The Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against Early Warning Services, the operator of Zelle, and three prominent U.S. banks—Bank of America, JPMorgan Chase, and Wells Fargo—for their inadequate fraud protections on the Zelle network.
Consumer Losses
- Amount Lost: Over $870 million to fraud since Zelle’s inception in 2017.
- Victims frequently faced inadequate responses, often being told to contact fraudsters directly to recover lost funds.
Allegations Against Banks
- Failure to adequately investigate fraud complaints or issue reimbursements as required by law.
- Inconsistent enforcement of Zelle’s own rules for fraud reporting and prevention.
- Insufficient sharing of fraud data across the network, enabling repeat exploits by criminals.
CFPB’s Concerns
- The rush to launch Zelle, driven by competition with other payment platforms, allegedly led to weak safeguards.
- Minimal identity verification processes on Zelle increased susceptibility to scams.
Zelle Overview
- Operated by Early Warning Services, a company co-owned by leading banks.
- Popular for instant electronic transfers but criticized for fraud risks and lack of consumer protections.
CFPB’s Position
CFPB Director Rohit Chopra emphasized the negligence of these financial institutions, 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.”