Feds Sue Banks for ‘Widespread Fraud’ on Zelle and Limited Victim Compensation | Global News Avenue

Zelle and three banks behind one of the largest U.S. payment networks failed to protect users from “widespread fraud,” federal regulators said in a lawsuit filed Friday.

The Consumer Financial Protection Bureau (CFPB) said the network has lost approximately $870 million to fraud since its launch seven years ago and accused Zelle co-owner Bank of America (Buck), JPMorgan Chase (JPMorgan Chase) and Wells Fargo (world financial center) failed to compensate victims of fraud or refund errors as required by law. The watchdog said it had received “hundreds of thousands” of complaints in total, but consumers who submitted complaints had received essentially no help.

Zell disputed the regulators’ claims, calling the lawsuit “meritless” and saying it could cause problems for the 143 million Americans and small businesses that rely on its free services. People who link their email addresses or phone numbers to Zelle can quickly send money to each other from their bank accounts.

But regulators said the network launched with poor fraud protections. When Venmo and CashApp took off, banks and Zelle operator Early Warning Services scrambled to beat the competition. “By failing to put appropriate safeguards in place, Zelle became a gold mine for fraudsters while often leaving victims to fend for themselves,” said CFFB Director Rohit Chopra.

CFFB is seeking damages for fraud victims, unspecified civil penalties and a court order requiring Zelle to cease its violations.

The agency said losses could be reduced if banks share information about scammers with each other and take action before criminals have the opportunity to exploit multiple users. Regulators said that by failing to fully review customer complaints, Zelle’s backers also failed to reflect on its flaws or take meaningful steps to improve them.

The early warning service said Zelle’s reimbursement policy went beyond legal requirements. The network allegedly has a following because it is trustworthy.

“The CFPB’s attack on Zelle was legally and factually flawed,” Zelle spokesperson Jane Khodos said. “The CFPB’s misguided attacks will embolden criminals, impose more costs on consumers, stifle small businesses, and make it harder for thousands of community banks and credit unions to compete.”

Other banks also have stakes in Alert Services, but 73% of Zelle’s activity last year came from Bank of America, JPMorgan Chase and Wells Fargo, the lawsuit said.