CFPB Accuses Banks Of Inadequate Safeguards On Zelle

Bank of America, JPMorgan Chase, and Wells Fargo are facing accusations of using inadequate safeguards on Zelle, the payment platform they co-own. According to the Consumer Financial Protection Bureau (CFPB), these shortcomings have resulted in substantial losses for Americans.

The CFPB has filed a lawsuit against three banks and Early Warning Services LLC, the operator of Zelle. The lawsuit claims that users of the platform have lost over $870 million since its launch in 2017 due to alleged failures.

CFPB Lawsuit Against Zelle Sparks Controversy Over Fraud Claims

CFPB Director Rohit Chopra stated that the banks felt pressured by the competition from other payment apps and rushed to introduce Zelle without proper protections. He said, “By failing to implement adequate safeguards, Zelle became a gold mine for fraudsters, often leaving victims to handle their losses alone.”

In response, Jane Khodos, a spokesperson for Zelle, rejected the allegations and said the claims were both legally and factually flawed. She argued that the timing of the lawsuit appeared politically motivated.

Khodos further stated, “Zelle leads the fight against scams and fraud and has reimbursement policies that exceed legal requirements.” A follow-up statement from Zelle’s representatives described the CFPB’s claims about customer losses as misleading. They added that many reported fraud cases were not confirmed as actual fraud after investigations.

JPMorgan Chase also criticized the CFPB’s lawsuit, saying it was an example of regulatory overreach. A spokesperson stated that the agency was unfairly holding banks responsible for criminal activities, including scams such as romance fraud. The bank described the CFPB’s actions as a politically driven effort that jeopardizes the value of Zelle, which they described as a trusted and widely used service.

William Halldin, a spokesperson for Bank of America, emphasized the benefits of Zelle for customers, stating that millions of clients use the platform regularly to transfer money to people they trust.

Zelle Faces Scrutiny Amid Fraud Allegations And Calls For Consumer Protection

Halldin stated that the firm strongly disagreed with the CFPB’s attempt to impose large new costs on the thousands of banks and credit unions offering Zelle as a free service.

Zelle, launched in 2017, allows users to send and receive money electronically. However, it has faced criticism, including from Senate Democrats. Senator Richard Blumenthal recently highlighted that customers reported losing $372 million to scams and fraud in 2023, with nearly three-quarters of those claims not reimbursed by the banks.

In its defense, Early Warning Services stated that reports of scams and fraud on Zelle decreased by nearly 50% in 2023, with 99.95% of payments reportedly completed without issues.

The CFPB has introduced several measures this month aimed at protecting consumers, even as it faces challenges to its authority from the incoming Trump administration.