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DennisP

One of the reddit comments says:

> Zelle isn't problematic if you use it for its intended purpose and don't send money to complete strangers

Why does it matter whether you're acquainted with the recipient?

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> Why does it matter whether you're acquainted with the recipient?

Because the transfers can't be canceled/reversed, so there's no recourse if the recipient is scamming you.

This isn't true.

All bank transfers and reversible. Some easier then other, but none are no-recurse, regardless what a low tier customer service agent insists. It may require more effort, and maybe someone above their pay grade, but it is possible.

And Zelle itself, like all electronic bank transfers in the US, is subject to regulation E, which puts the responsibility for unauthorized transfers on the banks (minus $50, a sum that most banks would waive). Zelle themselves mention regulation E on their website: https://www.zellepay.com/financial-education/pay-it-safe/und...

Some institutions erroneously claim that regulation E only protects from hacks: that is, if the scam was offline: someone convinced you to send them money, and you did, and got scammed, then it doesn't fall under regulation E. However, it seems the regulators disagree, and banks and Zelle do fall in line once you sternly write to their compliance department and the regulator reminding them of that.

Sending money to a scammer tends to be an authorized transfer; you made it yourself, intentionally. The Zelle page you said itself states "Because you authorized the payment, you may not be able to get your money back."

I would not hang my hat on a Regulation E complaint in this scenario.

I think you are both sort of correct. The pertinent bit of regulation E[1] appears to hinge on how the fraudulent transfer was done.

It looks like if you as the authorized person transfer money to somebody because you were scammed into doing so, then the regulation does not apply. However, if you were scammed into giving up your, say, debit card number or password, and this was used to to initiate transfers, the regulation does apply. The magic words here are "access device" and "unauthorized".

That being said once you start throwing around laws that the average consumer doesn't know about, on certified letters directed at important people, the bank very well might make you whole rather than fight it even if you have no case.

[1]: https://www.consumerfinance.gov/rules-policy/regulations/100...

The intent (which is how law and regulation are interpreted), as expressed in the regulator comments on the regulation (e.g. 2(m)-4 at the link above), was to make sure the cost, to consumer, of using electronic services, is the same as having a human do the task.
Just imagine calling, or going to the bank to make a similar transfer to a scammy zelle one. I assure you the person you'd be speaking to would have to ask you some very pointed questions about that transfer, and not out of the goodness of their hearts.

banks try to replace humans with software to reduce their costs; reg E basically is "you're only allowed to harm your own workforce doing so, not your customers"

Zelle can write that water are dry, it will not make it so. The customer intended to authorize a non-scammy transfer, but was scammed into authorizing himself into a fraud. As such, regulation E holds.

And if there's something bank fears is someone reminding their regulator the bank may not be following regulation to the letter.

It has been made very clear that regulation E is meant to held banks responsible for misuse of electronic services. For example, if you are coerced to draw money out of an ATM, regulation E holds, even as you authorized the withdrawal with your card and PIN code (it also makes perfect sense: there's assumption the same wouldn't be as easy had you had to use a teller for that withdrawal).

> As such, regulation E holds.

I've cited the exact wording of Regulation E to you elsewhere; it's pretty clear this scenario is not an unauthorized transfer.

It isn't. Law and regulation are interpreted by intent, not by a google search (also see official interpretation 2(m)-4 there)

> Law and regulation are interpreted by intent

Nothing in Regulation E indicates an intent to cover intentional transfers by the account holder to scammers. Quote something specific if you disagree.

> also see official interpretation 2(m)-4 there

None of those scenarios match "I willingly sent money to something that turned out to be a scam". At all.

Each example in that interpretation is that of an unintentional transfer - bank employees doing it, stolen devices, being under duress.

Wire transfers aren't reversible if you're not quick enough to do it before the money transfers out of the country. Home purchases and business wires have both seen over a billion dollars in wire fraud annually, just in the US.

https://www.rocketmortgage.com/learn/mortgage-wire-fraud

https://www.forbes.com/sites/forbesbusinesscouncil/2022/08/3...

Wire transfers are also reversible. It may not be easy or cheap to do so, but it is possible (the Citigroup $500mm mispayment is a great example: the error was done August 2020, and Citigroup are still working to undo it, at an expense to them. I'm certain it'll take them a few more months, and God only knows how many more billable hours at the very least).

In practice for more common fraud cases, we're seeing billions of dollars actually lost. Maybe the expense of retrieval would be higher than the value. Or it could be that the perps simply convert the money to cash, at which point it's gone. That's basically what happened to the $81 million fraudulently transferred from Bangladesh's account with the NY Fed:

https://www.nytimes.com/interactive/2018/05/03/magazine/mone...

This is reversible in the sense that every transaction is reversible in some form. Somebody stole your wallet? Chase them down in the parking lot and reverse the transaction.

Is it still reversible when the money is sent to Turkey or Kazakhstan and tracing and investigating the ultimate destination of where it went (likely to a bunch of bank accounts set up by nominees or stolen identities and ultimately to Binance or the local equivalent) would require almost as much money as the loss?

Yes, if the funds are not taken away from the destination account and if the Turkish/Kazakh bank is cooperative, but not when funds are cleared out of Kazakh/Turkish banks.

They may be cooperative but they may also take 3 months to respond especially if it is a request from another country. At which point you're SOL.

It's not reversible by Zelle, but it is reversible by the bank. Zelle is just an intermediary between banks. Some banks make it easier to get a fraudulent transaction fixed than others.

I like Zelle, as it is not considered a payment network for tax purposes. Second, it enables money transfers between trustworthy parties. Instead of sending a check for $x (less than, say $3k), I can transfer $x right away to a friend/acquaintance.

This is true for most payment apps, to be honest. Buyer protections are limited without using something with transaction fees, like a credit card or PayPal goods and services.

The only time you’re using these apps for payments to unknown 3rd parties is buying on the used market. For local buying, you meet in person, in which case Zelle is fine since you can see the goods. For remote buying (like r/hardwareswap), you’re supposed to use something with protections like PayPal Goods and Services, or /also rely on the platform.

There are phishing scams associated with PayPal too, for example.

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