The Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against JPMorgan Chase, Bank of America, and Wells Fargo, accusing them of allowing fraud to proliferate on the peer-to-peer payments platform Zelle.
Zelle, operated by Early Warning Services—a consortium owned by seven major U.S. banks—has been a popular platform since its launch in 2017, facilitating $629 billion in transactions in 2022, double the volume of its closest competitor, Venmo. However, the platform has faced growing scrutiny over fraud vulnerabilities, with Senate Democrats, including Elizabeth Warren, urging regulators to take action.
The CFPB alleges that Early Warning Services and its member banks failed to protect users from "widespread fraud." According to the lawsuit, the banks prioritized competing with Venmo and CashApp, rushing Zelle to market without implementing robust user safeguards. This lack of protection has reportedly resulted in customers of the named banks losing over $870 million due to fraud since Zelle’s inception.
The suit details how hundreds of thousands of consumers filed fraud complaints but received little to no support. In many cases, victims were advised to contact fraudsters directly to recover their money. The CFPB also accuses the banks of failing to investigate complaints adequately or to provide legally mandated reimbursements for fraud and transaction errors.
CFPB Director Rohit Chopra stated, “The nation’s largest banks felt threatened by competing payment apps, so they rushed to put out Zelle. By failing to implement proper safeguards, Zelle became a gold mine for fraudsters, leaving victims to fend for themselves.”
The lawsuit seeks to halt the alleged unlawful practices, secure financial redress for affected consumers, and impose civil monetary penalties to be directed to the CFPB’s victims relief fund.
In August, JPMorgan Chase disclosed that it was cooperating with CFPB inquiries regarding Zelle and hinted at potential legal actions of its own in response to the issue.
As the case unfolds, the spotlight remains on how financial institutions address fraud risks in the growing digital payments landscape.
