Dec. 20 (UPI) — Three of the largest U.S. banks rushed the Zelle digital payment system to market “without implementing effective consumer safeguards,” according to a lawsuit filed Friday by the Consumer Financial Protection Bureau.
The suit filed by the CFPB contends Bank of America, JPMorgan Chase, and Wells Fargo failed to properly protect users of the peer-to-peer payment network.
The three banks are all partial owners of the digital platform, which launched in 2017 to compete with other similar payment apps like Venmo or CashApp.
The CFPB contends the banks’ negligence allowed fraud to permeate and led to hundreds of millions of dollars in consumer losses, by “failing to properly investigate complaints or provide consumers with legally required reimbursement for fraud and errors.”
The agency “has the authority to take action against institutions violating consumer financial protection laws, including engaging in unfair, deceptive, or abusive acts and practices.”
The lawsuit seeks financial compensation for victims as well as to “halt unlawful conduct” on Arizona-based Zelle, the most widely available peer-to-peer payment network in the United States.
Among other things, the complaint alleges the company’s owners had lax user verification methods, which were knowingly exploited by criminals. It also accuses them of permitting known criminals to set up new accounts with other banks and failing to recognize or track illicit behavior, ignoring other red flags and properly failing to address customer complaints.
“The nation’s largest banks felt threatened by competing payment apps, so they rushed to put out Zelle,” CFPB Director Rohit Chopra said in a statement Friday.
“By their failing to put in place proper safeguards, Zelle became a gold mine for fraudsters, while often leaving victims to fend for themselves.”
Zelle is owned by Early Warning Services, a limited liability company co-owned by seven major American banks. In addition to the three institutions named in the CFPB lawsuit, Early Warning Services is also partly owned by Capital One, PNC Bank, Truist and U.S. Bank.