In a lawsuit, CFPB says 3 top U.S. banks failed to protect consumers from Zelle fraud

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The payment network Zelle and three of its owner banks was sued Friday by the Consumer Financial Protection Bureau. / Getty Images for Zelle

The Consumer Financial Protection Bureau sued the operator of Zelle, as well as Bank of America, JPMorgan Chase and Wells Fargo "for failing to protect consumers from widespread fraud" at the payment provider, according to a statement on Friday.

CFPB, the government's consumer financial watchdog agency, alleges customers of the top three banks lost more than $870 million over the seven years that Zelle has been in existence due to the banks' failures to protect them.

Among the CFPB allegations are that Zelle and the banks failed to implement proper fraud prevention safeguards, allowing scammers to proliferate, and that banks failed to properly investigate customer complaints about Zelle.

The three banks are co-owners of Early Warning Services, which operates Zelle and which was also named in CFPB's complaint.

"This is about financial institutions fulfilling their basic obligations to protect customers' money and help fraud victims recover their losses," said CFPB Director Rohit Chopra. "These banks broke the law by running a payment system that made fraud easy, and then refusing to help the victims."

The agency said its lawsuit was intended to stop "unlawful conduct," obtain redress for consumers impacted and seek a civil monetary penalty.

Banks and Zelle push back against CFBP's lawsuit

Zelle responded by saying it was "fully prepared" to defend itself against "this meritless lawsuit."

"The CFPB's attacks on Zelle are legally and factually flawed, and the timing of this lawsuit appears to be driven by political factors unrelated to Zelle," the company said in a statement.

Meanwhile, Bank of America said that "more than 99.95 percent of transactions across the Zelle network go through without incident," and added that "we strongly disagree with the CFPB's effort to impose huge new costs on the 2,200 banks and credit unions that offer the free Zelle service to clients."

JPMorgan Chase said the CFPB was "now overreaching its authority by making banks accountable for criminals, even including romance scammers."

"It's a stunning demonstration of regulation by enforcement, skirting the required rulemaking process," JPMorgan Chase added.

Wells Fargo declined to comment.

Early Warning Services is co-owned by seven of the largest banks in the U.S., also including PNC Bank, Truist, U.S. Bank, and Wells Fargo.