Senator Urges CFPB to Investigate Handling of Unauthorized Transactions on Peer-to-Peer Payment Platform
Commentary by Samuel Ramer
Senator Richard Blumenthal, Chair of the Senate Permanent Subcommittee on Investigations, called on CFPB Chair Rohit Chopra to investigate dispute resolution practices of Early Warning Services ("EWS"), the operator of peer-to-peer payment platform Zelle.
In the letter, Mr. Blumenthal urged the CFPB to investigate potential violations of the Electronic Fund Transfer Act and Regulation E, which protects consumers when they use electronic fund transfers and requires banks to reimburse customers when they lose funds through an unauthorized transaction. Mr. Blumenthal requested that the CFPB conduct a thorough investigation of the dispute resolution practices of EWS, the three banks that own EWS and any other financial institutions that participate in the Zelle network, as warranted, including, but not limited to, practices of other peer-to-peer payment platforms.
In July 2024, the Subcommittee released a staff report detailing the findings from its investigation into EWS. In the report, the Subcommittee found the percentage of transactions disputed by Zelle users as unauthorized fell from 62 percent in 2019 to 38 percent in 2023. Senator Blumenthal asked the CFPB to investigate "the processes these institutions use to investigate transaction disputes."
Commentary
Senator Blumenthal's entreaty to the CFPB to investigate dispute resolution practices concerning fraud claims from Zelle users should be seen as the latest part of a continuing campaign by legislators to require banks to indemnify Zelle users who are the victims of scams. In his letter, Senator Blumenthal took issue with testimony by the three banks that own EWS and participate in the Zelle Network, describing their responses as "deflections and excuses." The bankers have been pushing back on the CFPB and other government authorities' formal or informal inquiries regarding the same subject as the Senate investigation. Senator Blumenthal's letter, coming at this time, should be viewed as a full-throated encouragement to CFPB to stand up against litigation threats.
Along with the letter comes now legislation. Last week, Senator Blumenthal, Senator Elizabeth Warren and House Committee on Financial Services Ranking Member Maxine Waters introduced legislation building on the foundation laid by the congressional hearings. The "Protecting Consumers from Payment Scams Act" would force financial institutions to be liable for customer losses when consumers are defrauded into sending money to bad actors using payment applications. The prospects for the bill are murky in an election year, but it's quite possible that the bill could make it to a Senate Banking Committee mark-up. This continuing effort is a prime example of how Congressional investigations provide energy, direction and discovery to administrative agencies in order to promote legislation and achieve political goals.