The Zelle logo is displayed on a smartphone screen in Athens, Greece, February 22, 2024. (Nicholas Kokovlis/AP)
Wells Fargo, JPMorgan Chase and Bank of America have been sued by the embattled Consumer Financial Protection Bureau over alleged unchecked fraud on the Zelle payment app, setting up a legal showdown that could begin as soon as under the incoming Trump administration. months to dismiss the legal battle.
The three financial institutions, which jointly own the app with four other large banks, are accused in a lawsuit filed Friday of rushing to launch the service in 2017 without taking appropriate consumer protection measures to compete with the popular payments App competition, such as Venmo. According to the lawsuit, fraud-related losses exceeded $870 million over the past seven years.
“Zelle has become a gold mine for fraudsters, while often leaving victims to fend for themselves,” said CFPB Director Rohit Chopra.
The 91-page federal lawsuit says hundreds of thousands of consumers at the three banks filed complaints about being defrauded, but “most received no relief, and some were even told to try contacting the scammers to get their money back.” ” The CFPB said the three banks accounted for 73% of Zelle activity last year.
Read more: Overdraft fees will be slashed under new rules from the Biden administration. what you need to know
The lawsuit was immediately attacked by Early Warning Services, which operates the app on behalf of banks, calling it “legally and factually flawed” and claiming it could be counterproductive by “incentivizing” criminals to come forward with false frauds. claims, and institutions must pay the fees – raising the cost of the app and driving away credit unions, community and minority-owned banks that offer Zelle. About 2,200 financial institutions use the service.
“Zelle is trusted by 143 million registered U.S. consumers and small businesses, and we are fully prepared to defend against this baseless lawsuit to ensure that their service is not affected,” said Jane, a spokesperson for the early warning company. Jane Khodos said.
In its own statement, Bank of America said, “More than 99.95% of transactions on the Zelle network go smoothly. When customers have issues, we work directly with them.”
JPMorgan Chase also denied the accusations and hinted at the political overtones of early warning, saying the CFPB’s action was a “last-ditch effort to pursue its political agenda.” Wells Fargo did not respond to a message seeking comment.
The CFPB, established after the 2011 financial crisis, has long been criticized by Republicans as an “out of control” agency whose actions are too harsh and stifle economic growth.
The first Trump administration sought to rein in the bureau and redrafted proposed rules aimed at tightening oversight of payday lenders. Consumer advocates argued the final rule was watered down. The new Trump administration may end the Zeller lawsuit when it takes office next month.
Some critics want to abolish the agency entirely. Billionaire Elon Musk, who is leading an effort to streamline the federal government through the so-called Department of Government Effectiveness (DOGE), criticized the agency in a November post on X, saying “Delete the CFPB. There are too many Duplicate regulatory agencies.
Earlier this year, the Supreme Court rejected an effort by a payday lending trade group to declare the bureau’s structure unconstitutional because it is funded by bank fees rather than congressional appropriations.
Read more: FTC lawsuit accuses Los Angeles cash app Dave of charging hidden fees
The bureau, which says it has provided more than $21 billion in relief to consumers, recently stepped up enforcement ahead of a change in administration.
On Monday, the company filed separate lawsuits against Walmart and Rocket Mortgage over alleged financial misconduct. Landmark rules were released earlier this month that could reduce bank overdraft costs to $5.
Separately, the Federal Trade Commission, led by outgoing Chairwoman Lina Khan, sued Los Angeles cash app Dave Inc. last month, alleging that the company mismatched the fees it charged and the amounts it handed out. Misleading customers who were in poor financial condition. The company denies the accusations.
The CFPB claims in the lawsuit that without adequate safeguards, Zelle allowed scammers to create multiple email addresses and mobile phone numbers when they signed up for the service and link them to the same or different bank accounts, leaving consumers unaware. To whom they sent the money.
It claims banks allow repeat criminals to move between banks, don’t share information about fraudsters and are too slow to restrict or track criminals. It also claims it failed to act on hundreds of thousands of complaints it received to prevent further fraud.
In this regard, Early Warning claims that it has “effective multi-layered fraud and fraud prevention measures” and that despite a 27% increase in transaction volume, fraud and fraud reports decreased by nearly 50% in 2023.
The company said it made every effort to engage and cooperate with the bureau before filing the lawsuit, which it called part of the bureau’s “pattern and practice of over-regulation.”
The bureau’s lawsuit drew praise from the National Consumer Law Center, which said: “The CFPB is standing up for people who can’t get the big banks to take fraud claims seriously and refund their hard-earned money. The CFPB helps ordinary people hurt by the big banks.” people.
Senator Elizabeth Warren, who spearheaded the creation of the agency, defended it last week, calling on Trump to work with the agency to help American families by temporarily capping credit card interest rates at 10% — something he did on the campaign trail. Out of the track of commitment.
“This is going to be a real boost for millions of families across the country,” the Massachusetts Democrat said. “If he keeps his word, and I think we should take him at his word, then the CFPB can help him do that.”
Sign up for our Wide Shot newsletter to get the latest entertainment business news, analysis and insights.
This story originally appeared in the Los Angeles Times.
