The three biggest banks in America are being sued by the Consumer Financial Protection Bureau for allegedly failing to safeguard consumers from fraud on Zelle, the payment network they co-own.
The lawsuit claims that over the course of the network’s seven-year existence, Zelle users have lost approximately $870 million as a result of these purported failings. It also targets Early Warning Services LLC, Zelle’s official operator.
According to a statement by CFPB Director Rohit Chopra, the country’s biggest banks hurried to launch Zelle because they felt threatened by rival payment apps. Zelle became a gold mine for scammers by neglecting to implement appropriate precautions, sometimes leaving victims on their own.
Charges include:
- Poor identity verification methods, which have allowed bad actors to quickly create accounts and target Zelle users.
- Allowing repeat offenders to continue to gain access to the platform
- Ignoring and failing to report instances of fraud
- Failing to properly investigate consumer complaints
In addition to obtaining a civil money penalty that would be deposited into the CFPB’s victims relief fund, the CFPB’s lawsuit aims to alter the platform’s functioning.
Zelle’s spokeswoman described the lawsuit as politically motivated and misplaced.
In an emailed response, Zelle spokesperson Jane Khodos stated, “The CFPB’s attacks on Zelle are factually and legally flawed, and the timing of this lawsuit appears to be driven by political factors unrelated to Zelle.” “Zelle leads the fight against scams and fraud and has industry-leading reimbursement policies that go above and beyond the law.”
Similar remarks were made by a JPMorgan representative, who described it as “a last ditch effort in pursuit of their political agenda.”
“The CFPB is now overreaching its authority by making banks accountable for criminals, even including romance scammers,” the bank stated. It’s an impressive example of enforcement-based regulation that avoids the necessary rulemaking procedure. The CFPB is endangering the worth and free nature of Zelle, a reliable payments solution that our consumers adore, rather than pursuing criminals.
A representative for Bank of America emphasized the significance of Zelle for regular consumers.
“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,” William Halldin wrote in a statement delivered by email. “23 million Bank of America clients have embraced Zelle, regularly using it to send money to friends, family and people they trust.”
A Wells Fargo representative declined to respond via email.
Zelle, which was introduced in 2017, enables electronic money transfers. Senate Democrats have already criticized the platform. Sen. Richard Blumenthal, a Democrat from Connecticut, most recently discovered that customers had contested over $372 million in scams and fraud in 2023, with the banks never paying back over three-quarters of the claimed losses.
According to Early Warning’s statement about the CFPB lawsuit, in 2023, complaints of fraud and scams dropped by about 50%, meaning that 99.95% of payments were processed without any fraud or scam reports.
This month, in response to challenges to its survival from the upcoming second Trump administration, the CFPB announced several actions aimed at safeguarding consumers.
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