Three of the largest US banks face a lawsuit for ‘widespread fraud’ at Zelle

Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against Zelle and three banks that own it — Wells Fargo, Bank of America and JPMorgan Chase — claiming they failed to “protect consumers from widespread fraud.” Zelle is a payment network designed to compete with payment platforms like Venmo and Cash App, but The CFPB says the banks “rushed” it to market, enabling fraud that has cost consumers more than $870 million since it launched in 2017.

The lawsuit cites Zelle’s design and features, including a “limited” identity verification process that involves assigning a “token” to a user’s email address or mobile phone number that they can use to verify their account with a one-time password. This setup makes it easier for fraudsters to take over accounts, as well as hide their own identities or impersonate other institutions, the CFPB claims.

The CFPB accuses Zelle and the banking trio of failing to track and quickly stop criminals on the platform, as they allegedly did not forward information about known fraudulent transactions with other institutions in the payment network. It also claims that Bank of America, JPMorgan Chase and Wells Fargo did not properly address the risk of fraud despite the “hundreds of thousands” of complaints they received.

Zelle pushed the case back a statement released Friday. “The CFPB’s attacks on Zelle are legally and factually flawed, and the timing of this lawsuit appears to be driven by political factors unrelated to Zelle,” Zelle spokeswoman Jane Khodos said. “The CFPB’s misguided crackdown will embolden criminals, cost consumers more in fees, stifle small businesses and make it harder for thousands of local banks and credit unions to compete.”

The CFPB is asking the court to stop Zelle’s parent company, Early Warning Services, and the banks from violating consumer protection laws and compensate users, among other penalties.