Feds are suing Zelle, saying the nation’s largest banks failed to stop fraud

Three major banks and Zelle rushed to launch a peer-to-peer payments network without first ensuring users would be protected from “widespread” fraud, according to a filing Friday by the Consumer Financial Protection Bureau Suit.

Bank of America, JPMorgan Chase and Wells Fargo ignored customer complaints related to Zelle, causing users to lose hundreds of millions of dollars to scams, the regulator claims. Zelle is operated by Early Warning Services, which, along with four other financial institutions, is owned by the three banks named in the CFPB’s lawsuit.

According to the CFPB, bank customers lost more than $870 million in the seven years Zells operated. Early Warning and the three banks named in the lawsuit hastily built the payments network to fend off competing payment apps like Venmo and CashApp without adequately protecting end users, the lawsuit says.

“The country’s largest banks felt threatened by competing apps and rushed to exclude Zelle,” CFPB Director Rohit Chopra said in a statement. “Failed to provide adequate security, Zelle became a goldmine for fraudsters, while victims were often left to fend for themselves.”

Zelle called the CFPB’s allegations “legally and factually flawed,” with a spokesperson also pointing out that the timing of the lawsuit was “based on political factors unrelated to the company.”

JPMorgan also accused the agency of pursuing a “political agenda,” saying the agency was “overstepping its authority by holding banks accountable for criminals, including romance scammers.”

JPMorgan Chase said it prevents nearly $20 billion in fraud attempts each year and that 99.95% of its transactions complete without disputes.

A spokesman for Wells Fargo declined to comment. Bank of America did not immediately respond to a request for comment.

According to the lawsuit, Zelle is offered by more than 2,200 banks and credit unions and has more than 143 million users in the United States. The CFPB found that customers transferred a total of $481 billion while conducting 1.7 billion transactions in the first half of 2024.

Hundreds of thousands of customers filed fraud complaints and Zelle and the three banks refused to support them, the lawsuit says. The lawsuit states that some people were advised to contact those behind the scam to get their money back.

Zelle “has been slow to implement anti-fraud measures, including closing accounts accused of fraud,” Jaret Seiberg, an analyst at TD Cowen Washington Research Group, said in a report, citing the CFPB’s allegations. “It also allowed the registration of emails impersonating legitimate entities, including Zelle itself.”

Since the launch of Zelle in 2017, JPMorgan Chase has received 420,00 customer complaints worth more than $360 million, according to the CFPB; Bank of America heard from 210,000 customers with fraud losses of more than $290 million; and Wells Fargo estimated fraud losses of 280,000 people at $220 million.

In 2023 early warning started refunding the money pressure from the legislature led to an unknown number of fraud victims. At the end of 2022, Senator Elizabeth Warren published a report on this noted increasing cases of fraud and scams The Massachusetts Democrat said there will be incidents on the popular payment app where major banks are typically reluctant to compensate victims.

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