CFPB Sues Zelle and 3 Owner Banks, Alleging Insufficient Safeguards

The Consumer Financial Protection Bureau sued Zelle operator Early Warning Services and three of its owner banks — Bank of America, J.P. Morgan Chase and Wells Fargo — alleging that they failed to protect consumers from “widespread fraud” on the peer-to-peer payment network.

The agency’s complaint alleged that the defendants violated consumer financial protection laws by failing to implement safeguards on the payment network and denying assistance to consumers who filed fraud complaints, the CFPB said in a Friday (Dec. 20) press release.

It also alleged that the three banks failed to properly investigate complaints or reimburse consumers for fraud and errors, according to the release.

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

Zelle spokesperson Jane Khodos said in a Friday statement that the CFPB’s complaint is legally and factually flawed, that the timing of its lawsuit appears to be driven by political factors, and that Zelle is “fully prepared to defend this meritless lawsuit.”

“Zelle leads the fight against scams and fraud and has industry-leading reimbursement policies that go above and beyond the law,” Khodos said. “The CFPB’s misguided attacks will embolden criminals, cost consumers more in fees, stifle small businesses and make it harder for thousands of community banks and credit unions to compete.”

The statement added that Zelle has attempted to engage and cooperate with the CFPB on this matter, that 99.95% of payments sent via Zelle have no report of scams or fraud, and that the CFPB’s lawsuit will incentivize criminals to make false claims against banks and credit unions.

Reached by PYMNTS, J.P. Morgan Chase spokesperson Trish Wexler said in an emailed statement that the CFPB is overreaching its authority and making banks accountable for the actions of romance scammers and other criminals.

“It’s a stunning demonstration of regulation by enforcement, skirting the required rulemaking process,” Wexler said. “Rather than going after criminals, the CFPB is jeopardizing the value and free nature of Zelle, a trusted payments service beloved by our customers.”

A Bank of America spokesperson said in a statement emailed to PYMNTS that more than 99.5% of transactions across the Zelle network go through without incident and that when a client does have an issue, the bank works directly with them.

“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,” the statement said. “23 million Bank of America clients have embraced Zelle, regularly using it to send money to friends, family and people they trust.”

Wells Fargo did not immediately reply to PYMNTS’ request for comment.

The CFPB’s lawsuit seeks a halt to unlawful conduct, redress for harmed consumers and a civil money penalty, according to the agency’s press release.

J.P. Morgan said in a February filing with the Securities and Exchange Commission that it was responding to government inquiries related to Zelle. Wells Fargo later made a similar disclosure.

Early Warning said in October that it was deploying user interface updates, new technology and consumer education to fight scams and fraud on the Zelle platform.

It added that reports of scams and fraud decreased by nearly 50% in 2023, despite a 28% increase in transaction volume.