Zelle operator and major banks face CFPB lawsuit over fraud issues

Investing.com -- The Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against Early Warning Services, the operator of Zelle, and three of its owner banks, Bank of America, JPMorgan Chase (NYSE:JPM ), and Wells Fargo (NYSE:WFC ), accusing them of failing to protect consumers from widespread fraud on Zelle, America's most widely available peer-to-peer payment network.

The CFPB alleges that these entities rushed Zelle to market to compete against growing payment apps such as Venmo and CashApp, without implementing effective consumer safeguards. Throughout Zelle's seven-year existence, customers of the three banks have reportedly lost more than $870 million due to these failures.

According to the CFPB's lawsuit, hundreds of thousands of consumers filed fraud complaints and were largely denied assistance, with some being told to contact the fraudsters directly to recover their money. The banks are also accused of failing to properly investigate complaints or provide consumers with legally required reimbursement for fraud and errors.

In a statement, CFPB Director Rohit Chopra said, "The nation’s largest banks felt threatened by competing payment apps, so they rushed to put out Zelle. By their failing to put in place proper safeguards, Zelle became a gold mine for fraudsters, while often leaving victims to fend for themselves."

Bank of America, JPMorgan Chase, and Wells Fargo, along with Early Warning Services, are accused of violating federal law through critical failures, including limited identity verification methods that allowed scammers to quickly create accounts and target Zelle users, failing to restrict and track criminals as they exploited multiple accounts across the network, and ignoring red flags that could prevent fraud.

The CFPB alleges that despite receiving hundreds of thousands of fraud complaints, the defendant banks have failed to use this information to prevent further fraud. They also allegedly violated the Zelle Network’s own rules by not reporting fraud incidents consistently or on time.

The CFPB is seeking to stop the alleged unlawful practices, secure redress and penalties, and obtain other relief. Under the Consumer Financial Protection Act, the CFPB has the authority to take action against institutions violating consumer financial protection laws, including engaging in unfair, deceptive, or abusive acts and practices.

As of June 30, 2024, Bank of America had over $2.5 trillion in consolidated total assets. JPMorgan Chase, the nation’s largest bank, had over $3.5 trillion in consolidated total assets, and Wells Fargo had $1.9 trillion in consolidated total assets. Early Warning Services, LLC is a financial technology and consumer reporting company based in Scottsdale, Arizona, and is co-owned by seven of the largest banks in the United States.

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Source: Investing.com