CFPB sues Chase, BofA and Wells Fargo over “widespread” fraud at Zelle

CFPB sues JPMorgan, Bank of America and Wells Fargo over Zelle
Banks failed to protect consumers, CFPB claims
Lawsuit based on political factors, says Zelle parent

The U.S. Consumer Financial Protection Bureau said on Friday that it had filed a lawsuit against JPMorgan Chase JPM.N , Bank of America BAC.N and Wells Fargo WFC.N for failing to protect consumers from what it said were “widespread “Fraud” on the Zelle payment platform.

The lawsuit was launched as the regulator pursues a bold agenda to advance consumer protections in the final weeks of Joe Biden’s Democratic administration before President-elect Donald Trump overhauls the agency, Reuters reported last month. The moves defy Republicans in Congress, who have called for authorities to halt the legislation.

The CFPB is trying to stop the alleged unlawful practices through Zelle, seek redress and penalties, and seek other remedies for consumers, it said in a statement.

“What they built became a goldmine for criminals,” CFPB Director Rohit Chopra told reporters in a briefing, as it made it easy for fraudsters to raid accounts while providing consumers with inadequate protection or leaving them liable for losses. “These banks broke the law by operating a payment system that facilitated fraud while refusing to assist victims.”

The CFPB said the banks violated federal law by making serious errors, alleging they opened the door to fraudsters, allowed repeat offenders to switch between banks, ignored warning signs that could have prevented fraud and left consumers in the lurch after the fraud.

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The rise in scams and scams on Zelle has caught the attention of U.S. lawmakers, including Democratic Sen. Elizabeth Warren, and regulators concerned about consumer protection.

“The CFPB’s attacks on Zelle are legally and factually flawed, and the timing of this lawsuit appears to be driven by political factors,” said Early Warning Services, the company that operates Zelle and is jointly owned by banks.

Customers of the three banks named in Friday’s lawsuit have lost more than $870 million in the seven years since Zelle was launched, the CFPB said.

Federal regulations require banks to compensate customers for unauthorized payments, such as if their accounts were hacked. However, in some cases banks refused to repay customers who were tricked into making the payments themselves.

The consumer watchdog describes how hundreds of thousands of consumers filed fraud complaints and were mostly denied assistance. Some were even told to contact the scammers directly to get their money back.

CFPB officials said they would continue Zelle’s enforcement actions regardless of the new presidential administration and likely leadership changes at the agency, including the likely departure of Director Rohit Chopra. Billionaire Elon Musk, a close Trump adviser who has been a leader in curbing bureaucracy, has called for the agency to be abolished.

“This is an issue that the CFPB has been addressing for several years, and we make decisions about when to bring an enforcement action based on case-specific assessments of the facts and legal violations,” said CFPB Enforcement Director Eric Halperin, said journalists in response to a question about leadership changes in the new government.

Zelle is a payments network owned by seven banks, including JPMorgan and BofA. The company counts over 143 million American consumers and small businesses as customers.

In 2023, reports of scams and scams fell nearly 50% despite a 27% increase in transaction volume, Early Warning said in a statement, citing its own data.

In November 2023, banks using the payment app began refunding fraud victims to address consumer protection concerns.

The proportion of consumers who received refunds for transactions disputed as fraud fell to 38% in 2023 at JPMorgan, Bank of America and Wells Fargo, according to a U.S. Senate committee report. This figure is down from 62% in 2019.

“As a final effort in pursuing its policy agenda, the CFPB is now exceeding its authority by holding banks accountable for criminals,” a JPMorgan spokesman said in an emailed statement to Reuters. “It is an impressive demonstration of regulation through enforcement that bypasses the required rulemaking process.”

JPMorgan CEO Jamie Dimon has been an outspoken critic of several major U.S. financial regulatory initiatives, including the CFPB, and he has vowed to oppose measures he believes will not make banks safer.

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