Your money may be at risk with Zelle
It’s hard for many of us to imagine a life before payment apps. Whether it’s paying the babysitter or splitting a check with your friends, it’s hard to beat the convenience of apps like Venmo and CashApp. Most know that with Venmo, you create an account that can withdraw funds from your bank account to pass on to others with Venmo accounts. He can also receive payments.
In response to the success of these applications, several of the largest banks in our country have launched Zelle. You’ve probably heard of Zelle if you use mobile banking, as many banks and credit unions are partners. But there are key differences between apps like Venmo and Zelle. While Venmo serves as a digital wallet that is distinct from your bank account, Zelle instead serves as a conduit to send funds to other Zelle users. It is not a separate account for your funds like Venmo. Instead, it’s a method for sending funds to others using your checking account.
This may seem like a trivial distinction. After all, who cares whether an account is a digital wallet like Venmo or a conduit like Zelle? Zelle users may encounter problems during the registration process and when fraudsters gain access to their Zelle access. Although rare, Zelle users risk having their checking account cleared, including overdrawn credit, without the account owner knowing that they were a Zelle user.
It’s true. If fraudulent, Zelle can cost you thousands without even signing up for the service. Zelle has pushed sign-up options to financial institutions that use its services. Many participating banks and credit unions make it easy to sign up for Zelle without express permission. You can see the potential for trouble – your bank can sign you up for a gateway to your checking account which can not only be used to empty your balance, but also access overdraft protection.
As you’d expect, bank accounts are required by law to provide fraud protections and remedies to protect consumers. With Zelle, it gets a little murky if you get duped by a scammer. Stealing from your Zelle account can be as simple as a text message supposedly from your bank warning of a tampered Zelle transaction. The fraudster then follows up with a call using caller ID spoofing. The call appears to be from your bank, but it’s actually a thief. They ask you to send money to your own mobile number on Zelle, while in the meantime they have already linked your phone number to their Zelle account.
The Consumer Financial Protection Bureau has received hundreds of complaints from people whose bank accounts have been emptied of the Zelle fraud. Although individual bank policies differ, in many cases you may be out of luck if you were tricked into sending money to another Zelle account, even though you thought the destination account was the your. In response to these complaints, the bureau recently posted an FAQ on its website that says peer-to-peer payment providers, including Zelle, are subject to many of the consumer protections in place for a traditional bank account. It remains to be seen whether the office will match this rhetoric with rules and enforcement.
Whichever way it goes, if you don’t want to use Zelle, consider contacting your bank to make sure you affirmatively state that you don’t want access to Zelle on your account. If you want to use Zelle, consider following best practices by linking it to an account that doesn’t have a significant balance. The same goes for Venmo and CashApp. Until Zelle and its participating banking institutions are required by law to provide users with the same protections afforded to bank account holders, I recommend limiting the use of Zelle.
David Gardner is a Certified Professional Financial Planner with Mercer Advisors practicing in Boulder County. The opinions expressed by the author are his own and are not intended to serve as specific financial, accounting or tax advice. They reflect the author’s judgment at the date of publication and are subject to change.