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The Consumer Financial Protection Bureau early Friday said it has sued Early Warning Services LLC as well as Bank of America, JPMorgan Chase, and Wells Fargo, alleging the Zelle person-to-person payments network failed to protect consumers against fraud. The banks are three of the seven financial institutions that own Early Warning, the company that operates Zelle.
In its suit, some of which is redacted, the CFPB levels 10 counts against the defendants and asks the U.S. District Court for the District of Arizona to permanently enjoin the defendants from committing what the bureau says were violations of the Electronic Funds Transfer Act, Regulation E, and the Consumer Financial Protection Act. The suit asks for monetary relief but does not specify an amount.
Some 143 million U.S. consumers and small businesses use Zelle, according to Early Warning.
Representatives of two of the three defendant banks did not immediately respond to a request for comment from Digital Transactions News. A representative of Wells Fargo deferred to Early Warning, which issued a statement calling the CFPB’s suit “legally and factually flawed.” Zelle “leads the fight against scams and fraud and has industry-leading reimbursement policies that go above an beyond the law,” the statement says.
“We have made every effort to engage and cooperate with the CFPB on this matter,” the statement says, “however, they fail to acknowledge Zelle is an essential part of protecting Americans from fraud and scam due to our highly effective, multilayered fraud and scam countermeasures.” The bureau also “fails to acknowledge our consumer reimbursement policies that already go beyond legal and regulatory requirements.”
The statement cites figures indicating reports of scams and fraud dropped nearly by half last year, despite a 27% rise in transactions. Some 99.5% of payments were sent on the network “without a report of scams and fraud,” the statement says.
Zelle, which Early Warning launched in 2017 to compete with services such as PayPal Holdings Inc. and its Venmo network, has been the subject of controversy for several years over scams in which users allege they were gulled into transferring funds to fraudsters.
Controversy over Early Warning’s response to scams on Zelle erupted in 2022 and led to demands from Elizabeth Warren, D-Mass., and seven other U.S. Senators for more information from Early Warning regarding fraud and scams on the network. Last year, banks in the network began issuing refunds to consumers who had been duped by fraudsters into sending money.
Besides the three defendants in the CFPB suit, Early Warning is owned by Capital One, PNC Bank, Truist, and U.S. Bank. It could not be immediately determined why the CFPB omitted these other owners from its suit.
