CFPB Lawsuit Against Zelle and Major Banks

Investing.com — The Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against Early Warning Services, the operator of Zelle, and three of its owner banks: Bank of America, JPMorgan Chase, and Wells Fargo. The lawsuit accuses them of failing to protect consumers from widespread fraud on Zelle, America’s most widely available peer-to-peer payment network.

The CFPB claims that these entities rushed Zelle to market to compete against growing payment apps like Venmo and CashApp, without implementing effective consumer safeguards. In Zelle's seven-year history, customers of these banks have reportedly lost over $870 million due to these failures.

According to the CFPB's lawsuit, hundreds of thousands of consumers filed fraud complaints but were largely denied assistance. Some were told to contact the fraudsters directly to recover their money. The banks are also accused of failing to properly investigate complaints or provide the legally required reimbursement for fraud and errors.

CFPB Director Rohit Chopra stated, "The nation’s largest banks felt threatened by competing payment apps, so they rushed to put out Zelle. 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 lawsuit alleges critical failures by Bank of America, JPMorgan Chase, Wells Fargo, and Early Warning Services, including limited identity verification methods that enabled scammers to create accounts quickly and exploit Zelle users. The banks reportedly ignored red flags that could have prevented fraud and failed to use fraud complaints to prevent further incidents. They allegedly violated the Zelle Network’s own rules by not reporting fraud incidents consistently or on time.

The CFPB aims to stop these unlawful practices, secure redress and penalties, and obtain other relief. Under the Consumer Financial Protection Act, they have the authority to take action against institutions violating consumer financial protection laws, including engaging in unfair and deceptive practices.

As of June 30, 2024, Bank of America had over $2.5 trillion in consolidated total assets, JPMorgan Chase had over $3.5 trillion, and Wells Fargo had $1.9 trillion. Early Warning Services, LLC is a financial technology and consumer reporting company based in Scottsdale, Arizona, co-owned by seven of the largest banks in the United States.

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