US Consumer Protection Bureau Files Lawsuit Against JPMorgan, Bank Of America, Wells Fargo Over Fraud On Zelle Payment App

US Consumer Protection Bureau files lawsuit against JPMorgan, Bank of America, Wells Fargo over fraud on Zelle payment app

The US Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against JPMorgan Chase, Bank of America and Wells Fargo for failing to protect consumers from alleged ‘widespread fraud’ on payments platform Zelle.

The consumer watchdog claimed that the banks violated federal law, leaving consumers vulnerable to scams. It wanted to stop the alleged unlawful practices via Zelle, secure redress and penalties, and obtain other reliefs for consumers, CFPB has initiated a bold agenda in the final weeks of the Joe Biden Democratic administration to advance consumer protections before President-elect Donald Trump overhauls the agency.

The moves defy congressional Republicans, who called for agencies to cease rulemaking.

CFPB Director Rohit Chopra stated that what the banks built became a goldmine for criminals, making it easy for fraudsters to drain accounts while providing insufficient protections for consumers.

He added, "These banks broke the law by running a payments system that made fraud easy while refusing to help the victims."

The CFPB said the banks left the door open to scammers, allowed repeat offenders to hop between banks, ignored red flags to prevent fraud and abandoned consumers after the fraud happened.

The proliferation of fraud and scams on Zelle attracted attention from US lawmakers, including Democratic Senator Elizabeth Warren.

However, Early Warning Services, the company that operates Zelle and is jointly owned by banks, remarked, "The CFPB's attacks on Zelle are legally and factually flawed. The timing of this lawsuit appears to be driven by political factors.” Meanwhile, customers of the three banks named in the lawsuit have lost more than $870 million over seven years since Zelle was introduced.

Federal rules demand that banks reimburse customers for unauthorized payments, including if their accounts are hacked. But in some cases, banks resisted paying back customers who were tricked into making the payments.

The consumer watchdog noted that thousands of consumers filed fraud complaints and were denied assistance, with some being told to contact the fraudsters directly to recover their money.

CFPB officials said it would insist on action against Zelle regardless of the new presidential administration and likely leadership changes at the agency, including the probable departure of director Chopra.

Meanwhile, billionaire Elon Musk, a close adviser of Trump, is making efforts to curb bureaucracy and wants the agency abolished. While speaking on the leadership changes in the incoming administration, the CFPB's enforcement director, Eric Halperin said, "The CFPB has been looking into such an issue for many years. We shall decide when to bring an enforcement action based on case- specific assessments of the facts and legal violations.” Zelle is a payments network owned by seven banks, including JPMorgan and BofA. It has over 143 million American consumers and small businesses as customers.

Last year, despite a 27 percent increase in transaction volume, reports of scams and fraud decreased by nearly 50 percent. In

November (on the payment app), the banks began refunding victims of imposter scams to address consumer protection concerns. According to a Senate committee report, the percentage of combined consumers who were reimbursed for transactions that were disputed as fraud, fell to 38 percent in 2023 across JPMorgan, Bank of America and Wells Fargo. This fell from 62 percent in 2019.A JP Morgan spokesperson commented, "As a last-ditch effort in pursuit of their political agenda, the CFPB is overreaching its authority by making banks accountable for criminals. It's a stunning demonstration of regulation by enforcement, skirting the required rulemaking process."

Jamie Dimon, CEO of JP Morgan has been an outspoken critic of several major US financial regulatory initiatives, including the CFPB. He has vowed to oppose measures that would not make banks safer. A spokesperson for BofA said, "We strongly disagree with the CFPB's effort to impose huge new costs on the 2,200 banks and credit unions that offer the free Zelle service to clients.”

Early last year, JPMorgan and BofA signaled they could sue the CFPB over its investigations into Zelle.