JPMorgan Chase, BofA and Wells Fargo Sued For 'Festering' Fraud On Zelle

A federal watchdog sued three of the nation's largest banks and the operator of the payment service Zelle, alleging they failed to protect consumers and allowed "fraud to fester" on the system.

The Consumer Financial Protection Bureau sued Bank of America, JPMorgan Chase and Wells Fargo, the owners of Zelle, in federal court in Arizona for "enabling systemic fraud and playing dumb when consumers were exploited."

It also sued Early Warning Services, which operates Zelle, the peer-to-peer payment system.

The CFPB said hundreds of thousands of customers have lost more than $870 million since Zelle was launched in 2017.

The suit says the companies, trying to recover from their lack of investment in customer service and consumer-friendly technology, tried to catch up to digital payment apps like Venmo, CashApp and PayPal by creating Zelle and rolling it out before fixing "glaring flaws."

"What they built became a goldmine for criminals: a system that made it easy for fraudsters to move money quickly, while making it nearly impossible for victims to get their money back," Rohit Chopra, director of CFPB, said in a statement.

"By their failing to put in place proper safeguards, Zelle became a gold mine for fraudsters, while often leaving victims to fend for themselves," Chopra added.

The CFPB indicated a series of failures by the banks, including:

* Their limited identity verification systems that allowed bad actors to create accounts and target Zelle users.

* They were too slow in restricting repeat offenders as they hopped between banks to exploit the system.

* They did not respond to repeated warnings of fraud to prevent further scams.

* They failed to investigate the fraud complaints from consumers.

Early Warning Services said it would defend itself against the "meritless lawsuit," NBC Los Angeles reported.

JPMorgan Chase said the CFPB is "overreaching its authority by making banks accountable for criminals, even including romance scammers," NBC News reported.

Wells Fargo declined to comment to NBC News.

"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 spokesman for Bank of America said, CNN reported.