CFPB says 3 top U.S. banks failed to protect consumers from Zelle fraud

The Consumer Financial Protection Bureau (CFPB) sued the owner of the bank payment app Zelle and three of the nation’s largest banks for failing to protect consumers from fraud in the peer-to-peer payment network.

The CFPB alleges that hundreds of thousands of customers lost more than $870 million using Zelle, which is used by hundreds of banks and operated by Early Warning Services (EWS).

EWS is owned by seven large banks, including Bank of America, JPMorgan Chase, and Wells Fargo.

NCLC advocates praised the enforcement action as an important step in holding payment systems accountable for enabling fraudulent and unauthorized payments that have stolen $870 million from those three banks alone.

“Payment fraud impacts all Americans across many communities, young and old,” said Carla Sanchez-Adams, senior attorney at the National Consumer Law Center. “The CFPB is standing up for people who weren’t able to get the big banks to take their claims of fraud seriously and return their hard-earned money. The CFPB helps ordinary people who’ve been hurt by big banks.”

New Jersey consumer advocate Lisa McCormick said the enforcement action explains why the CFPB has been targeted for elimination by billionaire advisers associated with the incoming Trump administration.

“There is ample evidence that working Americans have been the victims of a class war that’s been waged for the past five decades,” said McCormick. “This example of government being used as a force for good is precisely what the billionaires who rigged the economic and political systems are fighting against, but if you’re a person with common sense you can see why we need a government that’s on our side.”

Person-to-person (P2P) payment systems, if properly designed, can provide broad benefits to consumers.

McCormick stessed that those benefits will only be realized if the systems are safe for consumers to use.

The government’s consumer financial watchdog agency alleges customers of the top three banks lost more than $870 million over the seven years that Zelle has been in existence due to institutional failures to protect them.

Among the CFPB allegations are that Zelle and the banks failed to implement proper fraud prevention safeguards, allowing scammers to proliferate, and that banks failed to properly investigate customer complaints.

Zelle is one P2P payment system that has become popular among criminals perpetrating payment fraud.

The lack of response to consumer complaints about unauthorized payments by Zelle has also drawn the attention of the U.S. Senate.

“JPMorgan Chase, Bank of America, and Wells Fargo are facilitating financial fraud that has flourished due to Zelle,” said McCormick. “Americans should be demanding a lot more enforcement in the banking industry, if not a wholesale restructuring of the system.”

Earlier this year, Sanchez-Adams testified before the U.S. Senate Committee on Banking, Housing, and Urban Affairs on scams and fraud in the banking system and their harm to consumers.

P2P fraud has a particularly harsh impact on low-income families and communities of color. These communities, already struggling and often pushed out of the traditional banking system, can least afford to lose money to fraud and hacks.