Claiming three of the largest banks in the country allowed “fraud to fester” on an online payment provider, resulting in more than $870 million lost by customers over seven years, the federal consumer financial protection agency Friday filed suit against the financial institutions seeking payment of damages, restitution, and civil money penalties.
The Consumer Financial Protection Bureau (CFPB) said it sued JPMorgan Chase, Bank of America, and Wells Fargo over claims of fraud by the banks for their use of online payment provider Zelle. The agency said it also filed suit against Early Warning Services (EWS) of Scottsdale, Ariz., which operates Zelle, a peer-to-peer payment network. The three banks were co-owners – with other banks not named in the lawsuit – of Zelle.
According to the CFPB, EWS along with the banks named in the lawsuit “rushed the network to market to compete against growing payment apps such as Venmo and CashApp, without implementing effective consumer safeguards.”
The bureau claims that customers of the three banks lost more than $870 million over the network’s seven-year existence due to the alleged failures.
“The CFPB’s lawsuit describes how hundreds of thousands of consumers filed fraud complaints and were largely denied assistance, with some being told to contact the fraudsters directly to recover their money,” the agency said in a release. “Bank of America, JPMorgan Chase, and Wells Fargo also allegedly failed to properly investigate complaints or provide consumers with legally required reimbursement for fraud and errors. The CFPB is seeking to stop the alleged unlawful practices, secure redress and penalties, and obtain other relief.”
The 91-page complaint states that monetary relief, including the refund of monies paid, restitution, disgorgement (or compensation for unjust enrichment), and payment of damages are all sought by the bureau, although no dollar amounts are detailed.
The complaint also seeks a civil money penalty imposed on all defendants, but no dollar amount is detailed.
Large swaths of text are blacked out (redacted) in the complaint filed against the banks, in many cases outlining the actions taken by the banks or charges of fraud or theft.
The complaint asserts that Zelle is “America’s most widely available peer-to-peer payment network.” The network, the CFPB said, allows near-instant electronic money transfers through linked email addresses or U.S.-based mobile phone numbers, known as “tokens.” Users can create multiple tokens across different banks and quickly reassign them between institutions, a feature that has left consumers vulnerable to fraud schemes.
However, the CFPB alleges that since Zelle was introduced in 2017, customers of the three banks named in the lawsuit have lost hundreds of millions of dollars over that time due to the failure of the network and the banks to implement appropriate fraud prevention and detection safeguards.
The bureau said specific failures of the banks and EWS included leaving the door open to scammers, allowing repeat offenders to hop between banks, ignoring red flags that could prevent fraud, and abandoning consumers after fraud occurred.
“Despite obligations under the Electronic Fund Transfer Act (EFTA) and Regulation E, the defendant banks failed to properly investigate Zelle customer complaints and take appropriate action for certain types of fraud and errors,” the CFPB charged.
CFPB Sues JPMorgan Chase, Bank of America, and Wells Fargo for Allowing Fraud to Fester on Zelle