Zelle’s Million-Dollar Fraud Problem: Banks in Hot Water

The Consumer Financial Protection Bureau (CFPB) recently filed a lawsuit against some of the United States’ biggest banks. These include JPMorgan Chase, Bank of America, and Wells Fargo, along with the operator of Zelle—a popular peer-to-peer payment system. The CFPB claims that for the past seven years, since Zelle’s launch, fraud has cost these banks' customers over $870 million. Zelle disputes this amount. The lawsuit alleges that the banks, who co-own Zelle along with Capital One, PNC Bank, Truist, and US Bank, didn’t implement proper safeguards to protect customers. This turned Zelle into a haven for fraudsters, with victims often left to deal with losses by themselves. CFPB Director Rohit Chopra stated that the banks were rushing to catch up with competing payment apps, leading to these issues.The lawsuit asserts that the banks failed to stop fraudulent transfers and protect account holders from being used for fraud. Specifically, Bank of America customers lost over $290 million, Chase customers lost over $360 million, and Wells Fargo customers lost over $220 million. All these incidents involved 210, 000, 420, 000, and 280, 000 customers respectively. Zelle’s operator, Early Warning Services, responded by calling the lawsuit "meritless, " claiming it was politically driven. Zelle says it has strong anti-fraud measures and reimbursement policies. However, the CFPB counters that Zelle didn’t properly investigate fraud claims, incorrectly denying many. JPMorgan Chase called the lawsuit an overreach, while Bank of America stressed that fraud cases are rare. Wells Fargo declined to comment. The lawsuit was filed near the end of the Biden administration, raising questions about its future under a new administration.