PHOENIX (CN) — A federal regulator sued three major U.S. banks on Friday, claiming the institutions failed to protect hundreds of thousands of consumers from rampant fraud on the popular payments network Zelle in violation of federal consumer financial laws.
The Consumer Financial Protection Bureau claims in a federal lawsuit that JPMorgan Chase, Wells Fargo and Bank of America rushed the peer-to-peer payment platform to market without ensuring effective safeguards against fraud. The bureau also claims that the defendants largely denied relief to consumers who were defrauded on Zelle.
“Shortly after Zelle’s launch, significant problems, including fraud being perpetrated on consumers using Zelle, quickly became apparent. But defendants did not take meaningful action to address these clear defects for years,” the bureau says in the complaint, filed in the U.S. District of Arizona.
The bureau claims that the banks violated the Consumer Financial Protection Act and the Electronic Fund Transfer Act, which require banks to take reasonable steps to detect and limit fraud and to conduct reasonable investigations when consumers report transaction errors. The agency is seeking monetary damages “including but not limited to the refund of monies paid.”
“Customers of the three banks named in today’s lawsuit have lost more than $870 million over the network’s seven-year existence due to these failures,” the bureau says in the complaint.
Bank of America denied the accusations in an email to Courthouse News.
“More than 99.95% of transactions across the Zelle network go through without incident,” Bank of America said. “When a client has an issue, we work directly with them. We strongly disagree with the CFPB’s effort to impose huge new costs on the 2,200 banks and credit unions that offer the free Zelle service to clients. Twenty-three million Bank of America clients have embraced Zelle, regularly using it to send money to friends, family and people they trust.”
The bureau also sued Early Warning Services, the financial tech company based in Scottsdale, Arizona, that operates Zelle. Early Warning System is owned by seven U.S. banks, including JPMorgan, Wells Fargo and Bank of America. Those three banks are the largest financial institutions on the Zelle network, accounting for 73% of activity on Zelle last year.
Zelle denounced the lawsuit in a press release of its own.
“The CFPB’s attacks on Zelle are legally and factually flawed, and the timing of this lawsuit appears to be driven by political factors unrelated to Zelle,” spokesperson Jane Khodos said in the release. “Zelle leads the fight against scams 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. Zelle is relied upon by 143 million enrolled American consumers and small businesses, and we are fully prepared to defend this meritless lawsuit to ensure their service does not suffer.”
Since its launch in 2017, Zelle has become one of the most widely used peer-to-peer payment networks in the U.S., 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 bureau.
Zelle says the bureau’s lawsuit will embolden scammers to make false claims against banks and credit unions and remove incentives for consumers to exercise caution when sending money.
“By requiring financial institutions to pay for the actions of criminals, thousands of financial institutions that provide Zelle — including many community and minority-owned banks and credit unions — will be forced to choose between offering Zelle or increasing fees for consumers to move money and pay everyday expenses,” Zelle says in its release. “The CFPB’s attacks will unfairly shift the financial burden of criminal activity to community and minority-owned banks and credit unions — something smaller financial institutions cannot afford.”
From Zelle’s launch to 2023, more than 120,000 Wells Fargo customers complained that they weren’t reimbursed for fraud on Zelle, totaling more than $110 million, according to the bureau. It also says more than 320,000 JPMorgan customers made the same complaints for unreimbursed fraudulent payments totaling more than $251 million and more than 324,000 Bank of America customers complained of unreimbursed fraudulent payments totaling $207 million.
Neither JPMorgan nor Wells Fargo replied to requests for comment.