Zelle scam fraud: how do they work and how to protect yourself?

Don't be fooled by zelle scams: how they work and how to protect yourself, Free peer-to-peer payment system Zelle is built into more than 1,000 banking apps. It can instantly transfer money from one party to another, making it a great tool for sending money quickly to friends and relatives.

However, the instantaneous nature of payments and the fact that fraudulent payments are often technically authorized by victims make Zelle vulnerable to criminal fraud. The worst Zelle scams can even use puppies to hunt victims.

The Wall Street Journal reported on Nov. 28 that JPMorgan Chase, Wells Fargo and Bank of America -- three of the seven banks that are owned by Zelle parent company Early Warning Services -- "are in advanced talks to create a playbook for returning customers, and each for other illegal transfers,” but no indication of when those protections would come in

Regardless of the system banks develop for fraud reimbursement, you'll be much better off taking a few steps to protect yourself so you never fall victim to a Zelle scam.

Read on to learn how the peer-to-peer payment system Zelle works, how thieves use it to scam customers, how to protect yourself from Zelle scams, and what to do if you fall victim to Zelle fraud.

Zelle scam fraud: how do they work and how to protect yourself?

What is Zelle and how does it work?

Launched in June 2017, Zelle is a peer-to-peer, or P2P, payment service owned by Early Warning Services -- a consortium of major US banks. Zelle is available to over 100 million banking customers (whether they know it or not).

Zelle charges no fees and works with about 1,700 banks and credit unions. In 2021, people sent $490 billion through jail.

Built to compete with other electronic payment services such as PayPal, Venmo and Cash App, Zelle allows banks to handle casual electronic transfers without paying any fees to third parties. Customers whose banks don't support Zelle can connect a debit card to the Zelle app

Zelle allows users to send money to anyone electronically: all you need to transfer funds is the recipient's email address or US phone number. Transactions are instant and irreversible once completed, making Zelle very attractive to criminals.

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What is a Zelle scam?

Most reported Zelle scams consist of pure social engineering: manipulating people through deceptive information and scare tactics. Scammers use false claims and representations to get people to unknowingly authorize money transfers.

A typical scam consists of an email or text message asking the user to confirm a large, fake Zelle payment. When the user replies that they did not authorize the transfer, the scammer follows up with a phone call pretending to represent the bank and spoofing the financial institution's phone number. They proceed with fake instructions to the caller on how to reverse the unauthorized claims, instead of transferring the money to the criminals.

Another popular scam starts with a message claiming that your bank account has been compromised and that you need to take immediate action to fix the problem. If you respond, the scammers follow up with a phone call pretending to be your bank and guiding you through the money transfer process.

In addition to impersonating your bank, scammers can also pose as organizations such as utility companies. A Lorain, Ohio woman faced threats to cut off service from someone posing as her electric company, who then asked her to pay in jail to keep the power on.

How can I protect myself from Zelle scams?

Since most Zelle scams are socially engineered, there are certain steps you can take to avoid them.

Do not respond to unsolicited text messages or emails

This advice holds true for all suspected scams, not just the one involving Zelle. If you get a message that says it's from your bank, but you haven't contacted them first, don't reply. Instead, call your financial institution directly to inquire about your account and any potential security issues.

Assuming there's no problem with your account, you can also notify your bank that you've been phished. If you've given out some personal information because of a phishing attempt, you can work with your bank to protect your account

Look for 'urgent' deadlines or requests for new recipients

If someone says you need to act immediately to solve a financial problem, alarm bells should start ringing. Scammers use scare tactics and a sense of urgency to scare you and make you less likely to think critically. With the utility scams in the category above, users were told they only had 30 minutes to act before their power went out.

If you notice any suspicious behavior from someone claiming to represent your bank, a utility or another organization demanding immediate payment, stop immediately and call the business directly.

Also be wary of requests from any bank, business or utility for new Zelle payments, especially if you've never paid with Zelle before. If you receive any request to pay through Zelle, contact the company directly through their official website or phone number to get more information.

Do not give your 2-factor authentication passcode to anyone

Also known as multifactor authentication or two-factor authentication, 2FA adds an extra layer of security to your account. Each time you sign into your account, you will receive an additional one-time password, usually delivered via email or text message, that lasts 30 to 60 seconds.

Once you've set up 2FA for your banking account, don't give out your one-time passcodes to anyone Criminals pretending to be your bank or utility company can pressure you with a number of fake reasons to tell them your passcode, but real institutions will never ask you for it.

Only use Zelle to transfer to people or businesses you know and trust

If you paid through Zelle, you may not be able to recover money if you were tricked into authorizing a payment by mistake. Although Zelle offers a convenient and easy payment service, limiting its use to people you know personally will reduce your risk of fraud.

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What should I do if I've been scammed by a Zelle scam?

First, immediately contact the financial institution that was part of the transaction. This allows the business to start the investigation as soon as possible. Because of the instant nature of Zelle, you'll want to respond quickly.

According to several local reports, banks were reluctant to cover losses from the Zelle phishing scam, since the transactions were actually authorized by account holders. A number of victims have been refunded in recent times when banks were pressured to do so by news of their scams.

In June 2021, the Consumer Financial Protection Bureau clarified its position on requiring banks to comply with the Electronic Funds Transfer Act of 1978, also known as Regulation E. The CFPB states that "if a third party fraudulently induces a consumer to share account access information," that consumer must receive the same protections as if money were obtained from a stolen debit card or other banking "access device."

A great reason to report your Zelle scam immediately is also included in the EFTA. Consumers are required by law to notify their bank of loss or theft within two business days to be fully protected.

Note that the CFPB's guidance only protects consumers who are unwittingly tricked into transferring money.

If your bank refuses to reimburse you for the Zelle scam, your only recourse (besides taking your story to the local media) is to file a complaint with the CFPB.

Source: https://www.cnet.com/personal-finance/banking/dont-get-fooled-by-zelle-scams-how-they-work-and-how-to-protect-yourself/

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