Three major banks and Zelle rushed to market peer-to-peer payment networks without first ensuring users would be protected from “pervasive” fraud, according to a lawsuit filed Friday by the Consumer Financial Protection Bureau. It is said that
Bank of America, JPMorgan Chase & Co. and Wells Fargo ignored customer complaints about Zelle, and users lost hundreds of millions of dollars to fraud, regulators allege. Zelle is operated by Early Warning Services, which is owned by the three banks and four other financial institutions named in the CFPB lawsuit.
According to the CFPB, bank customers suffered losses of more than $870 million in Zelle’s first seven years of operation. Early Warning and the three banks named in the complaint rushed to build payment networks to fend off competing payment apps such as Venmo and CashApp without adequately protecting end users, the complaint alleges. are.
“The nation’s largest banks rushed to implement Zelle because they felt threatened by competing apps,” CFPB Director Rohit Chopra said in a statement. “By not taking proper safeguards, Zelle became a gold mine for scammers, while often leaving victims to fend for themselves.”
Zell blasted the CFPB’s charges as “legally and factually flawed,” and a spokesperson also suggested the timing of the lawsuit was “driven by political factors” unrelated to the company. did.
A Zelle spokesperson said of the CFPB’s more than $870 million in losses, “Many reported fraud claims are not investigated and found to involve actual fraud. Therefore, the CFPB’s headline numbers are misleading.”
JPMorgan also said the agency was “exceeding its authority by holding banks accountable for criminals, including romance scammers,” and accused the agency of pursuing “political objectives.”
JPMorgan Chase said it prevents nearly $20 billion in fraud each year and that 99.95% of transactions are completed without dispute.
A Wells Fargo spokeswoman declined to comment. Bank of America did not respond to a request for comment.
Zelle is offered by more than 2,200 banks and credit unions and has more than 143 million users in the United States, according to the complaint. According to the CFPB, customers made 1.7 billion transactions and transferred a total of $481 billion in the first half of 2024.
According to the complaint, hundreds of thousands of customers filed fraud complaints but were refused assistance by Zelle and three banks, and some were encouraged to contact the fraud masterminds to get their money back. It is written that.
Jarrett Seiberg, an analyst at TD Cowen Washington Research Group, said in a report that Zell “has been slow to implement anti-fraud measures, including the closure of accounts accused of fraud” by the CFPB. We noted the allegations and stated them in our report. “We also allowed email registrations impersonating legitimate organizations, including Zelle itself.”
Since launching Zelle in 2017, JPMorgan Chase has received 420,000 customer complaints worth more than $360 million, according to the CFPB. Bank of America heard from 210,000 customers who suffered fraud of more than $290 million. Wells Fargo tallied $220 million in fraud losses from 280,000 people.
“These problematic and alleged practices need to be addressed by all parties as soon as possible,” said Mike Litt, director of consumer campaigns at consumer advocacy group US PIRG. “In an increasingly cashless era, it is critical that we have a digital financial system that people can trust and use without fear of losing money.”
2023 early warning started refunding money An undisclosed number of victims of fraud amid pressure from lawmakers. At the end of 2022, Senator Elizabeth Warren released the following report: It turns out that fraud and fraudulent incidents are increasing. The Massachusetts Democratic Party said the incident occurred on a popular payment app, and major banks are typically reluctant to compensate victims.
