According to the Consumer Financial Protection Bureau, in the first half of 2024, Zelle users conducted over 1.7 billion transactions, transferring a total of $481 billion.
A federal regulator brought lawsuits against JPMorgan Chase, Wells Fargo, and Bank of America, alleging that these banks failed to adequately protect hundreds of thousands of consumers from widespread fraud on Zelle, a popular payment network, thus violating consumer financial protection laws.
In a federal civil complaint, the Consumer Financial Protection Bureau claims that these banks hurried to launch the peer-to-peer payments platform without sufficient security measures against fraud. Moreover, after consumers reported being victims of fraud while using the service, the banks reportedly denied them appropriate assistance and solutions.
“Shortly after Zelle’s launch, significant problems, including fraud being perpetrated on consumers using Zelle, quickly became apparent. But defendants did not take meaningful action to address these clear defects for years,” according to the complaint.
The CFPB claims that the banks violated federal consumer financial laws governing electric funds transfers, which require banks conduct “reasonable investigations” when consumers report transaction errors, and the agency’s prohibition on unfair acts or practices by failing to take steps to prevent and address fraud on Zelle. The agency seeks an unspecified amount of money to cover refunds, damages and penalties.
“Customers of the three banks named in today’s lawsuit have lost more than $870 million over the network’s seven-year existence due to these failures,” the CFPB said.
Also named as a defendant in the lawsuit is Early Warning Services, a fintech company based in Scottsdale, Arizona, that operates Zelle. EWS is owned by seven U.S. banks, including JPMorgan, Wells Fargo and Bank of America. Those three banks are the largest financial institutions on the Zelle network, accounting for 73% of activity on Zelle last year.
Bank of America said it strongly disagreed with the lawsuit, which it said would add “huge new costs” on banks and credit unions offering the free Zelle service to clients. It said more than 99.95% of transactions across the Zelle network go through without incident.
“When a client has an issue, we work directly with them,” the bank based in Charlotte, North Carolina, said.
In a statement, New York-based JPMorgan said the CPFB was “overreaching its authority by making banks accountable for criminals.”
San Francisco-based Wells Fargo declined to comment on the lawsuit.
Early Warning called the lawsuit “legally and factually flawed.”
“Zelle leads the fight against scams and fraud and has industry-leading reimbursement policies that go above and beyond the law,” the company said.
Since its launch in 2017, Zelle has become one of the most widely used peer-to-peer payment networks in the U.S., with more than 143 million users. In the first half of 2024, Zelle users transferred $481 billion across more than 1.7 billion transactions, according to the CFPB.
