The Consumer Financial Protection Bureau announced that it has sued Bank of America, JPMorgan, Wells Fargo, and the operator of Zelle, Early Warning Services, for failing to protect consumers from widespread fraud. Zelle is America’s most widely available payment network. According to the lawsuit, customers of the three banks have lost more than $870 million over the network’s seven-year existence due to these failures.
The CFPB’s lawsuit describes how hundreds of thousands of consumers filed fraud complaints and were largely denied help, 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 reimburse consumers for fraud and errors as is required by law.
Jane Khodos, a spokesperson for Zelle, said that the CFPB’s arguments are “legally and factually flawed, and the timing of this lawsuit appears to be driven by political factors unrelated to Zelle.”
“Zelle leads the fight against scams and fraud and has industry-leading reimbursement policies that go above and beyond the law,” Khodos said. “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. Zelle is relied upon by 143 million enrolled American consumers and small businesses, and we are fully prepared to defend this meritless lawsuit to ensure their service does not suffer.”
The Alleged Failures and Neglect
According to statement made by CFPB Director Rohit Chopra, this lawsuit results from an investigation that launched in 2021. The investigation found that three of the nation’s largest banks allegedly “rushed to launch a payment system without implementing basic protections for their customers.”
The CFPB alleges widespread consumer losses since Zelle’s 2017 launch due to the platform’s and the banks’ failure to implement appropriate fraud prevention and detection safeguards. The CFPB alleges that Bank of America, JPMorgan Chase, Wells Fargo, and Early Warning Services violated federal law through critical failures including:
- Leaving the door open to scammers: Zelle’s limited identity verification methods have allowed scammers to quickly create accounts and target Zelle users. For example, criminals often exploited Zelle’s design and features to link a victim’s token to the fraudster’s deposit account, which caused payments intended for the consumer’s account to instead flow to the fraudster account.
- Allowing repeat offenders to hop between banks: Early Warning Services and the banks were too slow to restrict and track criminals as they exploited multiple accounts across the network. The banks did not share information about known fraudulent transactions with other banks on the network. As a result, the fraudsters could carry out repeated fraud schemes across multiple institutions before being detected, if they were detected at all.
- Ignoring red flags that could prevent fraud: Despite receiving hundreds of thousands of fraud complaints, the banks failed to use this information to prevent further fraud. They also allegedly violated the Zelle Network’s own rules by not reporting fraud incidents consistently or on time.
- Abandoning consumers after fraud occurred: Despite obligations under the Electronic Fund Transfer Act and Regulation E, the banks failed to properly investigate Zelle customer complaints and take appropriate action for certain types of fraud and errors.
The lawsuit aims reimburse those who suffered financial losses due to the alleged neglect of fraud. It also seeks to impose penalties on the banks and implement measures to prevent similar violations in the future. 
Jacob Horowitz is a contributing editor at Compliance Chief 360°