Personal Finance News
CFPB Sues Three Major Banks Over Fraud Issues on Zelle
The Consumer Financial Protection Bureau (CFPB) is taking aim at three top banks as well as the operator of Zelle, alleging rampant fraud on the platform that the companies have failed to stop.
About the suit:
In a press release, the CFPB announced that it was suing three of the country’s largest banks — Bank of America, JPMorgan Chase, and Wells Fargo — as well as Zelle operator Early Warning Services. According to the bureau’s complaint, consumers among these three banks have lost more than $870 million on the Zelle platform since it was first launched in 2017. Moreover, the CFPB states that “hundreds of thousands” of consumers who filed fraud complaints with these banks were often left without assistance.
Zelle is a peer-to-peer payment platform akin to PayPal, Venmo, and Cash App. The CFPB accuses those involved with Zelle of rushing the product to market to compete with these other platforms and failing to implement effective consumer safeguards as a result. In turn, the bureau says that fraud has run rampant on Zelle, to the detriment of users.
Detailing their concerns with Zelle, the CFPB first notes that the platform has limited identification verification methods. According to the report, this has allowed scammers to link a customer’s Zelle profile to a fraudulent account, effectively intercepting payments meant for consumers. The bureau also states that the banks ignored “red flags” that could have prevented further fraud. Finally, it’s alleged that Zelle customer complaints were not properly investigated, which is a violation of the Electronic Fund Transfer Act and Regulation E.
What they’re saying:
Commenting on Zelle and the recent action taken against them as well as partner banks, CFPB director Rohit Chopra said, “The nation’s largest banks felt threatened by competing payment apps, so they rushed to put out Zelle. By their failing to put in place proper safeguards, Zelle became a gold mine for fraudsters, while often leaving victims to fend for themselves.”
In a separate statement, Chopra noted, “Americans deserve payment systems that are fast and secure. Some of America’s largest banks promised Zelle would be both, but it wasn’t. The CFPB’s lawsuit seeks to hold these banks accountable and ensure that American families can trust their money is protected when they send payments.”
My thoughts:
Reading the CFPB’s release, I’m still not quite clear how they chose to sue Bank of America, Chase, and Wells Fargo when Zelle is also co-owned by Capital One, PNC, Truist, and U.S. Bank. Is it just because they are the top three among this cohort?
In any case, it is frustrating that fraudsters are able to use Zelle to scam users. Based on the CFPB’s accusations, it sounds as though the issue goes a bit deeper than just being tricked into sending someone money for fraudulent purposes. That said, consumers can still help themselves a great deal by paying close attention to who they’re sending money to either on this platform or any other peer-to-peer payment system.
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