JPM, WFC and BAC face a federal lawsuit over fraud involving the Zelle payment app

The US Consumer Financial Protection Bureau (“CFPB”) filed a lawsuit against it on Friday JPMorgan JPM, Bank of America Corp. BAC and Wells Fargo & Co. WFC for failing to protect consumers from widespread fraud at Zelle, the renowned payment network. The lawsuit is also directed against Early Warning Services LLC, the official operator of Zelle.

Launched in 2017, Zelle Network aimed to be the preferred alternative to money transfer giants like Venmo and Cash App. It is owned by seven major banks, including JPM, BAC and WFC.

The app enables near-instant electronic money transfers through the use of “tokens” created by linking email addresses or U.S.-based cell phone numbers. This allows users to create numerous tokens across banks and quickly reallocate between institutions, leaving consumers vulnerable to fraudulent practices.

The CFPB accused the banks of rushing the network’s rollout without effectively implementing consumer protections.

The lawsuit describes how hundreds of thousands of customers sought help and were rejected, while some were told to turn to the scammers to get their lost money back. Additionally, Bank of America, JPMorgan and Wells Fargo allegedly failed to properly investigate the complaints or offer their customers legally required compensation for fraud and errors.

The lawsuit alleges that JPM, WFC and BAC customers have lost more than $870 million due to such sustained outages since Zelle was launched.

Rohit Chopra, director of the CFPB, said: “Feeling threatened by competing payment apps, the country’s largest banks rushed to shut down Zelle. By failing to provide adequate security, Zelle became a goldmine for fraudsters, while victims were often left to fend for themselves.”

The CFPB seeks to stop the alleged unlawful practices, seek redress and penalties, and obtain other remedies.

Early Warning Services stated: “The CFPB’s attacks on Zelle are legally and factually flawed, and the timing of this lawsuit appears to be driven by political factors.” Additionally, citing its data, it added that while transaction volumes in 2023 increased by 27%, but reported scams and frauds decreased by about 50%.

A Bank of America spokesman responded: “We strongly disagree with the CFPB’s efforts to impose huge new costs on the 2,200 banks and credit unions that offer free Zelle service to their customers.”

A JPMorgan spokesperson said: “The CFPB is now exceeding its authority by holding banks accountable for criminals, including romance scammers.” It’s a stunning demonstration of regulation through enforcement, bypassing the required rulemaking process. Instead of pursuing criminals, the CFPB is endangering the value and freedom of Zelle, a trusted payment service loved by our customers.”

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