The Consumer Financial Protection Bureau (CFPB) filed suit against JP Morgan Chase, Bank of America and Wells Fargo, as well as the operator of the Zelle payment network, for failing to safeguard the Zelle network from fraud.
According to the suit, Early Warning Services, which operates Zelle, rushed the network to market to compete against other payment apps without implementing effective consumer safeguards. Early Warning Services is co-owned by seven of the largest banks in the country, including Bank of America, JPMorgan Chase, and Wells Fargo.
Customers of the three banks lost more than $870 million over Zelle's seven-year existence due to these failures, according to the CFPB.
“The nation’s largest banks felt threatened by competing payment apps, so they rushed to put out Zelle,” CFPB Director Rohit Chopra said. “By their failing to put in place proper safeguards, Zelle became a gold mine for fraudsters, while often leaving victims to fend for themselves.”
The CFPB’s lawsuit alleged hundreds of thousands of consumers filed fraud complaints and were denied assistance, with some being told to contact the fraudsters directly to recover their money.
The CFPB also alleged the defendants violated the Consumer Financial Protection Act and the Electronic Fund Transfer Act and its implementing Regulation E.
Check back with Dodd Frank Update for more on this story.