Wells Fargo, JPMorgan Chase & Co. and Bank of America are being sued by the embattled Consumer Financial Protection Bureau over alleged unchecked fraud on payment app Zelle. The incoming Trump administration is launching a legal showdown that could be crushed as early as next month.
The three financial institutions that jointly own the app with four other large banks allege in a lawsuit filed Friday that they failed to take adequate consumer protection measures to compete with popular payment apps, including: was accused of rushing the launch of the service in 2017. Venmo. This resulted in more than $870 million in fraud-related losses over the past seven years, according to the lawsuit.
CFPB Director Rohit Chopra said, “Zel became a gold mine for scammers, but victims were often left to fend for themselves.”
A 91-page federal lawsuit states that hundreds of thousands of consumers at the three banks complained that they were defrauded, but were “mostly denied relief and forced to contact the people who defrauded them to get their money back.” There are some people who said that,” he said. ” The CFPB said these three banks accounted for 73% of Zelle activity last year.
The lawsuit was immediately attacked as “legally and factually flawed” by Early Warning Services, which runs the app on behalf of banks, saying the lawsuit “incentivizes” criminals to make false fraudulent claims and that financial institutions He argued that it could have the opposite effect of having to pay. – Raise the cost of the app and drive out credit unions, community and minority-owned banks that offer Zelle. Approximately 2,200 financial institutions use this service.
“Zelle is relied on by 143 million registered U.S. consumers and small businesses, and we stand ready to defend this frivolous lawsuit to ensure their service remains intact.” said Early Warning spokeswoman Jane Kodos. defendant.
Bank of America said in its own statement that “more than 99.95% of transactions across the Zelle network complete successfully.” If a client has a problem, we work directly with the client. ”
JPMorgan Chase also denied the allegations and alluded to the political overtones raised by Early Warning, calling the CFPB’s actions “a last resort in pursuit of political objectives.” Wells Fargo did not return messages seeking comment.
The CFPB, established in 2011 after the financial crisis, has long been criticized by Republicans as an “out-of-control” agency that stifles economic growth with heavy-handed actions.
The first Trump administration sought to rein in financial institutions and redrafted rules aimed at tightening regulations on payday lenders. Consumer advocates thought the final regulations were watered down. The new Trump administration could end the Zell case when it takes office next month.
Some critics want to abolish the agency altogether. Billionaire Elon Musk, who is leading efforts to streamline the federal government through the so-called Department of Government Efficiency (DOGE), criticized the agency in a November post about X, saying, “Get rid of the CFPB.” . Too many overlapping regulatory authorities. ”
Earlier this year, the Supreme Court rejected a claim by payday loan industry groups that the agency was unconstitutional because it was funded by bank fees rather than Congressional spending.
The agency boasts of having provided more than $21 billion in relief to consumers, but has recently stepped up enforcement actions ahead of the change in administration.
The company filed separate lawsuits against Walmart and Rocket Mortgage on Monday for alleged financial misconduct. And earlier this month, it issued a landmark rule that could reduce the cost of bank overdrafts to as little as $5.
Separately, the Federal Trade Commission, led by outgoing Commissioner Lina Khan, last month sued Los Angeles-based cash app Dave Co. over the fees and distribution amounts it charges economically vulnerable customers. He was sued for misleading him. The company denies the charges.
The CFPB alleges in its lawsuit that without proper safeguards, Zelle allows scammers to create multiple email addresses and mobile phone numbers when signing up for the service, allowing them to use the same or different banks. They argued that the ability to link accounts leaves consumers in the dark about who they are sending money to. To.
They argued that banks do not share information about fraudsters and are too slow to restrict or track criminals, allowing repeat offenders to move between banks. It also claimed it was not responding to hundreds of thousands of complaints it received to prevent further fraud.
In contrast, Early Warning has “highly effective multi-layered anti-fraud and fraud protection measures in place” and as a result, despite a 27% increase in transaction volumes in 2023, Reports claimed a decrease of nearly 50%.
The company said it had made “every effort to engage and cooperate” with the agency before the lawsuit was filed, but said this was part of the agency’s “pattern and practices of overregulation.” .
The National Consumer Law Center praised the bureau’s lawsuit, saying, “The CFPB is standing up for those who have been unable to get their big banks to take their fraud claims seriously and get their hard-earned money back.” ” he said. The CFPB helps ordinary people harmed by big banks. ”
Sen. Elizabeth Warren, who spearheaded the creation of the agency, last week defended the agency and urged President Trump to work with the agency to temporarily limit interest rates on credit cards to 10% to help the U.S. He asked for support for the family. This is a trail that he promised during his campaign.
“It would be a huge boost for millions of families across this country,” the Massachusetts Democrat said. “If he’s true to his word here, and I think we should hold them to his word, then the CFPB could help him do that.”
