Feds sue Bank of America, Wells Fargo for failing to stop ‘widespread’ Zelle fraud
A federal agency is suing three of the America’s largest banks for not protecting customers from fraud on Zelle. And two of those banks have a major presence in Charlotte — Bank of America and Wells Fargo.
The Consumer Financial Protection Bureau made the announcement Friday, claiming that Americans have lost hundreds of millions of dollars to fraud connected to the peer-to-peer payment network. JPMorgan Chase is also named in the lawsuit.
Customers have lost more than $870 million during the Zelle network’s seven-year existence because of the actions, according to the consumer agency.
Early Warning Services, which operates Zelle, along with the three banks, rushed the network to market to compete against growing payments apps such as Venmo and CashApp, without putting adequate safeguards in place for consumers, according to CFPB.
“The nation’s largest banks felt threatened by competing payment apps, so they rushed to put out Zelle,” said CFPB Director Rohit Chopra in the news release. “By their failing to put in place proper safeguards, Zelle became a gold mine for fraudsters, while often leaving victims to fend for themselves.”
Bank of America, which is headquartered in Charlotte, defended its work with Zelle. In a statement to The Charlotte Observer, the bank said more than 99.5% of transactions across the Zelle network happened without incident.
Details of the CFPB Zelle case
Zelle is offered by more than 2,200 banks and credit unions and it has more than 143 million users in the U.S., according to the suit. In the first half of this year, users transferred $481 billion through 1.7 billion transactions.
Hundreds of thousands of consumers filed fraud complaints and were denied help by Zelle and the three banks, according to the suit, which noted that some were told by the defendants to contact the scammers to get their money back.
The banks allegedly failed to investigate complaints or provide consumers with reimbursement for fraud and errors, according to CFPB.
Bank of America had complaints of over $290 million in fraud losses by 210,000 customers. And Wells Fargo had $220 million in fraud losses by 280,000 customers since Zelle started in 2017.
For New York-based Chase Bank, the fraud was more than $360 million and impacted 420,000 customers.
In addition to exposing customers to fraud, the banks violated federal laws for electronic fund transfers, according to the suit. It said Bank of America and Chase sent customers’ transfers to the wrong recipient because of errors and inaccuracies in Zelle’s network directory.
Zelle blasts what it calls a ‘meritless lawsuit’
Bank of America said it has 23 million customers who have embraced Zelle and use it regularly to send money to friends, family and others.
And the bank said it works directly with customers who have concerns about Zelle. “We strongly disagree with the CFPB’s effort to impose huge new costs on the 2,200 banks and credit unions that offer free Zelle services to clients,” the bank stated.
Zelle’s services are free for customers, and users can receive or send money within in minutes. Close to 100% of saving and checking accounts linked to the service are not charged fees, according to Zelle.
But if financial institutions are required to pay for the actions of criminals, they will be forced to choose between offering Zelle or increasing fees for consumers to move money and pay everyday expenses, according to Zelle.
A Wells Fargo spokesperson referred request for comment to Early Warning Services and its subsidiary Zelle. The Scottsdale, Arizona-based Zelle said CFPB’s lawsuit was “meritless.”
The company also claims the lawsuit will harm the consumers the bureau is required to protect and hurt America’s small businesses and make it harder for community and minority-owned banks and credit unions to compete.
Zelle said it reimburses customers for all instances of fraud as required by law and claims it “goes above and beyond” what is required to make sure customers are reimbursed.
“The CFPB’s misguided attacks will embolden criminals, cost consumers more in fees, stifle small businesses and make it harder for thousands of community banks and credit unions to compete,” company spokeswoman Jane Khodos said.
The service is used in the U.S. by 143 million people and small businesses, according to Khodos. “And we are fully prepared to defend this meritless lawsuit to ensure their service does not suffer.”
This story was originally published December 20, 2024 at 11:01 AM.
