Zelle is a person-to-person electronic payment service offered by major US banks as an alternative to non-bank P2P services, such as PayPal or Venmo. Zelle is convenient, safe, secure, and usually free if you have a bank or savings account.
These benefits, combined with Zelle’s near-instantaneous and irreversible transactions, make the service popular not only with consumers, but also with scammers, who allegedly used Zelle to steal thousands of dollars from consumers’ bank accounts.
How does Zelle work?
Zelle is easy to use. To send funds, simply log into your bank’s online banking service or mobile app, access Zelle’s built-in features, then enter the amount you wish to transfer and the phone number or the recipient’s email address in the United States.
Recipients registered with Zelle usually receive the funds within minutes. Recipients who are not registered receive a notification explaining how to collect the funds.
Over 1,000 banks have integrated Zelle into their online or app-based services. If your bank doesn’t have Zelle, you can use the service by downloading the Zelle app and signing up with a debit card.
How do scammers use Zelle?
A typical Zelle scam starts with an unexpected call, email, or text that appears to come from your bank or utility company.
The bank message indicates that your bank is trying to confirm that you have made a Zelle transaction for a specified amount. The message from the utility company indicates that your utility has not received your payment and will be shutting down your power in a short period of time unless you immediately send payment through Zelle.
Phone number spoofing can make these scam calls appear legitimate on your phone’s caller ID.
When you contact the phone number provided to dispute the transaction, your call appears to be connected to your bank or utility company. You will then be asked to make a Zelle transfer, supposedly “to return the funds to your account”. This transaction – authorized by you – will actually transfer your funds to the scammer. If your bank requires an authorization code to complete a transaction, the scammer will ask you for this code.
Zelle can also be used in other types of scams, such as fake romances, cryptocurrency scams, suspiciously cheap concert tickets, or even supposed sales of purebred puppies.
How do you protect yourself from Zelle scammers?
The most effective way to protect yourself from Zelle scams is to never use the service to send money to people you don’t know.
“Consumers can and should continue to use Zelle, but make sure they’re sending the money to the right person,” says Erik M. Baskin, founder and financial planner of Baskin Financial Planning in Cheyenne, Wyoming.
If someone contacts you and asks you to immediately send them funds with Zelle, don’t respond. Instead, call your bank on what you know is a legitimate phone number and ask a bank representative to review recent activity on your account.
Beware of requests from people you don’t know, especially if the situation is presented as “urgent” with a short deadline and frightening consequences. Never share your two-factor authentication code with anyone.
Alex Rezzo, founder and financial planner at Andante Financial, an investment advisory firm in Los Angeles, advises clients to use the recipient’s email address instead of a phone number when sending funds with Zell.
“Typing errors are easier to spot in an email address than in the digits of a phone number,” says Rezzo.
Another trick is to transfer $1 and verbally confirm that your recipient has received payment before sending a large amount. This practice, says Rezzo, “is a good bulwark against opportunities for error.”
What do you do if you have been the victim of a Zelle scam?
If you have been scammed with Zelle, you should contact your bank and report the loss of funds as soon as possible.
Some banks have reportedly refused to offer refunds because federal law protecting consumers from theft of their funds only applies to “unauthorized” transactions.
In December 2021, the Consumer Financial Protection Bureau released guidance to clarify that fraudulent P2P transactions are considered unauthorized because they were initiated by someone other than the consumer and the consumer received no benefit.
The CFPB also said banks cannot consider consumer negligence as a factor or claim that consumers have waived their protections in their bank account agreement.
If you have been scammed with Zelle and your bank refuses to return your funds, you can file a complaint with the CFPBwhich forwards consumer complaints to financial institutions for resolution.
According to Baskin, “Zelle remains one of the most effective ways to send money today. It just needs to be used responsibly and with caution.”