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Feds Sue Zelle, Alleging Nation’s Biggest Banks Failed to Stop Fraud
The Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against Zelle and three major banks – Bank of America, JPMorgan Chase, and Wells Fargo – alleging that they failed to prevent widespread fraud on the peer-to-peer payment network.
According to the CFPB, the financial institutions ignored customer complaints and allowed users to lose hundreds of millions of dollars in scams. The agency claims that the banks’ failure to implement proper safeguards resulted in Zelle becoming a “gold mine for fraudsters,” leaving victims to fend for themselves.
The lawsuit alleges that the three banks, which own Early Warning Services, which operates Zelle, rushed to bring the payment network to market without ensuring adequate protection for users. This decision allowed scammers to take advantage of unsuspecting customers, with over $870 million lost in fraudulent transactions since 2017.
Zelle has been slow to implement anti-fraud measures, including closing accounts accused of fraud, and has permitted the registration of emails impersonating legitimate entities, according to Jaret Seiberg, an analyst with TD Cowen Washington Research Group. This lack of action has left customers without adequate recourse in the event of a fraudulent transaction.
The CFPB claims that thousands of customers have filed fraud complaints and were denied assistance by Zelle and the three banks. In some cases, users were advised to contact the scammers themselves to recover their losses.
The lawsuit also alleges that JPMorgan Chase received over 420,000 customer complaints involving more than $360 million in fraudulent transactions; Bank of America heard from 210,000 customers with over $290 million in fraud losses; and Wells Fargo tallied $220 million in fraud losses by 280,000 people.
Early Warning Services began refunding money to an undisclosed number of fraud victims in 2023 amid pressure from lawmakers. In a report issued in late 2022, Sen. Elizabeth Warren (D-Mass.) found that fraudulent activities on Zelle were increasing and large banks typically refused to compensate victims.
Zelle has responded by calling the allegations “legally and factually flawed” and stating that the timing of the lawsuit is driven by political factors unrelated to the company’s operations.
JPMorgan Chase also accused the CFPB of pursuing a “political agenda,” claiming that the agency is overreaching its authority by holding banks accountable for criminal activities, including romance scams.
Source: http://www.cbsnews.com
