Federal Lawsuit Challenges Major Banks Over Zelle Fraud Allegations
A recent lawsuit has brought JPMorgan Chase, Wells Fargo, and Bank of America into the legal spotlight, accusing these financial giants of neglecting to shield consumers from extensive fraud on Zelle, a prominent payments platform. The Consumer Financial Protection Bureau (CFPB) has taken legal action against these banks, asserting they violated consumer financial laws.
Early Warning Services, the Scottsdale-based fintech company behind Zelle, is also named in the lawsuit. This company is co-owned by seven major U.S. banks, including the three aforementioned institutions, which collectively account for 73% of Zelle’s activity from the previous year.
In response, Early Warning Services dismissed the lawsuit as “legally and factually flawed,” emphasizing, “Zelle leads the fight against scams and fraud and has industry-leading reimbursement policies that go above and beyond the law.”
The CFPB’s federal complaint argues that the banks hastily launched Zelle without adequate anti-fraud measures. The complaint highlights that despite early warnings of fraud affecting Zelle users, the banks failed to take significant corrective actions for years.
According to the CFPB, the banks’ actions (or lack thereof) breached federal laws governing electronic funds transfers, which mandate banks to conduct “reasonable investigations” on reported transaction errors. The agency is seeking refunds, damages, and penalties, although specific amounts remain unspecified.
The CFPB claims that due to these oversight failures, customers of the implicated banks have incurred losses exceeding $870 million over Zelle’s seven-year history.
Bank of America has voiced strong disagreement with the lawsuit, arguing that it could impose “huge new costs” on financial institutions offering Zelle for free. The bank noted that more than 99.95% of Zelle transactions occur without issues. “When a client has an issue, we work directly with them,” the Charlotte-based bank stated.
JPMorgan, headquartered in New York, criticized the CFPB for “overreaching its authority by making banks accountable for criminals.” Meanwhile, Wells Fargo, based in San Francisco, chose not to comment on the ongoing legal proceedings.
Since its inception in 2017, Zelle has become a widely used peer-to-peer payment network in the United States, boasting over 143 million users. The CFPB reports that during the first half of 2024, Zelle facilitated transactions totaling $481 billion across more than 1.7 billion transactions.
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