WASHINGTON — Senate Democrats led by Sen. Jack Reed, D-R.I., have asked banking regulators to more closely scrutinize Early Warning Services, the company that’s owned by seven of the country’s largest banks and operates Zelle.
The lawmakers — including committee Chairman Sherrod Brown of Ohio as well as Sens. Bob Menendez of New Jersey, Elizabeth Warren of Massachusetts and Mark Warner of Virginia — in a letter Thursday urged the Federal Reserve Board, the Federal Deposit Insurance Corp., the National Credit Union Administration and the Office of the Comptroller of the Currency to review the customer reimbursement and anti-money-laundering practices of banks that participate in the Zelle network.
They also recommended the regulators coordinate their approach to doing so with the Consumer Financial Protection Bureau.
“When banks or credit unions participating in Zelle evade responsibility for reimbursing their customers if they are fraudulently induced to send money to scammers through the app, those customers may lose confidence in their depository institution for offering a product that places their money at risk,” the letter said.
“On a wide scale, such a loss of confidence could weaken a depository institution’s financial condition,” the letter continued. “Additionally, there is risk of unfair, deceptive, or abusive practices if bank or credit union communications lead customers to expectations of safety that are not met.”
The lawmakers also asked the Fed and the OCC to regularly examine Early Warning Services.
“This examination should evaluate safety-and-soundness risks as well as the company’s compliance with consumer protection and AML laws,” the letter said. “If the agencies uncover any unsafe or unsound practices, or uncover any legal violations, those deficiencies must be addressed promptly.”
The Democratic senators also asked that the agencies provide their views on how to close any existing regulatory gaps in overseeing Early Warning Services.