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Don't Get Fooled by Zelle Scams: How They Work and How to Protect Yourself

Zelle scams could end up costing Americans $255 million this year.

A person holds a phone with the Zelle logo on it
The peer-to-peer payment service Zelle is owned by a consortium of major banks.
James Martin/CNET

Zelle -- a free peer-to-peer payment system that's already integrated into more than 1,000 banking apps -- continues to be a major vector for scams, and the instantaneous nature of payments can make it hard for victims of fraud to get their money back. Because fraudulent payments are technically authorized by the victims, banks can contend that the transactions are legitimate and sometimes only refund money when stories become public in local news.

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After continued criticism from Massachusetts Sen. Elizabeth Warren, it looks like the banking industry might finally be taking action to protect victims of Zelle fraud. The Wall Street Journal reported Monday that JPMorgan Chase, Wells Fargo and Bank of America -- three of the seven banks that own Zelle parent company Early Warning Services -- are in "advanced discussions to create a playbook for refunding customers and each other for illegitimate transfers."

Regardless of what system the banks develop for fraud reimbursement, you're much better off taking a few steps to protect yourself so that 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 consumers, how to protect yourself from Zelle scams and what to do if you fall prey to Zelle fraud.

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 more than 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 Zelle.

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

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

What happens in a Zelle scam?

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

A common scam involves an email or text message asking a user to confirm a large, fake Zelle payment. When the user replies that they didn't 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 walk the caller through bogus instructions on how to reverse the unauthorized claims that instead actually transfer 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 action immediately to resolve the problem. If you respond, the fraudsters follow up with a phone call, pretending to be your bank and guiding you through the process of transferring money.

Along with masquerading as your bank, scammers might also pose as institutions such as utility companies. A woman in Lorain, Ohio, faced threats of service disconnection from someone posing as her electric company, who then asked her for Zelle payments to keep the power on.

Former Major League Baseball first baseman Keith Hernandez almost fell for the same utility scam. He was targeted by a fraudster claiming to represent Florida Power & Light:

How can I protect myself from Zelle scams?

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

Don't respond to unsolicited text messages or emails

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

Assuming there are no problems with your account, you can also inform your bank that you've been phished. If you've given some personal info out because of the phishing attempt, you can work with your bank to protect your account.

Watch for 'urgent' deadlines or requests from new recipients

If someone says you need to act immediately to resolve a financial problem, alarm bells should start clanging. Scammers use scare tactics and a sense of urgency to make you panic and less likely to think critically. With the utility scams in the section above, users were told they only had 30 minutes to act before their power was shut off.

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

Also be warned of requests from any banks, businesses or utilities for new Zelle payments, especially if you've never paid them via Zelle before. If you receive any requests to pay with Zelle, contact the organization directly through their official website or phone number to get more information.

Never give anyone your two-factor authentication passcode

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

Once you've set up 2FA for your banking accounts, never give out your one-time passcodes to anyone. Criminals pretending to be your bank or utility company may pressure you with lots of bogus reasons for telling them your passcode, but real institutions will never ask you for it.

Use Zelle only for transfers to people or businesses you know and trust

If you make a payment with Zelle, you may not be able to recover the money if you were scammed by mistakenly authorizing the payment. While Zelle provides a convenient and easy payment service, limiting its use to people you know personally will cut down your risk of getting scammed.

Zelle app on a smartphone

Last year, $490 billion was transferred through Zelle.

SOPA Images

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

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

According to many local reports, banks have been reluctant to reimburse losses from Zelle phishing scams, since the transactions were actually approved by the account holders. Several recent victims had money returned only after news reports of their scams put pressure on banks to do so.

In June 2021, the Consumer Financial Protection Bureau clarified its position on banks' required compliance with the Electronic Fund Transfer Act of 1978, also known as Regulation E. The CFPB says that "if a third party fraudulently induces a consumer into sharing account access information," that consumer should receive the same protections as if the money were acquired from a stolen debit card or other banking "access device."

The EFTA also includes a big reason to report your Zelle scam immediately. The law requires consumers to notify their banks of loss or theft within two business days to receive full protection.

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

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

For more on protecting yourself from fraud, see the best identity theft protection and monitoring services and learn about rising scams on social media.