CFPB sues Zelle operator and major banks for “widespread fraud” on payment network
The US Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against Arizona fintech Early Warning Services (EWS), and three major banks for “failing to protect consumers from widespread fraud” on the Zelle network.
CFPB accuses defendants of “serious failures” in fraud prevention
Launched in 2017 and operated by EWS, Zelle is touted as “America’s most widely available peer-to-peer payment network,” offering near-instant electronic money transfers to over 143 million users.
The accused banks – JP Morgan Chase, Bank of America, and Wells Fargo – are charged with “rushing” Zelle to market to compete with payment apps such as Venmo, PayPal, and CashApp.
This resulted in “serious failures in fraud prevention and customer protection”, including inadequate identity verification methods, which created a “goldmine for criminals”, according to CFPB Director Rohit Chopra.
In a statement made by the CFPB on 20 December, the US regulator accuses the defendants of violating “the Consumer Financial Protection Act’s (CFPA) prohibition on unfair acts or practices by failing to take timely, appropriate, and effective measures to prevent, detect, limit, and address fraud on the Zelle Network”.
Moreover, “the complaint also alleges that Bank of America, JP Morgan Chase, and Wells Fargo violated the Electronic Fund Transfer Act and its implementing Regulation E for failing to conduct reasonable investigations of notices of errors submitted by consumers regarding Zelle transactions; and failing to properly treat incorrect and unauthorised Zelle transfers as errors under the law.”
Due to these failures, customers of the three named banks have reportedly lost “more than $870 million over the network’s seven-year existence”, states the US watchdog.
The agency concludes by saying it seeks to “bring the defendants into compliance with the law, consumer redress, and civil money penalties”.
This lawsuit comes as the CFPB advances its agenda ahead of its expected overhaul under the incoming Trump administration.
Recently, the regulator fined VyStar Credit Union $1.5 million over the mismanaged rollout of its online banking system and finalised a rule aimed at overseeing big tech companies involved in digital wallets and payment apps in consumer finance.
