The Consumer Financial Protection Bureau (CFPB) has lodged a legal complaint against three major U.S. banks and the operator of Zelle, the country's most prevalent peer-to-peer payment platform, accusing them of enabling fraudulent activities to thrive within their network. The CFPB claims that this negligence has led to substantial financial losses for hundreds of thousands of customers of JPMorgan Chase, Bank of America, and Wells Fargo, amounting to over $870 million since Zelle's inception seven years ago. Zelle, however, disputes these figures. The banks named in the lawsuit, along with four other significant U.S. banks—Capital One, PNC Bank, Truist, and US Bank—jointly own Zelle. CFPB Director Rohit Chopra stated in a press release, "The largest banks in the nation, feeling the pressure from competing payment applications, hastily introduced Zelle. Their failure to implement adequate security measures turned Zelle into a haven for fraudsters, often leaving victims to deal with the consequences on their own." The CFPB has highlighted that customers who reported fraud were largely denied support, with some even being advised to reach out to the fraudsters directly to recover their funds. Furthermore, the CFPB asserts that the entities being sued did not conduct proper investigations into the complaints or provide consumers with the legally mandated reimbursements for fraud and errors.

The CFPB's lawsuit, filed in the U.S. District Court for the District of Arizona, where Zelle's operator Early Warning Services is headquartered, specifically alleges that the banks failed to halt transactions when there were clear signs of fraud and did not protect their account holders from using Zelle for fraudulent purposes. The complaint details the staggering number of complaints about Zelle fraud at JP Morgan Chase, Bank of America, and Wells Fargo, including over $290 million in fraud losses reported by 210,000 Bank of America customers, over $360 million in losses by 420,000 Chase customers, and over $220 million in losses by 280,000 Wells Fargo customers. An agency official stated during a press call that while more than 2,200 financial institutions utilize Zelle, the three banks named in the lawsuit "dominate the majority of Zelle's activity."

In response to the CFPB's allegations, Early Warning Services, the operator of Zelle, vehemently denied the claims, calling the lawsuit "without merit." Jane Khodos, a Zelle spokesperson at EWS, said in a statement, "The CFPB's attacks on Zelle are legally and factually flawed, and it seems that the timing of this lawsuit is driven by political motivations unrelated to Zelle. Zelle is at the forefront of combating scams and fraud, with industry-leading reimbursement policies that surpass legal requirements. The CFPB's misguided attacks will only encourage criminals, increase fees for consumers, hinder small businesses, and make it more difficult for thousands of community banks and credit unions to compete." The company also contested the CFPB's claim regarding the losses of Chase, Bank of America, and Wells Fargo customers, arguing that not every reported fraud claim represents actual payment fraud, as each claim is investigated and often found not to be fraudulent. Zelle, they noted, "goes above and beyond what the law requires and reimburses customers for certain types of scams where the customer authorized the transaction."

However, the CFPB countered by alleging that "the defendants did not actually investigate consumer complaints when they were victims of fraud. The CFPB further alleges that the banks incorrectly denied tens of thousands of fraud claims using flawed reasoning." JPMorgan Chase spokesperson Patricia Wexler criticized the lawsuit as an overreach, stating in an email, "As a last-ditch effort to pursue their political agenda, the CFPB is now overreaching its authority by holding banks accountable for criminals, even including those involved in romance scams. This is a shocking example of regulation by enforcement, bypassing the required rulemaking process." Bank of America, on the other hand, asserted that instances of fraud are rare, with 23 million of the bank's customers using Zelle. "More than 99.95 percent of transactions across the Zelle network are completed without issues. When a client encounters a problem, we work directly with them," said spokesperson Bill Halldin. "We strongly disagree with the CFPB's attempt to impose significant new costs on the 2,200 banks and credit unions that offer the free Zelle service to clients." Wells Fargo declined to comment on the matter.

The CFPB's lawsuit was filed in one of the final weeks of the Biden administration, and it is widely anticipated that President-elect Donald Trump will appoint a new leader for the agency for his term. The implications for the Zelle lawsuit remain uncertain. [Chopra stated in testimony before the House Financial Services Committee earlier this month that while he was confirmed for a five-year term, he respects that "the president can remove us at any time, any day."] "We would typically dismiss a lawsuit filed in the final weeks before an inauguration, but this case could have lasting implications given the populist tendencies of Trump's coalition. Much will depend on who Trump selects as the CFPB director," said Jaret Seiberg, a financial services policy analyst at TD Cowen Washington Research Group, in an email. Nevertheless, Seiberg noted that banks may have a robust defense "as much of the dispute revolves around authorized transactions that later prove to be fraudulent. It is challenging for us to envision a court demanding banks halt transactions that consumers wish to execute." This article has been updated with additional details and context.