A federal regulator sued JPMorgan Chase, Wells Fargo and Bank of America on Friday, alleging that 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 contends that banks rushed to bring the peer-to-peer payments platform to market without effective safeguards against fraud, and then, after consumers complained of being defrauded by the service, largely denied them relief.
“Shortly after Zelle’s launch, significant problems quickly became apparent, including fraud being perpetrated on consumers using Zelle. But Defendants did not take meaningful action to address these obvious flaws for years,” according to the complaint.
The CFPB alleges that the banks violated federal consumer financial laws governing electrical money transfers, which require banks to conduct “reasonable investigations” when consumers report errors in transactions, and the agency’s prohibition on unfair acts or practices by failing to take steps to prevent and address wire fraud. Zeal. The agency is seeking an unspecified amount of money to cover refunds, damages and fines.
“Customers of the three banks named in today’s lawsuit have lost more than $870 million over the seven years of the network’s existence due to these failures,” the CFPB said.
Also named as a defendant in the lawsuit is Early Waring Services, a financial technology company based in Scottsdale, Arizona, which operates Zelle. EWS is owned by seven US banks, including JPMorgan, Wells Fargo and Bank of America. These 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 Zelle’s free service to customers. It said that more than 99.95% of transactions through the Zelle network occur without any incident.
“When a customer has a problem, we work directly with them,” the Charlotte, North Carolina-based bank said.
In a statement, New York-based JPMorgan said CPFB was “exceeding its authority by holding banks accountable to criminals.”
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 scams and has industry-leading payment policies that go beyond the law,” the company said.
Since its launch in 2017, Zelle has become one of the most widely 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.