Three major banks and Zelle rushed to bring the peer-to-peer payments network to market without ensuring users would have “widespread” fraud protection, an allegation trial Filed Friday by the Consumer Financial Protection Bureau.
The regulatory agency alleges that Bank of America, JPMorgan Chase and Wells Fargo ignored customer complaints related to Zelle, causing users to lose millions of dollars in scams. Zelle is run 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, Zales lost more than $870 million to bank customers in its seven years of operation. Early warning and designated three banks Complaint The lawsuit alleges the payments network was hastily created to outcompete rival payment apps including Venmo and CashApp without adequately protecting end users.
“The nation's biggest banks felt threatened by competing apps, so they rushed to oust Zelle,” CFPB Director Rohit Chopra said in a statement. “By failing to take appropriate security measures, Zelle became a gold mine for fraudsters, while victims were often left to fend for themselves.”
Zelle described the CFPB's allegations as “legally and factually flawed”, with a spokesperson describing the timing of the lawsuit as “motivated by political factors unrelated” to the company.
JPMorgan also accused the agency of pursuing a “political agenda”, saying the agency was “overstepping its authority by holding banks accountable for criminals, even including romance scammers.”
JPMorgan Chase said it prevents approximately $20 billion of fraud attempts each year, and that 99.95% of its transactions complete without disputes.
A Wells Fargo spokesman declined to comment. Bank of America did not immediately respond to a request for comment.
According to the lawsuit, Zelle, offered by more than 2,200 banks and credit unions, has more than 143 million users in the US. The CFPB said customers transferred a total of $481 billion in 1.7 billion transactions during the first half of 2024.
According to the lawsuit, hundreds of thousands of customers filed fraud complaints and were refused assistance by Zelle and the three banks, which said some were advised to contact the people behind the fraud to get their money back. Went.
“Zelle has been slow to implement anti-fraud measures, including shutting down accounts accused of fraud,” Jarrett Seaberg, an analyst at TD Cowen Washington Research Group, said in a report pointing to the CFPB's allegations. “It also allowed the registration of emails that were impersonating legitimate entities, including Zelle.”
According to the CFPB, since Zelle launched in 2017, JPMorgan Chase received 420,00 customer complaints worth more than $360 million; Bank of America heard from 210,000 customers with fraud losses of more than $290 million; And Wells Fargo lost $220 million from fraud committed by 280,000 people.
Early warning in 2023 started returning money An unknown number of victims of fraud amid pressure from lawmakers. In late 2022, Senator Elizabeth Warren released a report Increasing incidents of fraud and scams seen The Massachusetts Democrat said that while the incident was happening on a popular payments app, big banks are typically reluctant to compensate victims.