What’s New
The Consumer Financial Protection Bureau (CFPB) sued Bank of America, Wells Fargo and JPMorgan Chase on Friday for allegedly failing to protect consumers from fraud on the popular peer-to-peer payment network Zelle.
Why It Matters
Bank of America, Wells Fargo and JPMorgan Chase are three of the nation’s largest banks. Zelle, meanwhile, is one of the most popular peer-to-peer payment networks in the U.S. Zelle has over 143 million users and, according to the CFPB, in the first half of this year, its users transferred $481 billion spanning over 1.7 billion transactions.
The CFPB’s lawsuit claims that hundreds of thousands of consumers filed fraud complaints and most were denied help from the banks. In some cases, consumers who filed complaints were allegedly told to contact the fraudsters directly to recover their money, according to CFPB.
What To Know
The CFPB claims that the banks violated federal consumer financial laws that regulate electronic funds transfers. These laws require banks to conduct “reasonable investigations” when consumers report transaction errors.
Banks Rush To Get Zelle To Market: CFPB
The CFPB alleged in a federal civil complaint that the banks rushed to get Zelle to market without effective safeguards against fraud.
“Shortly after Zelle’s launch, significant problems, including fraud being perpetrated on consumers using Zelle, quickly became apparent. But defendants did not take meaningful action to address these clear defects for years,” the complaint said.
Bank Customers Lost Over $870 Million
The CFPB said in a press release issued Friday, “Customers of the three banks named in today’s lawsuit have lost more than $870 million over the network’s seven-year existence due to these failures.”
Zelle Operator Named In Lawsuit
Early Warning Services, a financial technology and consumer reporting company that operates Zelle, is also named as a defendant in the lawsuit.
The fintech company is owned by seven U.S. banks, including Bank of America, Wells Fargo and JPMorgan Chase. These three banks accounted for 73 percent of activity on Zelle in 2023.
What People Are Saying
CFPB Director Rohit Chopra said in Friday’s press release: “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.”
Bank of America said it strongly disagreed with the lawsuit. It said over 99.95 percent of transactions on Zelle go through without incident and that the lawsuit would add “huge new costs” to banks and credit unions offering the free Zelle service to its customers.
“When a client has an issue, we work directly with them,” Bank of America said.
JPMorgan Chase said in a statement that the CPFB was “overreaching its authority by making banks accountable for criminals.”
Early Warning Services said the lawsuit was “legally and factually flawed.”
“Zelle leads the fight against scams and fraud and has industry-leading reimbursement policies that go above and beyond the law,” the fintech company said.
Wells Fargo declined to comment on the lawsuit when contacted by The Associated Press.
What Happens Next
If the CFPB wins the lawsuit, it could cost these three big banks an unspecified amount of money.
“The CFPB’s lawsuit seeks to halt unlawful conduct, obtain redress for harmed consumers, and obtain a civil money penalty, which would be paid into the CFPB’s victims relief fund, and secure other appropriate relief,” the bureau said in its press release.
This article includes reporting from The Associated Press.
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