Bloomberg News
The Consumer Financial Protection Bureau sued Zelle and three of the largest banks—Bank of America, JPMorgan Chase, and Wells Fargo — for failing to protect consumers from widespread fraud that the bureau says led to more than $870 million in consumer losses on the bank-owned peer-to-peer payment network.
The CFPB announced a lawsuit against Bank of America, JPMorgan Chase, Wells Fargo, and Early Warning Services — Zelle’s operator — for enabling systemic fraud. The three banks’ customers have lost more than $870 million over the network’s seven-year existence, and even though hundreds of consumers have filed fraud complaints, the banks allegedly failed to properly investigate the fraud complaints and denied assistance.
Though Early Warning Services is owned by seven big banks, the bureau said it sued the three largest because they represent 73% of all Zelle network activity. The CFPB’s
“This is about financial institutions fulfilling their basic obligations to protect customers’ money and help fraud victims recover their losses,” CFPB Director Rohit Chopra said on a call Friday morning with reporters. “These banks broke the law by running a payment system that made fraud easy and then refusing to help the victims. Consumers couldn’t protect themselves, they couldn’t control how the banks ran Zelle and couldn’t reverse unauthorized transfers once they were sent, and had nowhere to turn when the banks denied their fraud claims.”
The CFPB has been investigating payment networks since 2021.
The CFPB’s investigation uncovered two major patterns of fraud in which criminals took over consumers’ accounts. Some criminals would obtain one-time passcodes to take over customer bank accounts and drain funds. Others would physically steal cell phones with banking apps installed and then immediately make unauthorized transfers.
Chopra said that “in case after case, banks routinely denied requests for help, turning a blind eye, even when customers provided clear evidence that criminals had taken over their accounts and that the transactions were unauthorized, including police reports, documenting the crime.”
Some consumers were even told to contact the fraudsters directly in order to recover their money, the bureau said.
Chopra said the largest banks rushed to launch Early Warning Services because of competition from Venmo, Cash App and other payment apps. By 2015 Venmo was processing over $7 billion in payments and “this competitive threat triggered fear in the boardrooms of big banks,” Chopra said.
“Our investigation revealed that the bank’s chaotic rush to market led to serious failures in fraud prevention and customer protection,” Chopra said. “What they built became a gold mine for criminals, a system that made it easy for fraudsters to move money quickly while making it nearly impossible for victims to get their money back.”
