Fraud is a growing issue on payment transfer app Zelle, but it's unclear who holds the blame. Consumers tricked into sending money to misrepresented accounts say the banks should make them whole, but the banks say it's on the consumer not to authorize the fraudulent payments in the first place.

Zelle was introduced in 2017 and is used by more than 30 major U.S. banks and nearly 1,500 entities total to facilitate peer-to-peer mobile payments. The platform is operated by Early Warning Services, a company that was co-founded and is now co-owned by Bank of America (BAC  ), Capital One (COF  ), JPMorgan Chase (JPM  ), PNC (PNC  ), Truist (TFC  ), U.S. Bank (USB  ), and Wells Fargo (WFC  ).

In 2021 alone, $490 billion was sent through Zelle, compared to Venmo's (PYPL  ) $230 billion.

Zelle stands out amongst the crowd of payment apps thanks to the speed of the transfers involved. While other apps can take days to complete a payment, Zelle allows fraudsters to quickly take large amounts of money from targets, making it much harder if not impossible for consumers and the banks themselves to reverse the transaction.

One man, Justin Faunce, told The New York Times his story of being tricked by a scammer claiming to be a representative with his bank, Wells Fargo. Faunce sent the impersonator $500, but quickly identified and alerted the bank of the fraud.

Bank representatives told Faunce that these scams are common on Zelle, that only losing $500 was "actually really good", and that "many people were getting hit for thousands of dollars."

"It was clearly fraud," Faunce said. "This wasn't my fault, so why isn't the bank doing the right thing here?"

Wells Fargo told Faunce that the transaction isn't considered fraud because he authorized the transfer himself, supposedly meaning refunding the money isn't the bank's responsibility.

There are reasonable arguments in favor of the banks' perspective. While these transactions may seem like clear examples of fraud, the federal laws requiring banks to refund customers only cover "unauthorized" payments. Guidance issued by the Consumer Financial Protection Bureau last year stated that banks are required to reimburse payments that are "initiated by a person other than the consumer without actual authority to initiate the transfer."

However, consumers argue that the transactions should be considered unauthorized because of the misrepresentation involved, even when the consumer is the one to authorize the payment. Consumers claiming that the banks should be liable for these fraudulent payments also point to the fact that Zelle is owned by the banks.

"It's like the banks have colluded with the sleazebags on the street to be able to steal," Bruce Barth, another fraud victim, told NYT.

"I filed grievances with every agency I could get my hands on, locally and nationally," he continued. "Every response I got was useless."

Barth was in the hospital with COVID-19 when his phone was stolen from his room. While the bank, Bank of America, reimbursed Barth for transactions made with his stolen cards, three Zelle transfers totaling $2,500 were not covered. The bank argued that the transactions were authorized by a phone that was previously associated with the account, despite the fact that the phone had been stolen.

After the NYT reached out to Bank of America regarding Barth's case, the Zelle transactions were refunded. A spokesperson said the reimbursement had been approved due to "new information" the bank received in February.

Meanwhile, former Zelle executives say that the banks should do more to warn consumers against authorizing these transactions. The banks say they are taking the fraud issue seriously, but the platform is still rife with scams.