Zelle Operator and Major Banks Face CFPB Lawsuit Over Fraud Issues
Investing.com -- The Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against Zelle's operator Early Warning Services, along with its three owner banks: Bank of America, JPMorgan Chase (NYSE:JPM), and Wells Fargo (NYSE:WFC). The lawsuit accuses these entities of failing to protect consumers from widespread fraud in Zelle, the most commonly used peer-to-peer payment network in the United States.
The CFPB claims that these organizations launched Zelle hastily in order to compete with emerging payment applications like Venmo and CashApp, without implementing effective consumer protection measures. During Zelle's seven-year existence, it is reported that customers of the three banks lost over $870 million due to these failures.
According to the CFPB's lawsuit, hundreds of thousands of consumers reported fraud and largely received no assistance; some were told to contact the scammers directly to get their money back. The banks are also accused of not adequately investigating complaints or providing consumers with legally required refunds for fraud and errors.
CFPB Director Rohit Chopra stated in a press release: "The nation’s largest banks felt threatened by competing payment apps, which is why they rushed Zelle to market. Because they did not take appropriate measures, Zelle has become a gold mine for scammers, while victims often had to fight back on their own."
Bank of America, JPMorgan Chase, and Wells Fargo, along with Early Warning Services, are accused of violating federal laws due to critical failures. These failures include limited identity verification methods that allowed scammers to quickly create accounts and target Zelle users, failing to restrict and monitor criminals using multiple accounts across the network, and ignoring red flags that could have prevented fraud.
The CFPB alleges that despite receiving hundreds of thousands of fraud complaints, the defendant banks did not use this information to prevent further fraud. Furthermore, it is claimed that the Zelle Network consistently and timely reported fraud incidents in violation of its own rules.
The CFPB aims to stop the alleged illegal practices, secure restitution and penalties, and provide other assistance. Under the Consumer Financial Protection Act, the CFPB has the authority to take action against institutions violating consumer financial protection laws, particularly against unfair, deceptive, or abusive acts or practices.
As of June 30, 2024, Bank of America's consolidated total assets exceeded $2.5 trillion. JPMorgan Chase, the country's largest bank, had consolidated total assets exceeding $3.5 trillion, while Wells Fargo's consolidated total assets were $1.9 trillion. Early Warning Services, LLC, is a financial technology and consumer reporting company based in Scottsdale, Arizona, and is owned jointly by the seven largest banks in the U.S.
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