A federal regulator has initiated a lawsuit against major banks, including JPMorgan Chase, Wells Fargo, and Bank of America, alleging that they neglected to safeguard countless consumers from widespread fraud occurring on the payment platform Zelle, thereby breaching consumer financial regulations.

The Consumer Financial Protection Bureau (CFPB) filed a civil complaint asserting that the banks hurried the introduction of the peer-to-peer payment service without implementing adequate fraud protections. Following numerous complaints from users about fraud incidents, the banks largely failed to provide relief to affected consumers.

According to the complaint, significant issues became evident shortly after Zelle’s debut, with many consumers experiencing fraudulent activities. However, it claims that the defendants took little to no corrective actions to rectify these serious flaws for an extended period.

The CFPB contends that these financial institutions violated federal laws overseeing electronic funds transfers, which mandate the execution of “reasonable investigations” when consumers report transaction discrepancies. Furthermore, the agency argues that the banks failed to take necessary precautions to prevent and respond to fraud on the Zelle platform, which constitutes unfair practices. The CFPB is pursuing monetary compensation for refunds, damages, and penalties, though the exact amount sought remains unspecified.

Reports indicate that consumers connected with the three banks have incurred losses exceeding $870 million since Zelle’s inception seven years ago due to these alleged shortcomings, as noted by the CFPB.

The lawsuit also names Early Warning Services, a fintech firm located in Scottsdale, Arizona, which oversees the operation of Zelle. This company is owned by seven banks, including the aforementioned institutions. Together, these banks represent the majority of transactions on the Zelle network, accounting for 73% of its activity in the past year.

In response, Bank of America expressed strong disagreement with the lawsuit, claiming it would impose significant financial burdens on banks and credit unions that offer the complimentary Zelle service. The bank asserted that over 99.95% of transactions on the Zelle network occur without complications.

JPMorgan stated that the CFPB is “overreaching its authority by holding banks responsible for criminal acts.” Meanwhile, Wells Fargo chose not to comment on the ongoing lawsuit.

Early Warning Services criticized the lawsuit as both “legally and factually flawed,” emphasizing their commitment to combating scams and fraud. They claimed that Zelle has established reimbursement policies that exceed legal requirements.

Since its 2017 launch, Zelle has rapidly grown to become one of the leading peer-to-peer payment systems in the United States, boasting over 143 million users. In the first half of 2024 alone, Zelle users conducted $481 billion in transactions through over 1.7 billion transfers, according to data from the CFPB.