US consumer watchdog sues big banks over ‘widespread’ fraud on Zelle app us election 2024 news

The United States Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against JPMorgan Chase, Bank of America, and Wells Fargo for failing to protect consumers from alleged “widespread fraud” on payments platform Zelle.

The lawsuit, filed Friday, comes as the watchdog moves forward with a bold agenda in the final weeks of President Joe Biden’s Democratic administration to advance consumer protections before Republican President-elect Donald Trump overhauls the agency. . The moves defy congressional Republicans, who have called on agencies to stop making rules.

The CFPB seeks to prevent, redress and punish alleged unlawful practices through Zelle, and seek other relief for consumers, it said in a statement.

“What they created became a goldmine for criminals,” CFPB Director Rohit Chopra told reporters at a briefing, opening up accounts for fraudsters while providing inadequate protections for consumers or leaving them liable for losses. Evacuation became easier. “These banks broke the law by running a payment system that facilitated fraud while refusing to help victims.”

The CFPB said the banks violated federal law through serious failures, alleging they left the door open to scammers, allowed repeat offenders to move between banks, ignored red flags that could indicate fraud. Could have stopped and left consumers after the fraud occurred.

Zelle is a payments network owned by seven banks, including JPMorgan and Bank of America. It has more than 143 million U.S. consumer and small business customers.

The prevalence of fraud and scams on Zelle has drawn the attention of US lawmakers, including Democratic Senator Elizabeth Warren, and regulators concerned about consumer protection.

Early Warning Services, the company that operates Zelle and is jointly owned by the banks, said, “The CFPB’s attacks on Zelle are legally and factually flawed, and the timing of this lawsuit appears to be motivated by political factors.”

The CFPB said customers of the three banks named in Friday’s lawsuit lost more than $870 million in the seven years since Zelle launched.

‘Legal violation’

Federal regulations require banks to reimburse customers for unauthorized payments, for example if their accounts are hacked. But in some cases, banks have resisted paying back customers who were duped into making the payments themselves.

The consumer watchdog reported how hundreds of thousands of consumers lodged fraud complaints and were largely denied assistance, with some being told to contact fraudsters directly to get their money back.

CFPB officials said they would pursue prison enforcement action regardless of the new presidential administration and potential leadership changes at the agency, including Chopra’s possible departure. Billionaire Elon Musk, a close Trump adviser who is leading the effort to curb the bureaucracy, has called for the agency to be dismantled.

“This is an issue the CFPB has been looking at for several years, and we make decisions when to take enforcement action based on case-specific assessments of the facts and legal violations,” said CFPB Director of Enforcement, Eric Halperin, told reporters in response to a question about the leadership change in the incoming administration.

In 2023, despite a 27 percent increase in transaction volume, reports of scams and fraud decreased by nearly 50 percent, Early Warning said in a statement citing its data.

In November 2023, banks on the payment app began refunding funds to victims of fraudulent scams to address consumer protection concerns.

The percentage of consumers who got reimbursed for transactions disputed as fraudulent fell to 38 percent at JPMorgan, Bank of America and Wells Fargo in 2023, according to a US Senate committee report. This fell from 62 percent in 2019.

“As a last-ditch effort to advance its political agenda, the CFPB is now overstepping its authority by holding banks accountable for criminals,” a JPMorgan spokesperson said in an emailed statement to Reuters news agency. “This is an astonishing display of regulation by enforcement, bypassing the necessary rulemaking process.”

JPMorgan CEO Jamie Dimon has been a vocal critic of several major US financial regulatory initiatives, including the CFPB, and has promised to oppose measures that he says will not make banks safer.

A spokesperson for Bank of America said, “We strongly disagree with the CFPB’s effort to impose substantial new costs on the 2,200 banks and credit unions that provide free Zelle service to customers.”

Wells Fargo declined to comment.

JPMorgan and Bank of America both indicated in filings this year that they may sue the CFPB over the agency’s investigation into Zelle. Wells Fargo revealed that regulators are investigating Zelle’s handling of customer disputes.