The CFPB has initiated a lawsuit against Early Warning Services, the operator of Zelle, and three major U.S. banks—Bank of America, JPMorgan Chase, and Wells Fargo—for their failure to implement effective fraud protections.
This legal action comes in response to extensive consumer losses, exceeding $870m, attributed to fraud on the Zelle network since its inception in 2017. The lawsuit details the banks’ inadequacies in handling fraud complaints, often advising victims to directly contact fraudsters to recover lost funds. These institutions are also accused of neglecting to investigate these complaints adequately or provide the necessary reimbursements as mandated by law.
Early Warning Services, responsible for Zelle’s operations, is jointly owned by several of the nation’s largest banks. Zelle is popular for its instant electronic money transfers but has been critiqued for its minimal identity verification processes that have left users vulnerable to scams.
The CFPB’s charges include the banks’ failures to restrict fraudulent activities, properly share critical information on fraud across the network, and adhere to the network’s own rules regarding the timely reporting of fraud incidents. These alleged oversights have enabled fraudsters to exploit the system across multiple banks, compounding the risks and losses to consumers.
CFPB Director Rohit Chopra highlighted the gravity of the issue, stating, “The nation’s largest banks felt threatened by competing payment apps, so they rushed to put out Zelle. By their failing to put in place proper safeguards, Zelle became a gold mine for fraudsters, while often leaving victims to fend for themselves.”
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