Consumer Financial Protection Bureau files lawsuit against Zelle, banks over fraud

Consumer Financial Protection Bureau lawsuit overview: 

• Who: The Consumer Financial Protection Bureau filed a lawsuit against Zelle’s operator and three of the nation’s largest banks.
• Why: The CFPB alleges the banks failed to protect their customers from fraud on the Zelle platform.
• Where: The Consumer Financial Protection Bureau lawsuit was filed in a California federal court.

The Consumer Financial Protection Bureau filed a lawsuit against Zelle’s operator and three of the nation’s largest banks—Bank of America, JPMorgan Chase and Wells Fargo—alleging they failed to protect consumers from rampant fraud on the peer-to-peer payment platform. 

The CFPB filed the lawsuit against  Early Warning Services and the banks Dec. 20 in a California federal court and announced the move in a press release.

Bank of America, JPMorgan Chase and Wells Fargo jointly own Early Warning Services alongside other major financial institutions. Zelle allows users to send money instantly using email addresses or mobile numbers, but the CFPB alleges its rapid transfer system and token-based features leave consumers particularly vulnerable to scams and Zelle fraud.

According to the Consumer Financial Protection Bureau lawsuit, the companies rushed Zelle to market without implementing proper safeguards, resulting in customer losses exceeding $870 million since its launch in 2017.

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

The CFPB alleges Zelle’s limited identity verification processes and failure to share fraud-related data among member banks created a haven for scammers.

It says fraudsters exploited Zelle’s design to reroute payments to their accounts and carried out repeated schemes across multiple institutions with little resistance. The CFPB also alleges the banks failed to investigate fraud complaints adequately or reimburse victims in violation of federal law.

CFPB says banks ignored multiple warnings of rampant fraud

Early Warning Services and the banks allegedly ignored red flags raised by hundreds of thousands of consumer complaints and failed to enforce Zelle network rules that mandate timely reporting of fraud incidents, the Zelle fraud lawsuit claims. In many cases, Zell reportedly advised customers to contact fraudsters directly to recover lost funds.

The CFPB seeks to halt the alleged misconduct, secure restitution for Zelle fraud victims and impose penalties on the banks.

“Companies need to take responsibility for the arbitration agreements they impose and the safeguards they promise,” Chopra says.

In 2022, bank customers filed a slew of class action lawsuits against Capital One, Bank of America, Wells Fargo, Navy Federal Credit Union and Zelle, claiming the financial institutions did not do enough to protect them from fraudulent activity on Zelle’s digital peer-to-peer payment platform. 

What do you think of this Consumer Financial Protection Bureau lawsuit? Let us know in the comments! 

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