Feds sue Zelle, alleging that nation’s biggest banks failed to stop fraud
The three major banks and Zelle rushed to bring a peer-to-peer payments network to market without first ensuring users were protected from “widespread” fraud. litigation The Consumer Financial Protection Bureau filed on Friday.
Regulators say Bank of America, JPMorgan Chase and Wells Fargo ignored customer complaints related to Zelle, resulting in users losing hundreds of millions of dollars to fraud. Zelle is operated by Early Warning Services, which is owned by the three banks named in the CFPB lawsuit, as well as four other financial institutions.
According to the CFPB, bank customers lost more than $870 million in Zelle’s seven years of operation. Early warning and three banks named complain The lawsuit alleges that the payments network was hastily created to block rival payment apps, including Venmo and CashApp, without adequately protecting end users.
“The largest banks in the United States felt threatened by competing apps, so they rushed to launch Zelle,” CFPB Director Rohit Chopra said in a statement. “By failing to put in place appropriate safeguards, Zelle has become a gold mine for fraudsters, while often leaving victims to fend for themselves.”
Zeller blasted the CFPB’s charges as “legally and factually flawed,” and a spokesman suggested the timing of the lawsuit was “driven by political factors that have nothing to do with the company.”
JPMorgan also accused the agency of pursuing a “political agenda,” saying it was “overstepping its authority by holding banks accountable to criminals, including romance scammers.”
JPMorgan Chase says it blocks nearly $20 billion in fraud attempts each year and that 99.95% of transactions are completed without disputes.
A Wells Fargo spokesman declined to comment. Bank of America did not immediately respond to a request for comment.
Zelle is offered by more than 2,200 banks and credit unions and has more than 143 million users in the United States, the lawsuit said. The CFPB noted that in the first half of 2024, customers conducted 1.7 billion transactions, transferring a total of $481 billion.
Hundreds of thousands of customers filed fraud complaints, but Zelle and the three banks refused to provide assistance and advised some people to contact the people behind the fraud to get their money back, the lawsuit said.
Zelle “has been slow to implement anti-fraud measures, including closing accounts accused of fraud,” Jaret Seiberg, an analyst at TD Cowen Washington Research Group, said in a note noting the CFPB’s allegations. “It also allows for the registration of emails impersonating legitimate entities, including Zelle itself.”
According to CFPB data, since Zelle launched in 2017, JPMorgan Chase has received 420,000 customer complaints, involving more than $360 million; Bank of America has received letters from 210,000 customers, with fraud losses exceeding $290 million; Wells Fargo Fargo estimates that 280,000 people suffered $220 million in fraud losses.
2023 warning Start refund Under pressure from lawmakers, the number of fraud victims is unknown. In late 2022, Senator Elizabeth Warren issued a report saying Increasing incidents of fraud and scams detected The Massachusetts Democrat said this happens on popular payment apps, and big banks are often reluctant to compensate victims.
