers who reported being scammed still got none of their money back, the report said.

What do banks and Zelle do to try to stop scams?

The heart of the CFPB’s inquiry appears to be focused on this question.

Chance said that, under Zelle’s rules for participating banks, whenever a consumer reports a scam or fraudulent transaction, the bank has to report that to Zelle, which will in turn inform the receiving bank of the complaint. That’s true even for transfers within the same bank. The receiving bank is then required to conduct a fraud investigation on the recipient and report back to Zelle.

Some banks, such as Bank of America, say they will put a freeze on transfers by a suspected scammer as soon as a report comes in, then investigate and, if the report is substantiated, seize and return the money. But that works only if the scam is reported right away, before the scammer has the chance to withdraw the funds — which many will do immediately, said Iskander Sanchez-Rola, director of innovation at the cybersecurity company Gen.

Plus, the bank has to agree that a scam occurred. Adylia Roman of Los Angeles said she fought in vain with Bank of America for months to recover $2,700 lost from her savings account through Zelle; the bank insisted that the transfer was authorized by her son, who says he did no such thing and had no idea who the recipient was.

Advertisement

If there is a second complaint about an individual committing scams or fraud, Chance said, Zelle will probably suspend that person’s access to the network until an investigation is completed. But Zelle can’t freeze the money in dispute — it’s up to participating banks to decide how to respond to the reports that Zelle forwards.

Early Warning Services also requires banks to take more steps to ensure that customers know the people they’re sending money to and that they understand the risk. Before allowing a transfer to a new recipient, Zelle requires banks to send in-app alerts showing the verified name of the person holding the account where the money is being sent, and then warning that money should be sent only to people the user knows and trusts because the transfer is irrevocable. The user has to accept those terms before the transfer can be completed.

At the same time, Chance said, Zelle sends screening information about the recipient to the sender’s bank, which the bank uses to decide whether the transaction is too risky to approve.

How might consumers get more protection?

One change that could make a difference would be to limit when funds transferred via Zelle are available for withdrawal, as banks do with check deposits. That would give senders time to call off transactions they realize are suspicious.

Anything less than near-instant transfers, however, would probably drive users to other instant-payment services, Sanchez-Rola said.

Advertisement

Banks could also impose more restrictions on how Zelle users add new recipients. Although banks tell consumers that Zelle is designed for sending money to people they know and trust, there’s nothing stopping them from sending money to complete strangers, as long as contact information is available. That openness makes it easier for criminals to pull off their scams.

PayPal and Venmo address this issue through a buyer protection system for goods or services that’s mandatory on PayPal and optional on Venmo. Under this approach, the recipient of a payment has to pay a fee that helps reimburse consumers who are scammed.

Perhaps the biggest issue is making Zelle users more attuned to risks. Sanchez-Rola said that many people assume Zelle is risk-free because they access it through a regulated bank, and because people they know and trust use it for everyday things. So when someone they don’t know asks to be paid via Zelle, they’re not as skeptical as they should be.

“You shouldn’t use these kinds of [payment services] unless you fully trust the person,” he said. “That’s what they were designed for. They are not for getting your concert tickets quickly from some unknown guy.”

Sanchez-Rola suggested that Zelle could send more information about the recipient of a proposed transfer to the sender, displaying any potential red flags before the money is sent. He also recommended that Zelle users employ cybersecurity products that help detect scams and phishing attempts. (Gen owns Norton and Avast, which make cybersecurity products.)

Advertisement

“Having solutions that can help people is important,” he said. “You cannot just fully trust your bank.”

Some consumer advocates are calling for a more sweeping approach, amending the Electronic Fund Transfer Act to require banks to reimburse consumers who are duped into authorizing payments to scammers. Rep. Maxine Waters (D-Los Angeles) and Sens. Elizabeth Warren (D-Mass.) and Richard Blumenthal (D-Conn.) introduced bills in the House and Senate this month to do just that.

