Three Major US Banks Facing Lawsuit for 'Widespread Fraud' on Zelle

The Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against the payment network Zelle and three of the largest US banks that own it - Bank of America, JPMorgan Chase, and Wells Fargo. The CFPB alleges that these banks failed to properly protect consumers from widespread fraud on the Zelle platform, costing customers over $870 million in losses.

According to the CFPB's complaint, Zelle's design and features make it easy for scammers to take advantage of customers. The platform's "limited" identity verification process, which only requires users to verify access to an email address or phone number, leaves consumers susceptible to fraud. Scammers can easily impersonate financial institutions or government agencies to trick customers into sending them money.

The CFPB also claims that the banks backing Zelle did not adequately track and stop criminal activity on the platform. They allegedly failed to share information about known fraudulent transactions with other institutions in the Zelle network. Additionally, the banks reportedly did not properly address the risk of fraud despite receiving hundreds of thousands of customer complaints.

In response, Zelle's parent company, Early Warning Services, and the three banks pushed back on the lawsuit. They called the CFPB's allegations "legally and factually flawed" and claimed the timing of the lawsuit was driven by "political factors unrelated to Zelle."

However, the CFPB is seeking several actions from the court, including stopping the banks and Zelle's parent company from violating consumer protection laws and compensating affected users. This lawsuit is part of the CFPB's broader efforts to increase regulation around digital payment platforms like Zelle, Venmo, and Cash App.

The outcome of this case could have significant implications for the future of Zelle and how banks handle fraud on their digital payment services. Consumers will be watching closely to see if the CFPB can hold these major financial institutions accountable for the alleged failures that have cost customers hundreds of millions of dollars.