By The Big Magazine Staff
The Consumer Financial Protection Bureau (CFPB) has initiated legal action against Zelle and its three owning banks — Wells Fargo, Bank of America, and JPMorgan Chase — alleging they neglected "to protect consumers from widespread fraud."
Zelle is a payment network intended to rival platforms such as Venmo and Cash App. However, the CFPB claims that banks "hurried" its release, leading to fraud that has cost consumers over $870 million since its launch in 2017.
The lawsuit references Zelle's design and functionalities, highlighting a "limited" identity verification process that assigns a "token" to a user's email address or mobile phone number, which they can use to verify their account with a one-time passcode. According to the CFPB, this system facilitates scammers in taking over accounts and concealing their identities or impersonating other institutions.
A frequent Zelle scam involves fraudsters posing as a financial institution or federal agency, deceiving customers into transferring money to them. Under pressure from the CFPB, the banks supporting Zelle began providing refunds to scam victims last year. This recent lawsuit is part of ongoing CFPB efforts to enhance regulation of digital wallet apps and payment networks.
The CFPB claims that Zelle and the three banks did not effectively monitor and promptly halt criminal activities on the platform, as they purportedly failed to share information about known fraudulent transactions with other entities in the payment network. Additionally, it alleges that Bank of America, JPMorgan Chase, and Wells Fargo inadequately managed fraud risks despite receiving "hundreds of thousands" of complaints.
Zelle responded to the lawsuit in a statement released on Friday. "The CFPB's criticisms of Zelle are legally and factually incorrect, and the timing of this lawsuit seems to be influenced by political motives unrelated to Zelle," stated Zelle spokesperson Jane Khodos. "The CFPB's misguided criticisms will encourage criminals, increase costs for consumers, hinder small businesses, and make it more difficult for thousands of community banks and credit unions to compete."
The CFPB is requesting the court to prevent Zelle’s parent company, Early Warning Services, and the banks from breaching consumer protection laws, and to provide compensation to users, along with other penalties.
Download the full CFBB Complaint against Zelle here:
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