Continue Reading
Advertisement
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Business

Boeing sent two astronauts into space. Now NASA says it may need SpaceX to go get them

Published

on

Boeing sent two astronauts into space. Now NASA says it may need SpaceX to go get them

NASA officials conceded Wednesday that the agency might have to rely on SpaceX to return two American astronauts to Earth from the International Space Station due to problems with Boeing’s Starliner spacecraft.

Astronauts Suni Williams and Butch Wilmore were launched on June 5 to the orbiting lab in the Starliner’s first manned trip to space after years of delays. What was expected to be a roughly one-week mission, however, has turned into an open-ended odyssey with the pair stuck on the station for two months as NASA and Boeing officials investigate malfunctions with Starliner’s propulsion system.

The Starliner may still be able to return the astronauts to Earth, but NASA officials said during a news conference that they are developing alternate plans that would have SpaceX’s Crew Dragon spacecraft bring them down. If SpaceX is needed to transport the astronauts, it is possible the return flight wouldn’t occur until February, meaning Wilmore and Williams would have to remain at the space station for six more months.

“Our prime option is to return Butch and Suni on Starliner. However, we have done the requisite planning to make sure we have other options open and so we have been working with SpaceX to ensure they are ready to respond,” said Steve Stich, program manager for NASA’s Commercial Crew Program.

The announcement by NASA is a blow to the troubled aerospace company, as Boeing grapples with an investigation into the cause of a door plug blowing out during a 737 Max 9 flight this year — as well as the continuing repercussions from the two crashes of its 737 Max 8 jets several years ago.

Advertisement

Boeing and SpaceX were given multibillion-dollar contracts in 2014 to develop spacecraft to transport crew and cargo to and from the orbiting space station after the ending of the Space Shuttle program, which forced NASA to rely on Russia’s Soyuz spacecraft to send American astronauts to the station.

Since then, Elon Musk’s Hawthorne company has ferried more than half a dozen crews to the station, whereas the current Starliner mission was its first crewed test flight.

Marco Caceres, an aerospace analyst at Teal Group, said the mission has become a debacle for Boeing as it grapples with Starliner’s myriad problems.

“They are three, four, five years behind SpaceX with this program. The only reason NASA really has been giving Boeing chance after chance after chance is because it really does want to have backup capability so that it never has to rely on the Russians,” he said.

Just last week, Boeing wrote off an additional $125 million in expenses related to the program after previously booking some $1.5 billion in cost overruns.

Advertisement

The June mission had been delayed for weeks after a helium leak in Starliner’s propulsion system was detected on the launch pad, but NASA gave approval for the launch after determining it did not pose a risk to the astronauts and would not prevent the capsule from reaching the space station.

On the ascent to the station, however, the helium leak worsened, and during docking the thrusters that propel the craft in space malfunctioned. NASA said last month that testing at its White Sands Test Facility in New Mexico found that Teflon seals that control the flow of fuel in a valve were one cause of the malfunction.

On Wednesday, officials provided additional detail, saying the seals had swelled during the ground testing, although a test of Starliner’s engines in space on July 11 indicated they were performing to specifications, indicating the Teflon had returned to its original form.

NASA officials have said that Starliner has 10 times more helium than it needs to return Starliner to Earth. The gas is used to pressurize the craft’s propulsion system. But Stich said Wednesday that engineers were analyzing the possibility that on a return flight there would be a simultaneous leak of the helium and a malfunctioning of the thrusters.

“The worst case would be some integrated failure,” Stich said.

Advertisement

He acknowledged there was disagreement over the safety of returning the astronauts on the Starliner.
Last week, Boeing issued a statement that cited all the testing that had been conducted and concluded, “Boeing remains confident in the Starliner spacecraft and its ability to return safely with crew.”

Boeing officials did not attend the news conference, unlike previous NASA updates on the Starliner mission. A decision on whether to return the astronauts on Starliner is expected to be made in the next few weeks, he said, with NASA Administrator Bill Nelson ultimately responsible for the call.

