The Consumer Financial Protection Bureau has filed a lawsuit against JPMorgan Chase, Bank of America and Wells Fargo, accusing them of allowing fraud to "fester" on P2P payments platform Zelle.
Zelle is run by Early Warning Services, which is owned by seven of the biggest banks in the US. Launched in 2017, it has proved a huge hit, facilitating $629 billion in transactions in 2022, twice as many as its nearest competitor Venmo.
However, the service has also drawn scrutiny, with Senate Democrats, including Elizabeth Warren, calling on financial regulators to take action to tackle fraud on the platform.
The CFPB suit claims that the banks and Early Warning Services, have failed to protect users from "widespread fraud". It accuses Early Warning Services and the banks of rushing out Zelle to compete with the likes of Venmo and CashApp without implementing effective safeguards for users.
This, says the watchdog, has seen customers of the three banks named lose more than $870 million over the network’s seven-year existence.
The suit describes how hundreds of thousands of consumers filed fraud complaints and were "largely denied" assistance, with some being told to contact the fraudsters directly to recover their money. Bank of America, JPMorgan Chase, and Wells Fargo also allegedly failed to properly investigate complaints or provide consumers with legally required reimbursement for fraud and errors.
“The nation’s largest banks felt threatened by competing payment apps, so they rushed to put out Zelle,” says CFPB director Rohit Chopra. “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 suit is seeking to halt unlawful conduct, obtain redress for harmed consumers, and obtain a civil money penalty, which would be paid into the CFPB’s victims relief fund.
In August, JPMorgan Chase confirmed that it was responding to inquiries from the CFPB regarding Zelle, suggesting it might take its own legal action over the issue.