CFPB sues Chase, BofA and Wells Fargo for ‘widespread’ fraud at Zelle

On December 28, 2024By Littum

Manya Saini, Pete Schroeder and Niket Nishant
| Reuters

The CFPB is suing JPMorgan, Bank of America and Wells Fargo over Zelle
Banks failed to protect consumers, CFPB claims
Lawsuit driven by political factors, says Zelle’s parent

The U.S. Consumer Financial Protection Bureau said Friday it filed a lawsuit against JPMorgan Chase JPM.N, Bank of America BAC.N and Wells Fargo WFC.N for failing to protect consumers from alleged “widespread fraud” on payments platform Zelle.

The lawsuit was launched as the watchdog moves forward with a bold agenda in the final weeks of Joe Biden’s Democratic administration in an effort to boost consumer protections before President-elect Donald Trump takes over the agency, Reuters reported last month. The moves defy congressional Republicans, who have called on agencies to halt rulemaking.

The CFPB seeks to stop the alleged illegal practices by Zelle, secure redress and sanctions, and obtain other relief for consumers, it said in a statement.

“What they built became a goldmine for criminals,” making it easy for fraudsters to drain accounts while providing inadequate protection for consumers or making them whole for losses, CFPB Director Rohit Chopra told reporters in a briefing. “These banks broke the law by running a payment system that made fraud easy while refusing to help victims.”

The CFPB said the banks violated federal law through critical mistakes, alleging they left the door open to fraudsters, allowed repeat offenders to jump between banks, ignored red flags that could have prevented fraud, and abandoned consumers after fraud occurred.

The prevalence of scams and fraud at Zelle has drawn attention from US lawmakers, including Democratic Senator Elizabeth Warren, and regulators concerned about consumer protection.

“The CFPB’s attacks on Zelle are legally and factually flawed, and the timing of this lawsuit appears to be driven by political factors,” said Early Warning Services, the company that runs Zelle and is jointly owned by banks.

Customers of the three banks named in Friday’s lawsuit have lost more than $870 million in the seven years since Zelle was introduced, the CFPB said.

Federal regulations require banks to refund customers for unauthorized payments, for example, if their accounts were hacked. But in some cases, banks have resisted refunding customers who were duped into making the payments themselves.

The consumer watchdog details how hundreds of thousands of consumers filed scam complaints and were largely denied help, with some told to contact the scammers directly to get their money back.

CFPB officials said they would proceed with the Zelle enforcement action regardless of the new presidential administration and likely leadership changes at the agency, including the likely departure of Director Rohit Chopra. Billionaire Elon Musk, a close Trump adviser who is leading an effort to curb red tape, has called for the agency to be abolished.

“This is an issue that the CFPB has been investigating for a number of years, and we make decisions about when to bring an enforcement action based on case-specific assessments of the facts and legal violations,” CFPB Enforcement Director Eric Halperin told reporters in response to a question about a change of leadership in the future administration.

Zelle is a payment network owned by seven banks, including JPMorgan and BofA. It has over 143 million US consumers and small businesses as customers.

In 2023, despite a 27% increase in transaction volume, reports of fraud and scams fell by almost 50%, Early Warning said in a statement citing its own data.

In November 2023, banks on the payment app began refunding victims of fraud scams to address consumer protection concerns.

The percentage of combined consumers who were refunded for transactions disputed as fraudulent fell to 38% in 2023 across JPMorgan, Bank of America and Wells Fargo, according to a US Senate committee report. That was down from 62% in 2019.

“As a last-ditch effort to pursue their political agenda, the CFPB is now overstepping its authority by holding banks accountable for criminals,” a JPMorgan spokesman said in an emailed statement to Reuters. “It is a stunning demonstration of regulation by enforcement that circumvents the required rulemaking process.”

JPMorgan CEO Jamie Dimon has been an outspoken critic of several major US financial regulatory initiatives, including those by the CFPB, and he has vowed to oppose measures he said would not make banks safer.

“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 customers,” a BofA spokesman said.

Wells Fargo declined to comment.

JPMorgan and BofA both signaled in filings earlier this year that they may sue the CFPB over the agency’s investigations into Zelle. Wells Fargo revealed that regulators have been investigating its handling of customer disputes about Zelle.

Reporting by Ismail Shakil in Ottawa and Manya Saini, Niket Nishant in Bengaluru and Pete Schroeder and Hannah Lang in New York; Editing by Chizu Nomiyama and Lananh Nguyen and Aurora Ellis