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The Consumer Financial Protection Bureau said Friday it filed a complaint against three of the country’s largest banks and the operator of Zelle, the most widely available peer-to-peer payment system, “for allowing fraud to fester” on that network.
CFPB alleges that, as a result, hundreds of thousands of customers of JPMorgan Chase, Bank of America and Wells Fargo have lost more than $870 million since Zelle launched seven years ago. Zelle disputes that estimate.
The three banks named as defendants in the suit co-own Zelle, along with four other big US banks: Capital One, PNC Bank, Truist and US Bank.
“The nation’s largest banks felt threatened by competing payment apps, so they rushed to put out Zelle,” said CFPB Director Rohit Chopra in a statement. “By their failing to put in place proper safeguards, Zelle became a gold mine for fraudsters, while often leaving victims to fend for themselves.”
CFPB notes that customers who filed fraud complaints “were largely denied assistance, with some being told to contact the fraudsters directly to recover their money.”
What’s more, CFPB says, the entities being sued did not properly investigate complaints or give consumers “legally required reimbursement for fraud and errors.”
CFPB’s suit, filed in the US District Court for the District of Arizona where Zelle operator Early Warning Services is based, specifically alleges among other things that the banks failed to stop transfers when there were indications of fraud and failed to protect its own account owners from using Zelle to perpetrate fraud.
“Defendants’ failures resulted in millions of complaints about Zelle fraud at (JP Morgan Chase, Bank of America and Wells Fargo) alone, including complaints of over $290 million in fraud losses by 210,000 Bank of America customers, over $360 million in fraud losses by 420,000 Chase customers, and over $220 million in fraud losses by 280,000 Wells Fargo customers,” the complaint alleges.
In a press call Friday morning, an agency official said that while more than 2,200 financial institutions use Zelle, the three banks it names in the suit “control the overwhelming majority of activity on Zelle.”
Zelle calls suit ‘meritless,’ challenges loss claim
In response to CFPB’s complaint, Early Warning Services slammed the move, calling the suit “meritless.”
“The CFPB’s attacks on Zelle are legally and factually flawed, and the timing of this lawsuit appears to be driven by political factors unrelated to Zelle,” Jane Khodos, a Zelle spokesperson at EWS, said in a statement.
“Zelle leads the fight against scams and fraud and has industry-leading reimbursement policies that go above and beyond the law. The CFPB’s misguided attacks will embolden criminals, cost consumers more in fees, stifle small businesses and make it harder for thousands of community banks and credit unions to compete,” Khodos added.