On Friday, the Consumer Financial Protection Bureau (CFPB) sued four financial companies associated with Zelle. CFPB claim (by using CNBC) accuses the operator of Zelle (Early Warning Services) and the service's three partner banks – JPMorgan Chase, Bank Of America and Wells Fargo – of failing to protect consumers from widespread fraud in the peer-to-peer payment system.
The CFPB reports that customers of these three banks lost more than $870 million during the Zelle crisis. seven years as a payment service. The lawsuit alleges that hundreds of thousands of customers who filed fraud complaints were denied significant assistance and some were told to “contact the scammers directly to get their money back.” (Pro tip: don't do this.)
“The nation's largest banks felt threatened by competing payment apps, so they rushed to shut down Zelle,” CFPB Director Rohit Chopra. wrote in the statement. “Because they failed to put in place adequate protections, Zelle became a goldmine for scammers, often leaving victims to fend for themselves.”
The CFPB says one of the system's loopholes is that its “tokens” (linked U.S. phone numbers or email addresses) can be used and reassigned between different banks. The agency says scammers can take advantage of this by connecting the victim's number or email address to the criminal's deposit account, causing payments intended for the consumer to go to the scammer's account instead.
The lawsuit accuses Zelle and the banks of allowing repeat offenders to move between financial institutions with impunity. “The banks did not share information about known fraudulent transactions with other banks in the network,” the CFPB wrote. “As a result, attackers may be able to carry out repeated fraud schemes across multiple institutions before they are detected, if they are detected at all.”
The CFPB also alleges that the defendant banks failed to heed warning signs to prevent further fraud, report incidents regularly and promptly, or properly investigate customer complaints or take appropriate action.
On Friday, Zelle called the government's lawsuit a political blow that would help criminals and force them to charge. “The CFPB's attack on Zelle is legally and factually flawed, and the timing of this lawsuit appears to be driven by political factors unrelated to Zelle,” Zelle spokeswoman Jane Hodos wrote. statement. “Zelle leads the fight against fraud and fraud and has industry-leading reimbursement policies that go above and beyond the law. The CFPB's misguided attacks will embolden criminals, cost consumers more in fees, stifle small businesses, and make it harder for thousands of community banks and credit unions to compete.”
In September JPMorgan Chase wrote quarterly (via CNBC) that it would consider a countersuit if the CFPB takes action against the bank for its role in Zelle.
Last month Washington Post reported that President-elect Donald Trump and Republicans in Congress plan to limit the CFPB's funding and powers, which is in line with the agenda of large financial institutions. Elon Musk and Vivek Ramaswamy, his “government efficiency” advisers, have said they want to dismantle the agency, which was created in 2011 in response to the 2007-08 financial crisis and subsequent recession.
Killing the agency would require a vote in Congress, which is unlikely to pass given the slim Republican majority. But they could do what Trump did in his first term: appoint a new director to effectively slow down or stop regulatory action. kneecap agency while they are in power.