The Consumer Financial Protection Bureau has filed a lawsuit against Early Warning Services, the operator of the Zelle payment network, along with three major U.S. banks: JPMorgan Chase, Bank of America, and Wells Fargo.
The CFPB alleges that these entities failed to implement adequate safeguards against fraud on the Zelle platform, resulting in significant consumer losses.
According to the CFPB, customers of these banks have collectively lost over $870 million due to fraud on Zelle since its inception seven years ago.
Zelle is a peer-to-peer payments network operated by Early Warning Services, a fintech company jointly owned by several major U.S. banks, including JPMorgan Chase, Bank of America, and Wells Fargo. It facilitates instant payments directly between users’ bank accounts, making it a popular alternative to other services like Venmo and Cash App.
“The nation’s largest banks felt threatened by competing payment apps, so they rushed to put out Zelle,” CFPB Director Rohit Chopra said 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.”
The CFPB’s lawsuit against Zelle and its affiliated banks is part of a broader regulatory push by the Biden administration in its final months.
The agency has been active in targeting financial practices it deems harmful to consumers, such as limiting credit card late fees and curbing overdraft charges.
JPMorgan Chase signaled in August that it might pursue legal action against the CFPB if the regulator attempted to penalize the bank for its involvement in the Zelle network.
The CFPB claimed that Zelle’s “limited identity verification methods” has allowed criminals to infiltrate the network, enabling them to divert payments and move between member banks that didn’t share information among themselves.
The CFPB’s lawsuit alleges that banks involved in the Zelle network failed to properly investigate consumer complaints related to fraudulent transactions.
Additionally, the agency claims that these banks did not consistently report fraud activity, further enabling criminals to exploit vulnerabilities in the system.
“The banks failed to fix glaring flaws in their systems even as hundreds of thousands of customers filed complaints about fraud,” Chopra told reporters during a call on Friday. “The banks knew their customers were having their money stolen, but since they weren’t bearing the cost of these losses themselves, they dragged their feet on fixing the problems.”
Zelle said in a statement Friday that it was prepared to defend itself against this “meritless lawsuit.”
“Zelle leads the fight against scams and fraud and has industry-leading reimbursement policies that go above and beyond the law,” said Jane Khodos, an Early Warning Services spokeswoman. “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.”
