The US Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against JPMorgan Chase, Bank of America, and Wells Fargo for allegedly failing to protect consumers from “widespread fraud” on the Zelle payments platform.
Early Warning Services, which developed and operates Zelle, has also been named in the lawsuit.
It is jointly owned by Bank of America, Capital One, JPMorgan Chase, PNC Bank, Truist, US Bank, and Wells Fargo.
The CFPB claims that since Zelle’s launch in 2017, customers of the three banks have lost over $870m due to inadequate fraud prevention and detection measures.
Zelle facilitates electronic money transfers using linked email addresses or US-based mobile numbers.
According to Reuters, Zelle serves more than 143 million consumers and small businesses.
CFPB director Rohit Chopra said: “The nation’s largest banks felt threatened by competing payment apps, so they rushed to put out Zelle. By their failing to put in place proper safeguards, Zelle became a gold mine for fraudsters, while often leaving victims to fend for themselves.”
The CFPB alleges that Zelle’s limited identity verification methods have enabled fraudulent activities, allowing bad actors to create accounts and target users easily.
Despite receiving numerous fraud complaints, the defendant banks allegedly failed to use this information to prevent further fraud.
The CFPB also accuses them of violating the Zelle Network’s rules by not consistently or promptly reporting fraud incidents.
It further alleges that the banks violated federal law, including the Electronic Fund Transfer Act and Regulation E, by not properly investigating Zelle customer complaints and failing to take appropriate action for certain kinds of fraud and errors.
Early Warning reported that, in 2023, scam and fraud incidents dropped by nearly 50%, even as transaction volumes grew by 27%, according to its data.
In a statement to Reuters, a JPMorgan spokesperson said: “As a last ditch effort in pursuit of their political agenda, the CFPB is now overreaching its authority by making banks accountable for criminals.
“It is a stunning demonstration of regulation by enforcement, skirting the required rulemaking process.”
“We strongly disagree with the CFPB’s effort to impose huge new costs on the 2,200 banks and credit unions that offer the free Zelle service to clients,” a BofA spokesperson was quoted by the news agency as saying.
Wells Fargo refused to comment on the news.
“CFPB sues JPMorgan, BofA, Wells Fargo over failures to prevent Zelle fraud ” was originally created and published by Retail Banker International, a GlobalData owned brand.
