The Consumer Financial Protection Bureau’s long-simmering probe into Zelle has come to fruition. A lawsuit has been filed against the peer-to-peer payment app’s parent company, Early Warning Services, along with three major banks for failing to combat fraud.
The suit alleges that JPMorgan Chase, Wells Fargo, and Bank of America—in their efforts to catch up with earlier P2P networks like Venmo and CashApp—overlooked criminal activities that led to consumer scams on Zelle. Collectively, these banks handled 73% of all Zelle payments in 2023. The CFPB claims that customers of the three banks lost more than $870 million to criminals.
“The nation’s largest banks felt threatened by competing payment apps, so they rushed to put out Zelle,” CFPB Director Rohit Chopra said in a statement. “By their failing to put in place proper safeguards, Zelle became a gold mine for fraudsters, while often leaving victims to fend for themselves.”
Some of the specific shortcomings the CFPB cited include:
- Zelle’s limited identity verification measures enabled criminals to set up scam accounts quickly. As a result, they were able to take advantage of flaws in Zelle’s design to associate a victim’s token with the criminals’ deposit account.
- Because these banks failed to share information about known scams with other banks on the network, criminals were able to target multiple accounts on Zelle.
- The banks received a plethora of complaints—hundreds of thousands in fact—but did not use this information to stop additional fraud. This was despite their “obligations under the Electronic Fund Transfer Act and Regulation E.”
A Longstanding Concern
Zelle was founded in 2017 by the three cited banks, along with Truist, Capital One, PNC Bank and US Bank. As early as 2018, published reports indicated that the platform was especially vulnerable to fraud. The rapid payment resolution, touted as a feature, was also a boon for criminals who could withdraw money quickly and irretrievably, then disappear.
In October 2022, Senator Elizabeth Warren stated that Zelle’s owners failed “to make their customers whole for both authorized and unauthorized fraudulent activity on the platform, despite their claims that it is safe and that they have a ‘zero liability’ policy for fraud.”
Fast forward to July 2023: A U.S. Senate committee reported that the percentage of combined consumers from the three targeted banks who were reimbursed for transactions disputed as fraud had dropped to 38% in 2023, down from 62% in 2019. In August, JPMorgan stated that the CFPB was overreaching in its investigation and threatened litigation against the agency.