A federal regulator on Friday sued JPMorgan Chase, Wells Fargo and Bank of America, alleging the banks failed to protect hundreds of thousands of consumers from rampant fraud on the popular Zelle payment network in violation of consumer finance laws.
In the federal civil complaint, the Consumer Financial Protection Bureau alleges that the banks rushed to market the peer-to-peer payment platform without effective safeguards against fraud and then, after consumers complained about scams through the service, largely removed their denied enlightenment.
“Shortly after Zelle launched, significant issues quickly became apparent, including fraud against consumers using Zelle. But for years, Defendants took no meaningful action to address these apparent deficiencies,” the complaint states.
The CFPB alleges that the banks violated federal consumer financial laws regarding the transfer of electric funds, which require banks to conduct “reasonable investigations” when consumers report transaction errors, and violated the agency’s prohibition on unfair acts or practices by failing to take steps to prevent and tackle fraud in the field of electronic payments. Zelle. The agency is asking for an unspecified amount to cover refunds, damages and fines.
“Customers of the three banks named in today’s lawsuit have lost more than $870 million over the network’s seven-year existence as a result of these failures,” the CFPB said.
Also named as a defendant in the lawsuit is Early Warning Services, a fintech company based in Scottsdale, Arizona, that operates Zelle. EWS is owned by seven US banks, including JPMorgan, Wells Fargo and Bank of America. These three banks are the largest financial institutions on the Zelle network and accounted for 73% of activity on Zelle last year.
Bank of America said it strongly disagreed with the lawsuit, which it said would impose “enormous new costs” on banks and credit unions that offer the free Zelle service to customers. According to the report, more than 99.95% of transactions through the Zelle network occur without incident.
“If a customer has an issue, we work directly with them,” the Charlotte, North Carolina-based bank said.
In a statement, New York-based JPMorgan said the CPFB “exceeded its authority by making banks responsible for criminals.”
San Francisco-based Wells Fargo declined to comment on the lawsuit.
Early Warning called the lawsuit “legally and factually flawed.”
“Zelle leads the fight against scams and fraud and has an industry-leading refund policy that goes above and beyond the law,” the company said.
Since its launch in 2017, Zelle has become one of the most widely used peer-to-peer payment networks in the US, with more than 143 million users. According to the CFPB, Zelle users transferred $481 billion through more than 1.7 billion transactions in the first half of 2024.
