A federal regulator filed a lawsuit against JPMorgan Chase, Wells Fargo, and Bank of America on Friday, alleging that the banks violated consumer financial laws by failing to safeguard hundreds of thousands of customers from widespread fraud on the well-known payments network Zelle.
The Consumer Financial Protection Bureau claims in the federal civil complaint that the banks hurried to launch the peer-to-peer payments platform without adequate fraud protections and then mainly refused consumers relief after they complained about being scammed on the platform.
Significant issues, such as fraud against Zelle users, soon surfaced after the company’s inception. However, the complaint claims that defendants failed to take significant steps to remedy these obvious flaws for years.
The CFPB alleges that the banks’ failure to take action to stop and resolve Zelle fraud violated the agency’s prohibition on unfair acts or practices as well as federal consumer financial laws governing electric funds transfers, which require banks to carry out reasonable investigations when customers report transaction errors. To cover refunds, damages, and penalties, the agency is requesting an undisclosed sum of money.
approximately the course of the network’s seven-year existence, customers of the three banks cited in today’s case have lost approximately $870 million as a result of these failures, according to the CFPB.
The lawsuit also names Early Warning Services, a Scottsdale, Arizona-based fintech business that runs Zelle, as a defendant. Seven American banks, including JPMorgan, Wells Fargo, and Bank of America, hold EWS. With 73% of all activity on Zelle last year, those three banks are the biggest financial institutions on the network.
Bank of America stated that it strongly disagreed with the case, claiming that it would result in significant additional costs for banks and credit unions who provide their customers with the free Zelle service. According to the report, over 99.5% of transactions on the Zelle network are completed successfully.
According to the Charlotte, North Carolina-based bank, we deal directly with clients when they have problems.
JPMorgan, based in New York, claimed in a statement that the CPFB was going beyond its bounds by holding banks responsible for criminal activity.
Wells Fargo, situated in San Francisco, chose not to respond to the lawsuit.
The lawsuit was deemed legally and factually defective by Early Warning.
According to the company, Zelle has industry-leading reimbursement standards that go above and above the law and is a leader in the battle against fraud and scams.
With over 143 million users since its 2017 inception, Zelle has grown to become one of the most popular peer-to-peer payment networks in the United States. According to the CFPB, Zelle customers made over 1.7 billion transactions in the first half of 2024, transferring $481 billion.
— The Associated Press’s Alex Veiga
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