CFPB sues Zelle and banks over fraud, reimbursement failures

The Consumer Financial Protection Bureau (CFPB) sued the operator of Zelle and three major banks—JPMorgan Chase, Bank of America, and Wells Fargo—accusing them of failing to have anti-fraud measures in the payment app.

The banks aggressively marketed the app to compete with other payment platforms like Venmo, which came out in 2009.

The regulator also alleges that the banks didn’t address fraud complaints appropriately and reimburse victims.

The CFPB reported that customers lost over $870 million since Zelle launched in 2017.

Last year, the peer-to-peer payment service processed $806 billion in 2023, but fraud disputes totaled $166 million. The three banks reimbursed only 38% of those claims, often citing customer-authorized scams rather than fraud.

The CFPB criticized Zelle’s weak identity verification and lack of cooperation between banks, enabling fraudsters to exploit the system.

Lawmakers and regulators have earlier asked for consumers to have the same protections provided to those who use cards.

Zelle’s operator, Early Warning Services, called the lawsuit “meritless,” arguing that in 2023, fraud incidents declined by nearly 50%.

The CFPB aims to halt these practices and impose penalties, continuing its crackdown on banking fees and fraud.