• CFPB sues JPMorgan, financial institution of America, and Wells Fargo over Zelle
• Banks failed to protect consumers, CFPB alleges
• Lawsuit driven by political factors, says Zelle’s parent

The U.S. buyer monetary Protection Bureau said on Friday it filed a lawsuit against JPMorgan Chase JPM.N, financial institution of America BAC.N and Wells Fargo WFC.N for failing to protect consumers from alleged “widespread fraud” on payments platform Zelle.

The lawsuit was initiated as the watchdog moves ahead with a bold agenda in the final weeks of Joe Biden’s Democratic administration in a bid to advance buyer protections before President-elect Donald Trump overhauls the agency, Reuters reported last month. The moves defy congressional Republicans, who have called for agencies to cease rulemaking.

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 straightforward for fraudsters to drain accounts, while providing insufficient protections for consumers or making them whole for losses, CFPB Director Rohit Chopra told journalists in a briefing. “These banks broke the law by running a payments structure that made fraud straightforward, while refusing to assist 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.

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The proliferation of fraud and scams on Zelle has attracted attention from U.S. lawmakers, including Democratic Senator Elizabeth Warren and regulators concerned about buyer 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 corporation that operates Zelle and is jointly owned by banks.

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

Federal rules require banks to reimburse customers for unauthorized 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 buyer watchdog describes 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 recent presidential administration and likely leadership changes at the agency, including the probable departure of director Rohit Chopra. Billionaire Elon Musk, a close Trump adviser who is leading an attempt 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.

Zelle is a payments network owned by seven banks, including JPMorgan and BofA. It has over 143 million American consumers and tiny businesses as customers.

In 2023, despite a 27% boost in deal volume, reports of scams and fraud decreased by nearly 50%, Early Warning said in a statement, citing its own data.

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

The percentage of combined consumers who were reimbursed for transactions that were disputed as fraud fell to 38% in 2023 across JPMorgan, financial institution of America and Wells Fargo, according to a U.S. Senate committee update. That fell from 62% in 2019.

“As a last ditch attempt 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 Reuters. “It’s a stunning demonstration of regulation by enforcement, skirting the required rulemaking procedure.”

JPMorgan CEO Jamie Dimon has been an outspoken critic of several major U.S. monetary regulatory initiatives, including those from the CFPB, and he has vowed to resist measures he said would not make banks safer.

“We strongly dissent with the CFPB’s attempt to impose huge recent costs on the 2,200 banks and capital unions that propose the free Zelle service to clients,” a spokesperson for BofA said.

Wells Fargo declined to comment.

JPMorgan and BofA both signaled in filings earlier 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 on Zelle.

Reporting by Ismail Shakil in Ottawa and Manya Saini, Niket Nishant in Bengaluru and Pete Schroeder and Hannah Lang in recent York; Editing by Chizu Nomiyama and Lananh Nguyen and Aurora Ellis