If the agency decides that it is too risky to return the astronauts aboard Starliner, it would bring them down on the next flight of SpaceX’s Crew Dragon capsule. That mission had been scheduled to blast off this month but has been delayed until no earlier than Sept. 24 to give the agency time to make its decision, he said.

Under that scenario, the Crew Dragon would blast off with two crew members and come back with Williams and Wilmore and two other astronauts when it returns sometime in February 2025. The Starliner, meanwhile, would remotely undock and return to Earth without a crew.

The first two test flights of the Starliner in 2019 and 2022 were conducted without a crew. Stich said that returning Starliner this time would only require that the control software be set for an uncrewed mission

Advertisement
Continue Reading

Business

Disney's streaming business is profitable for the first time, but its parks unit lags

Published

on

Disney's streaming business is profitable for the first time, but its parks unit lags

After years of losses totaling billions of dollars, Walt Disney Co.’s overall streaming business has reached profitability for the first time. Third-quarter results, however, were tempered by weakening demand at the company’s key parks unit.

The Burbank media and entertainment giant reported Wednesday that its streaming business — which includes Disney+, Hulu and ESPN+ — took in about $6.4 billion in revenue for its fiscal third quarter, up 15% compared with a year earlier.

The streaming business notched $47 million in operating income, compared with a loss of $512 million a year earlier. During the most recent quarter, ESPN+ helped boost Disney’s streaming business over the profitability hump, at a time when Disney+ and Hulu saw an operating loss of $19 million.

The milestone comes one fiscal quarter earlier than Disney executives had anticipated.

“What we’ve been seeing with streaming is significant success largely driven by the success of our creativity,” chief executive Bob Iger said during a Wednesday morning call with analysts. “We’re bullish about the future of this business.”

Advertisement

Achieving profitability in Disney’s streaming business has been a top priority for Iger, who earlier this year held off activist investor Nelson Peltz in a proxy fight. Among other things, Peltz demanded that Disney show a realistic plan for achieving large margins of profitability in its streaming business. To reach that goal, Iger undertook a wide-ranging cost-cutting effort across the company, which slashed thousands of jobs.

Company executives said product and technology improvements in its streaming services would pay dividends going forward. They mentioned that bundling packages, such as the recent deal Disney reached with Warner Bros. Discovery to offer Disney+, Hulu and Max for one price, has helped reduce subscriber churn, while the company’s early efforts to crack down on password sharing have not faced significant backlash.

Overall, the company generated revenue of $23.1 billion during the fiscal third quarter, up 4% year over year. Earnings, excluding certain items, were $1.39 per share, up from $1.03 a year earlier and higher than analysts’ estimates.

The company’s studios business also contributed to the quarterly results, led by the success of Pixar’s “Inside Out 2.”

Disney’s entertainment division reported revenue of about $10.6 billion, up 4% year over year. Operating income for the segment totaled $1.2 billion, up from $408 million in the previous year. (The interest in “Inside Out 2” also drove viewers to Disney+, as the company said viewers’ desire to watch 2015’s “Inside Out” helped lead to more than 1.3 million sign-ups for the streaming service. Iger said the company is seeing similar trends with the previous “Deadpool” and “Planet of the Apes” movies.)

Advertisement

Revenue for Disney’s sports business, which includes ESPN, increased 5% to about $4.5 billion, though the segment saw operating income of $802 million, down 6%. Domestic ESPN ad revenue rose 17% year over year, but it wasn’t enough to offset the $314-million operating loss from Disney’s Star India business, which saw higher programming and production costs due to the timing of the ICC T20 cricket World Cup.

It was a more muted quarter for the company’s experiences division, which includes its amusement parks and cruise line, as well as merchandise.

The division dominated the company’s financial results in recent fiscal quarters, aided in part by pent-up demand for travel since the pandemic. But for the most recent quarter, the division reported operating income of $2.2 billion, down 3% from last year.

Disney said the decrease in operating income was due to softening consumer demand. Results from the company’s U.S.-based parks decreased “modestly,” though year-over-year attendance was comparable and per-capita spending was “slightly up,” the company said.

