The U.S. Consumer Financial Protection Bureau (“CFPB”) filed a lawsuit on Friday against JPMorgan (JPM Quick QuoteJPM - Free Report) , Bank of America Corp. (BAC Quick QuoteBAC - Free Report) and Wells Fargo & Co. (WFC Quick QuoteWFC - Free Report) for failing to protect consumers from widespread fraud on Zelle, the renowned payments network. The lawsuit also targets Early Warning Services LLC, Zelle’s official operator.

Details of the Lawsuit

Launched in 2017, the Zelle network aimed to be the go-to alternative to money transfer giants like Venmo and Cash App. It is owned by seven major banks, including JPM, BAC and WFC.

The app enables near-instant electronic money transfers through the use of “tokens” created by linking email addresses or U.S.-based mobile numbers. This allows users to create numerous tokens across banks and rapidly reassign themselves between institutions, leaving consumers susceptible to fraudulent practices.

The CFPB accused the banks of rushing the introduction of the network to the market without effectively implementing consumer safeguards.

The lawsuit describes how hundreds of thousands of customers sought assistance and were denied, while some were asked to contact the fraudsters to get back their lost money. Further, Bank of America, JPMorgan and Wells Fargo allegedly failed to look into the complaints properly or offer their clients a legally necessary reimbursement for fraud and errors.

The lawsuit alleges that the customers of JPM, WFC and BAC have lost more than $870 million due to such ongoing failures since Zelle’s launch.

Rohit Chopra, director of the CFPB, stated, “The nation’s largest banks felt threatened by competing payment apps, so they rushed to put out Zelle. By their failing to put in place proper safeguards, Zelle became a gold mine for fraudsters, while often leaving victims to fend for themselves.”

The CFPB seeks to stop the alleged unlawful practices, secure redress and penalties and obtain other relief.

Responses From Accused Entities

Early Warning Services stated, “The CFPB’s attacks on Zelle are legally and factually flawed, and the timing of this lawsuit appears to be driven by political factors.” Further, it added that though transaction volume rose 27% in 2023, reported scams and frauds decreased by roughly 50%, citing its data.

A spokesperson for Bank of America responded, “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.”

A spokesperson for JPMorgan stated, “The CFPB is 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. Rather than going after criminals, the CFPB is jeopardizing the value and free nature of Zelle, a trusted payments service beloved by our customers.”

History of Regulatory Probe Around Zelle

Early Warning Services came into the limelight in March 2022 as The New York Times reported widespread scams on Zelle, which prompted scrutiny of its fraud vulnerabilities.
 
Consequently, U.S. Senator Elizabeth Warren’s office opened an investigation of Zelle in April 2022, gathering fraud data from major banks and issuing a staff report in October 2022.

In February 2024, Senators Warren, Sherrod Brown, and Jack Reed wrote an open letter to Early Warnings Services’ CEO Cameron Fowler, requesting clarification on reimbursement policies and fraud data from the past five years.

In May, the Senate Permanent Subcommittee on Investigations, led by Senator Richard Blumenthal, conducted a hearing to address Zelle's fraud concerns.