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The Key Takeaways
- Regulators filed a lawsuit against Zelle's operator Friday claiming it failed to prevent or sufficiently respond to "widespread fraud."
- According to the Consumer Financial Protection Bureau, Zelle has lost $870 Million in fraud since its launch in 2017.
- The lawsuit names Zelle's operator, Early Warning Services, and banks with a stake in the company, including Bank of America, JPMorgan Chase and Wells Fargo. Early Warning Services called the case "legally and factually flawed."
Zelle along with three banks who are the backbone of one of America’s largest payment networks, did not protect their customers from “widespread fraud,” Federal regulators claimed in a Friday lawsuit.
According to the Consumer Financial Protection Bureau, since its launch seven years earlier, $870,000,000 has been lost due fraud. This is because the three co-owners of Zelle, Bank of America (BAC), JPMorgan Chase(JPM)and Wells Fargo(WFC), have not provided compensation for victims of fraud, or issued refunds when errors were made, as per law. In all, regulators said, “hundreds of thousands” Thousands of consumer complaints were submitted, but they received little or no help.
Zelle disputed regulators’ claims calling the lawsuit "meritless," and said the lawsuit could cause issues for the 143 million Americans and small businesses that rely on its free service. Zelle lets people send money quickly to each other from their accounts by linking an email or phone number.
Regulators said that the network was launched with inadequate fraud protection. Venmo’s and CashApp’s success prompted the banks to scramble and Zelle, Zelle’s operator Early Warning Services. “By their failing to put in place proper safeguards, Zelle became a gold mine for fraudsters, while often leaving victims to fend for themselves," CFFB Director Rohit Chopra said.
The CFFB is seeking compensation for victims of fraud, an unspecified civil penalty and a court order requiring Zelle to cease practices that violate the law.
Losses could have been curtailed if banks shared information with one another about scammers and took action before offenders had the chance to exploit multiple users, the agency said. By failing to fully examine customer complaints, Zelle's backers also didn't reflect on its shortcomings or take meaningful steps to improve them, regulators said.
Zelle's reimbursement policies exceed legal requirements, Early Warning Services said. The network has a following because it's trusted, it said.
Other banks have a stake in Early Warning Services, but 73% of Zelle’s activity last year came from Bank of America, JPMorgan Chase and Wells Fargo, the lawsuit said.
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