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The US Consumer Financial Protection Bureau has sued JPMorgan Chase, Bank of America and Wells Fargo for allegedly failing to protect customers from fraud on payments platform Zelle.
CFPB director Rohit Chopra accused the three banks, which are among a group of seven that collectively control Zelle operator Early Warning, of rushing to get the payments platform online in the face of competition from other apps such as Venmo and Cash App. Zelle’s operator is also named as a defendant.
The lawsuit escalates the brewing political debate over whether banks should face greater liability when consumers are scammed on payment platforms.
The CFPB accused Zelle and the three banks of having only limited methods to verify identities, allowing bad actors to move between banks, ignoring warnings that could have detected fraud and abandoning customers after they had been scammed.
The CFPB claimed that customers at JPMorgan, BofA and Wells, the three largest US banks by deposits, had lost more than $870mn because of these alleged failures. The three banks received fraud complaints from more than 900,000 customers, the lawsuit alleged.
Zelle criticised the CFPB’s “headline-grabbing” $870mn figure as “misleading”, arguing that some claims are not found to involve actual fraud after investigation. The company said the allegations were “legally and factually flawed”.
A JPMorgan spokesperson referred to the lawsuit as “a last-ditch effort in pursuit of their political agenda” and that the CFPB was “overreaching its authority by making banks accountable for criminals, even including romance scammers”.
BofA said millions of the bank’s customers use Zelle “without incident” and that the bank strongly disagrees with the CFPB’s case, which would “impose huge new costs” on customers and the industry.
Wells had no immediate comment and referred inquiries to Zelle.
The future of any lawsuit by the CFPB is uncertain given that the agency, which has faced calls from some Republicans to be abolished, is set to come under new leadership once Donald Trump is back in the White House. The president-elect has vowed to loosen regulations across a range of sectors.
Zelle said “the timing of this lawsuit appears to be driven by political factors unrelated to Zelle”.
Jaret Seiberg, a financial research analyst at TD Cowen, said the lawsuit “could survive the inauguration, though much will depend upon Trump’s pick for CFPB director”.
Zelle launched in 2017 as a peer-to-peer payments system that can make instant money transfers. However, the speed of transactions has made it a popular tool for potential scammers, who trick customers into sending money, so-called authorised push payment fraud. Schemes include romance scams and the impersonation of government officials or agencies.
Seiberg wrote in a research the banks have a strong defence in the case “as much of the fight is over authorised transactions”.
Early Zelle advertisements from the banks touted the service as safe because “it was backed by the banks so you know it’s secure”.
One of the biggest issues was that users were allowed to sign up for multiple accounts with little verification, the lawsuit alleged. Until 2023, the lawsuit alleged, Zelle regularly allowed “bad actors” to sign up for accounts with phoney emails that allowed fraudsters to impersonate large businesses and government agencies.
Users said they were defrauded by what appeared to be official accounts of one of the three banks or Zelle itself, according to the CFPB.
In other instances, the banks regularly denied refunds to customers even in instances where customers claimed their devices had been stolen and thieves had made unauthorised transfers, according to the CFPB.
Unlike contested debit and credit card transactions, the rules for reimbursements of account-to-account payments are less clearly defined in the US than in other countries. The UK set a precedent earlier this year when it set a new requirement for banks to reimburse victims of these APP scams for up to £85,000.
