$870M in Zelle Fraud Losses Spark Lawsuit Against Platform, 3 Major Banks.
The Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against Bank of America, JPMorgan Chase, and Wells Fargo, along with Zelle operator Early Warning Services, over widespread fraud on the peer-to-peer payment platform. The lawsuit claims that these banks failed to protect consumers, resulting in over $870 million in losses over the past seven years.
Rush to Market Without Safeguards
The CFPB alleges that the banks rushed Zelle to market to compete with other payment apps like Venmo and CashApp, without implementing effective consumer safeguards. This haste led to Zelle becoming a “gold mine” for fraudsters, leaving many victims without recourse. The CFPB Director, Rohit Chopra, stated that the banks knew their customers’ money was being stolen but did not take adequate steps to address the issue.
Banks’ Response to Fraud Claims
The lawsuit highlights that hundreds of thousands of consumers filed fraud complaints, but most were denied assistance. In some cases, consumers were even advised to contact the fraudsters directly to recover their money. The banks have defended their actions, arguing that many reported fraud claims were not found to involve actual fraud after investigation. They also believe that the CFPB’s actions are politically motivated and an overreach of authority.
$870M in Zelle Fraud Losses Spark Lawsuit Against Platform, 3 Major Banks.
The impact on consumers has been significant, with many losing substantial amounts of money to fraud. The CFPB’s investigation found that the banks reimbursed scam victims only 12% of the time in 2023. This lack of support has left many consumers feeling vulnerable and frustrated with the system.
If the CFPB wins the lawsuit, it could result in significant financial penalties for the banks involved. The CFPB is seeking to halt unlawful practices, secure redress for harmed consumers, and obtain a civil money penalty. The banks, however, have vowed to fight the lawsuit, arguing that it would impose huge new costs on the banks and credit unions offering the free Zelle service.
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