The group brought in about $8.4 billion in revenue in the fiscal third quarter, up 2% year over year.

Advertisement

The company expects to see “flat-ish” revenue for its experiences division in the fourth quarter and for several quarters after that, Hugh Johnston, chief financial officer, said on the Wednesday call. Disney cited the Olympics’ effect on attendance at Disneyland Paris, as well as “cyclical softening” in China as factors for fourth-quarter results.

Continue Reading

Business

Google loses major antitrust case over search, declared a monopoly by judge

Published

on

Google loses major antitrust case over search, declared a monopoly by judge

In a major blow to Google, a federal judge on Monday ruled that the tech giant violated antitrust laws by illegally maintaining a monopoly on web searches.

The much-anticipated decision marks a significant victory for federal regulators trying to rein in the power of Big Tech and could send shock waves through the tech world. Other firms, including Apple, Meta and Amazon, also face federal antitrust lawsuits.

“After having carefully considered and weighed the witness testimony and evidence, the court reaches the following conclusion: Google is a monopolist, and it has acted as one to maintain its monopoly,” U.S. District Judge Amit Mehta wrote in his opinion.

The ruling did not include a remedy for Google’s conduct.

Kent Walker, president of Google Global Affairs, said in a statement that the company plans to appeal.

Advertisement

“This decision recognizes that Google offers the best search engine, but concludes that we shouldn’t be allowed to make it easily available,” he said. “As this process continues, we will remain focused on making products that people find helpful and easy to use.”

Regulators alleged that Google maintained a monopoly on web searches by reaching agreements with browser developers, phone manufacturers and wireless carriers to pre-load their products with the Google search engine as the default.

By agreeing to partner with Google, the companies receive a portion of the advertising revenue Google generates through the search process, the ruling said.

In 2021, Google paid out a total of $26.3 billion in revenue share under its contracts with browser developers Apple and Mozilla, major manufacturers of Android devices such as Samsung and Motorola, and U.S. wireless carriers including AT&T and Verizon, according to the ruling.

That amount was Google’s greatest expense that year, the ruling said. That same year, Google earned more than $146 billion in advertising revenue, according to the ruling.

Advertisement

“These distribution deals have forced Google’s rivals to find other ways to reach users,” the ruling said.

The Mountain View-based subsidiary of Alphabet Inc. has increasingly cornered the market for web searching. In 2009, 80% of U.S. web searches went through Google. By 2020, that figure was nearly 90%, according to the ruling. Almost 95% of mobile searches used Google.

Google’s next closest competitor — Microsoft’s Bing — took up just 6% of web searches, the ruling said.

This dominance of the search market caught the attention of antitrust regulators, and by 2020, the U.S. Department of Justice and multiple state attorneys general had filed two separate lawsuits against the tech giant.

During the course of legal proceedings, dozens of witnesses were deposed, including high-ranking tech executives. The bench trial started in September 2023 and lasted for nine weeks. Closing arguments occurred in May.

Advertisement

It’s not yet clear what the ruling will mean for Google, particularly since the company plans to appeal and there will be further proceedings about potential remedies.

“We’re still in the middle of the game, as opposed to the end of the game,” said Colin Kass, a partner in the litigation department at Proskauer and co-head of the firm’s antitrust group.

But if the ruling stands, it could force Google to revisit how it does deals with outside companies for the opportunity to be the default search engine, said Jef Pearlman, clinical professor of law and director of the intellectual property and technology law clinic at the USC Gould School of Law.

“If it stands, this will limit their current approach,” he said.

The ruling is less likely to have an effect on the other pending tech federal antitrust cases, mostly because the Google case focuses so narrowly on the market for web searches, which is not relevant to the other lawsuits, legal experts said.

Advertisement

But it could serve as a warning for artificial intelligence companies, which are starting to make deals with outside companies to use their technology and could run into similar issues as Google did with its default search engine agreements.

Though the AI market is still nascent, “they will be thinking of this as they pen those deals,” Pearlman said.

Continue Reading

Trending