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 the payments platform Zelle.

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

The CFPB seeks to stop the alleged unlawful practices via Zelle, secure redress and penalties, and obtain other relief for consumers, it said in a statement.

“What they built became a goldmine for criminals,” making it easy for fraudsters to drain accounts while providing insufficient protections for consumers or making them whole for losses, CFPB Director Rohit Chopra told journalists at a briefing. “These banks broke the law by running a payments system that made fraud easy while refusing to help the victims.”

The CFPB said the banks violated federal law through critical failures, alleging they left the door open to scammers, allowed repeat offenders to hop between banks, ignored red flags that could have prevented fraud and abandoned consumers after fraud occurred.

Zelle is a payments network owned by seven banks, including JPMorgan and Bank of America. It has more than 143 million American consumers and small businesses as customers.

The proliferation of fraud and scams on Zelle has attracted attention from US lawmakers, including Democratic Senator Elizabeth Warren and regulators concerned about consumer protection.

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

Customers of the three banks named in Friday’s lawsuit have lost more than $870m over the seven years since Zelle was introduced, the CFPB said.

‘Legal violations’

Federal rules require banks to reimburse customers for unauthorised payments, for instance if their accounts were hacked. But in some cases, banks have resisted paying back customers who were tricked into making the payments themselves.

The consumer watchdog described how hundreds of thousands of consumers filed fraud complaints and were largely denied assistance with some being told to contact the fraudsters directly to recover their money.

CFPB officials said it would press on with the Zelle enforcement action regardless of the new presidential administration and likely leadership changes at the agency, including the probable departure of Chopra. Billionaire Elon Musk, a close Trump adviser who is leading an effort to curb bureaucracy, has called for abolishing the agency.

“This is an issue that the CFPB has been looking into for a number of years, and we make decisions on when to bring an enforcement action based on case-specific assessments of the facts and legal violations,” the CFPB’s enforcement director, Eric Halperin, told journalists in response to a question about leadership changes in the incoming administration.

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

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

The percentage of consumers who were reimbursed for transactions that were disputed as fraud fell to 38 percent in 2023 across JPMorgan, Bank of America and Wells Fargo, according to a US Senate committee report. That fell from 62 percent in 2019.

“As a last ditch effort in pursuit of their political agenda, the CFPB is now overreaching its authority by making banks accountable for criminals,” a JPMorgan spokesperson said in an emailed statement to the Reuters news agency. “It’s a stunning demonstration of regulation by enforcement, skirting the required rulemaking process.”

JPMorgan CEO Jamie Dimon has been an outspoken critic of several major US financial regulatory initiatives, including those from the CFPB, and he has promised to oppose measures he said would not make banks safer.

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

Wells Fargo declined to comment.

JPMorgan and Bank of America both signalled in filings this year that they could sue the CFPB over the agency’s investigations into Zelle. Wells Fargo disclosed that regulators have been probing its handling of customer disputes in relation to Zelle.