The United States Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against JPMorgan Chase, Bank of America and Wells Fargo for failing to protect consumers from what it claims are “widespread fraud” on the Zelle payment platform.
The lawsuit filed Friday comes as the regulator pursues a bold agenda to advance consumer protections in the final weeks of President Joe Biden’s Democratic administration before Republican President-elect Donald Trump overhauls the agency. The moves defy Republicans in Congress, who have called for agencies to stop setting rules.
The CFPB is trying to stop the alleged unlawful practices through Zelle, seek redress and penalties, and seek other remedies for consumers, it said in a statement.
“What they built became a goldmine for criminals,” CFPB Director Rohit Chopra told reporters at a briefing. “These banks broke the law by operating a payment system that facilitated fraud but refusing to assist victims.”
The CFPB said the banks violated federal law by making serious errors, alleging they opened the door to fraudsters, allowed repeat offenders to switch between banks, ignored warning signs that could have prevented fraud and left consumers in the lurch after the fraud.
Zelle is a payments network owned by seven banks, including JPMorgan and Bank of America. The company counts more than 143 million American consumers and small businesses as customers.
The rise in scams and scams on Zelle has caught the attention of U.S. lawmakers, including Democratic Sen. 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 operates Zelle and is jointly owned by the banks.
Customers of the three banks named in Friday’s lawsuit have lost more than $870 million in the seven years since Zelle was launched, the CFPB said.
“Violations of the law”
Federal regulations require banks to compensate customers for unauthorized payments, such as if their accounts were hacked. However, in some cases banks refused to repay customers who were tricked into making the payments themselves.
The consumer protection agency described how hundreds of thousands of consumers filed fraud complaints and largely refused assistance. Some were even told to contact the scammers directly to get their money back.
CFPB officials said they would continue Zelle’s enforcement actions regardless of the new presidential administration and likely leadership changes at the agency, including the likely departure of Chopra. Billionaire Elon Musk, a close Trump adviser who has been a leader in curbing bureaucracy, has called for the agency to be abolished.
“This is an issue that the CFPB has been addressing for several years, and we make decisions about when to bring an enforcement action based on case-specific assessments of the facts and legal violations,” said CFPB Enforcement Director Eric Halperin. said journalists in response to a question about leadership changes in the new government.
In 2023, reports of scams and scams fell nearly 50 percent despite a nearly 27 percent increase in transaction volume, Early Warning said in a statement, citing its own data.
In November 2023, banks using the payment app began refunding fraud victims to address consumer protection concerns.
The percentage of consumers who received refunds for transactions disputed as fraud fell to 38 percent at JPMorgan, Bank of America and Wells Fargo in 2023, according to a U.S. Senate committee report. That’s down from 62 percent in 2019.
“As a final effort in pursuing its policy agenda, the CFPB is now exceeding its authority by holding banks accountable for criminal acts,” a JPMorgan spokesman said in an emailed statement to Reuters. “It is an impressive demonstration of regulation through enforcement that bypasses the required rulemaking process.”
JPMorgan CEO Jamie Dimon has been an outspoken critic of several major financial regulatory initiatives in the U.S., including the CFPB’s initiatives, and he has vowed to oppose measures he said would not make banks safer.
“We strongly disagree with the CFPB’s efforts to impose huge new costs on the 2,200 banks and credit unions that offer free Zelle service to their customers,” a Bank of America spokesperson said.
Wells Fargo declined to comment.
Both JPMorgan and Bank of America have signaled in filings this year that they may sue the CFPB over the agency’s investigation into Zelle. Wells Fargo said regulators were investigating the company’s handling of customer disputes related to Zelle.
