Banks are not arguing that Zelle isn't covered by Regulation E. Regulation E talks about liability for "unauthorized transactions". Those are transfers "from a

Banks are not arguing that Zelle isn't covered by Regulation E. Regulation E talks about liability for "unauthorized transactions". Those are transfers "from a consumer's account initiated by a person other than the consumer without actual authority to initiate the transfer". If you initiated the transfer but were misled into doing so or provided the wrong payment information or whatever, it's still an authorized transaction from Regulation E's perspective; so you are still liable for it. The only exception is if you were induced by force to initiate the transfer.