A federal regulator sued JPMorgan Chase, Wells Fargo and Bank of America on Friday, alleging the banks failed to protect hundreds of thousands of consumers from rampant fraud on the popular payments network Zelle, in violation of consumer financial laws.
In the federal civil complaintthe Consumer Financial Protection Bureau claims the banks rushed to get the peer-to-peer payments platform to market without effective safeguards against fraud and then, after consumers complained about being scammed on the service, refused relief for them to a great extent.
“Shortly after the launch of Zelle, significant problems, including fraud being perpetrated on consumers using Zelle, quickly became apparent. But defendants did not take meaningful steps to address the deficiencies this has been clear for years,” according to the complaint.
The CFPB alleges that the banks violated federal consumer financial laws governing electronic money transfers, which require banks to conduct “reasonable investigations” when consumers report transaction errors, and the agency's ban on unfair actions or practices by failing to take steps to prevent and address fraud on Zelle. The agency is seeking an unspecified amount of money to pay for refunds, damages and penalties.
“Customers of the three banks named in today's lawsuit have lost more than $870 million over the network's seven-year existence because of these failures,” the CFPB said.
Also named as a defendant in the lawsuit is Early Warning Services, a Scottsdale, Arizona-based fintech company that operates Zelle. EWS is owned by seven US banks, including JPMorgan, Wells Fargo and Bank of America. Those three banks are the largest financial institutions on the Zelle network, accounting for 73% of activity on Zelle last year.
Bank of America said it strongly disagreed with the lawsuit, which it said would add “huge new costs” to banks and credit unions that offer the free Zelle service to clients. It said more than 99.95% of transactions across the Zelle network go through without incident.
“When a client has a problem, we work directly with them,” said the bank in Charlotte, North Carolina.
In a statement, New York-based JPMorgan said the CPFB was “overreaching its authority by holding banks accountable for wrongdoers.”
San Francisco-based Wells Fargo declined to comment on the lawsuit.
Early Warning called the lawsuit “legally and factually flawed.”
“Zelle leads the fight against scams and fraud and has industry-leading refund policies that go above and beyond the law,” the company said.
Since its launch in 2017, Zelle has become one of the most used peer-to-peer payment networks in the United States, with more than 143 million users. In the first half of 2024, Zelle users transferred $481 billion across more than 1.7 billion transactions, according to the CFPB.