David GardnerFor the Camera

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 set up an account that can pull funds from your bank account to transmit them to others with Venmo accounts. It also can receive payments.

In response to the success of these apps, several of our nation’s largest banks started Zelle. You’ve probably heard of Zelle if you use mobile banking, as many banks and credit unions are partners. But there are some key differences between apps like Venmo and Zelle. While Venmo serves as a digital wallet that stands apart from your bank account, Zelle instead serves as a conduit for sending funds to other Zelle users. It’s not a separate account for your funds like Venmo. Instead, it’s a method to send 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? Where Zelle users can run into trouble is through the sign-up process, and when fraudsters gain access to their Zelle access. Although rare, Zelle users are at risk of having their checking account cleaned out, including overdraft credit, without the account owner knowing that they were a Zelle user.

That’s right. In cases of fraud, Zelle can cost you thousands without you even signing up for the service. Zelle has pushed the enrollment options over to the financial institutions that use its services. Many participating banks and credit unions make it extremely easy to sign up for Zelle without express permission. You can see the potential for problems — your bank can sign you up for a gateway to your checking account that not only can be used to drain your balance but also access overdraft protection.

As you might expect, bank accounts by law must offer protections and recourse against fraud to protect consumers. With Zelle, it becomes a little murky if you’re duped by a fraudster. Stealing from your Zelle account can be as easy as a text supposedly from your bank warning of a falsified Zelle transaction. The fraudster then follows up with a call using caller ID spoofing. The call looks like it’s coming from your bank, but it’s really a thief. They ask you to send money to your own mobile number on Zelle, while meanwhile they already they have linked your phone number to their Zelle account.

The Consumer Financial Protection Bureau has received hundreds of complaints from people who have had their bank accounts drained from Zelle fraud. While individual banks’ policies differ, in many cases you may be out of luck if you were tricked into sending money to another Zelle account, even if you thought the destination account was yours. In response to these complaints, the bureau has recently published a FAQ on its website that states that 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 bureau will match this rhetoric with rules and enforcement.

Regardless of how this plays out, if you don’t want to use Zelle, consider contacting your bank to make sure you affirmatively state that you do not want Zelle access on your account. If you do want to use Zelle, consider following best practices by linking it to an account that does not have a significant balance. The same goes for Venmo and CashApp. Until Zelle and its participating banking institutions by law must give users the same protections afforded to bank account holders, I recommend limiting Zelle use.

David Gardner is a certified financial planner professional at 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 judgment of the author as of the date of publication and are subject to change.

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David Gardner
2022-05-29 13:00:51
Boulder Daily Camera
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