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The Consumer Financial Protection Bureau sued JPMorgan Chase (JPM+2.57%), Bank of America (BAC+2.17%), and Wells Fargo (WFC+2.47%) on Friday over their handling of fraud on the peer-to-peer payments network Zelle.
The regulatory agency alleged in its lawsuit, filed in U.S. District Court in Arizona, that failures to stop fraud perpetrated through Zelle by some of the nation’s largest banks resulted in millions of dollars in fraud losses for customers.
“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.”
Zelle was created in 2017 by Early Warning Services — a company co-owned by seven major U.S. banks including JPMorgan, Wells Fargo, and Bank of America — to be a competitor to Venmo (PYPL+0.74%) and CashApp (SQ+2.11%). Early Warning was also named in the lawsuit.
“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,” company spokesperson Jane Khodos said in a statement.
Khodos said the lawsuit 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.”
“As a last ditch effort in pursuit of their political agenda, the CFPB is now overreaching its authority by making banks accountable for criminals, even including romance scammers,” a JPMorgan spokesperson said in a statement. “It’s a stunning demonstration of regulation by enforcement, skirting the required rulemaking process.”
“When a client has an issue, we work directly with them,” Naomi Patton, Bank of America spokesperson, said in a statement.
Wells Fargo did not immediately respond to requests for comment.
More than 2,200 banks and credit unions offer access to the Zelle network. In the first half of 2024, Zelle’s 143 million enrolled users sent money 1.7 billion times, making it one of the leading payments platforms in the country.
The lawsuit claims there was “significant fraud” across the Zelle network, and that the company has “failed to take sufficient fraud-prevention actions.” As a result, the CFPB alleges that failure to put in basic safeguards has resulted in hundreds of thousands of complains and over $290 million in fraud losses by Bank of America customers, more than $360 million for Chase clients, and over $220 million for Wells Fargo customers.
“The network was set up in a way that made it easy for bad actors to access the system,” the lawsuit says. “And once those bad actors had access, EWS has failed to take the basic steps to detect or remove them from the network.”
Several banks disclosed in August that the CFPB was probing their handling of customer funds on Zelle. National Consumers League Vice President John Breyault called the scale of fraud on the platform “unacceptably high” in testimony at a hearing in May. It’s estimated that total fraud on Zelle could exceed $1 billion annually by next year.
In recent months, Early Warning emphasized efforts to fight fraud amid regulatory scrutiny of scams in its network. Despite Zelle’s growth in transaction volume last year (which totaled $806 billion), reports of scams and fraud decreased by almost 50%, the company said. According to Early Warning, 99.95% of payments were sent without a report of fraud.
