Wells Fargo, Chase, Bank of America sued over alleged unchecked fraud on Zelle app

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The Zelle logo is displayed on a smartphone screen in Athens, Greece, on February 22, 2024. (Nikolas Kokovlis/Associated Press)

Wells Fargo, JP Morgan Chase and Bank of America are being sued by the embattled Consumer Financial Protection Bureau over alleged unchecked fraud on the Zelle payment app — setting up a legal showdown that the incoming Trump administration could quash as soon as next month.

The three financial institutions, which co-own the app along with four other large banks, were accused in a lawsuit filed Friday of rushing to launch the service in 2017 without putting in place proper consumer safeguards in order to compete with popular payment apps such as Venmo. The result, according to the lawsuit, were fraud-related losses of more than $870 million over the last seven years.

“Zelle became a gold mine for fraudsters, while often leaving victims to fend for themselves,” said CFPB Director Rohit Chopra.

The 91-page federal lawsuit claimed that hundreds of thousands of consumers at the three banks made complaints about being defrauded but were “were largely denied relief, and some were even told to try getting their money back by contacting the person who had defrauded them.” The CFPB said the three banks accounted for 73% of Zelle activity last year.

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The lawsuit was immediately attacked by Early Warning Services, which operates the app on behalf of the banks, as “legally and factually flawed” and claimed the lawsuit could be counterproductive by “incentivizing” criminals to make bogus fraud claims that institutions would have to pay — raising the app’s costs and driving away credit unions and community and minority-owned banks offering Zelle. Some 2,200 financial institutions use the service.

“Zelle is relied upon by 143 million enrolled American consumers and small businesses, and we are fully prepared to defend this meritless lawsuit to ensure their service does not suffer,” said Jane Khodos, a spokesperson for Early Warning, which was also named as a defendant.

Bank of America, in its own statement, said that “more than 99.95 percent of transactions across the Zelle network go through without incident. When a client has an issue, we work directly with them.”

JP Morgan Chase also denied the allegations and alluded to political overtones raised by Early Warning, saying the CFPB’s action was a “last ditch effort in pursuit of their political agenda.” Wells Fargo did not return messages for comment.

The CFPB, established in 2011 in the aftermath of the financial crisis, has long been criticized by Republicans as a “runaway” agency whose actions are heavy handed and stifle economic growth.

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