The United States Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against JPMorgan Chase, Bank of America and Wells Fargo for failing to protect consumers from “widespread fraud” on the payment platform Zelle.
The lawsuit, which was filed Friday, comes as observers are pushing ahead with bold proposals in the final weeks of President Joe Biden's Democratic administration to improve consumer protections ahead of Republican President-elect Donald Trump's overhaul of the agency. This is an insult to congressional Republicans, who have called on corporations to stop making laws.
The CFPB wants to stop illegal practices through Zelle, protect against penalties, and find other relief for consumers, it said in a statement.
“What they built became a gold mine for criminals,” making it easy for fraudsters to drain accounts while providing enough protection for consumers or putting them out of business, CFPB Director Rohit Chopra told reporters at a briefing. “These banks broke the law by operating a payment system that made fraud easier while refusing to help victims.”
The CFPB said the banks violated federal law due to critical failures, saying they left the door open to fraudsters, allowed repeat offenders to jump between banks, ignored red flags that could have prevented fraud and left consumers in the wake of fraud.
Zelle is a payment system owned by seven banks, including JPMorgan and Bank of America. It has more than 143 million American consumers and small businesses as customers.
The number of scams and scams on Zelle has attracted attention from US lawmakers, including Democratic Senator Elizabeth Warren and regulators concerned about consumer protection.
“The CFPB's attack on Zelle is flawed in law and fact, and the timing of this case appears to be politically motivated,” said Early Warning Services, a company that operates Zelle and deals with banks.
Customers of the three banks named in Friday's lawsuit lost more than $870m in the seven years since Zelle was launched, the CFPB said.
'Breaking the law'
Federal law requires banks to reimburse customers for unauthorized payments, for example if their accounts have been hacked. But in some cases, banks refuse to reimburse customers who have been tricked into paying themselves.
Consumer watchdogs described how hundreds of thousands of consumers complained about fraud and were mostly denied help while others were told to contact fraudsters to get their money back.
CFPB officials have said they will continue Zelle's work despite the new president's administration and leadership changes at the agency, including Chopra's departure. Billionaire Elon Musk, a close adviser to Trump who is leading the effort to tackle the administration, has called for the agency to end.
“This is an issue that the CFPB has been monitoring for several years, and we make decisions about when to act based on the facts and the violations,” said Eric Halperin, director of the CFPB. , he told reporters in response to a question about leadership changes in the incoming administration.
In 2023, despite a 27 percent increase, fraud and fraud reports dropped by nearly 50 percent, Early Warning said in a statement, citing the incident.
In November 2023, banks on the payment program began issuing refunds to fraud victims to address consumer safety concerns.
The number of consumer refunds due to fraud fell by 38 percent in 2023 across JPMorgan, Bank of America and Wells Fargo, according to a US Senate committee report. This was down from 62 percent in 2019.
“As a last-ditch effort to pursue their political agenda, the CFPB is now overreaching its powers by holding banks accountable to criminals,” JPMorgan said in an emailed statement to Reuters. “It's a wonderful display of law enforcement, due process.”
The CEO of JPMorgan, Jamie Dimon, has been a strong critic of a number of financial regulation measures in the US, including that of the CFPB, and he has promised to challenge what he said will not make banks safer.
“We strongly disagree with the CFPB's efforts to impose new fees on the 2,200 banks and credit unions that offer free Zelle services to customers,” a Bank of America spokeswoman said.
Wells Fargo declined to comment.
JPMorgan and Bank of America both signed off on filings this year that they may sue the CFPB over the agency's investigation into Zelle. Wells Fargo disclosed that regulators have been investigating its handling of customer disputes in connection with Zelle.