JPMorgan, Wells Fargo, BofA face federal lawsuit over Zelle payment network fraud

A federal regulator sued JPMorgan Chase, Wells Fargo and Bank of America on Friday, alleging the banks failed to protect hundreds of thousands of consumers from widespread fraud on the popular payment network Zelle, in violation of consumer financial laws.

In the federal civil complaint, the Consumer Financial Protection Bureau alleges that the banks rushed the peer-to-peer payment platform to market without effective fraud safeguards and then, after consumers complained of being defrauded on the service, largely denied them relief.

“Soon after Zelle’s launch, significant problems, including fraud committed against consumers using Zelle, quickly became apparent. However, the defendants did not take meaningful steps to address these clear deficiencies for years,” according to the complaint.

The CFPB alleges that the banks violated federal consumer laws governing electronic money transfers, which require banks to conduct “reasonable investigations” when consumers report transaction errors, and the agency’s ban on unfair acts or practices by failing to take steps to prevent and address Fraud at Zelle. The agency is seeking an unspecified amount to cover restitution, damages and fines.

“Customers of the three banks named in today’s lawsuit have lost more than $870 million over the network’s seven-year existence because of these failures,” the CFPB said.

Also named as a defendant in the lawsuit is Early Warning Services, a Scottsdale, Arizona-based fintech company that operates Zelle. EWS is owned by seven US banks, including JPMorgan, Wells Fargo and Bank of America. These 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 “major new costs” on banks and credit unions that offer the free Zelle service to customers. It said more than 99.95% of transactions across the Zelle network go through without incident.

“When a customer has a problem, we work directly with them,” said the Charlotte, North Carolina-based bank.

In a statement, New York-based JPMorgan said the CPFB “exceeds its authority by holding 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 fraud and fraud and has industry-leading refund policies that go beyond the law,” the company said.

Since launching in 2017, Zelle has become one of the most widely used peer-to-peer payment networks in the US, 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.