I previously wrote about the Consumer Financial Protection Bureau’s lawsuit against Capital One for allegedly misleading consumers about the interest rate on its “360 Savings” accounts. The CFPB, a federal agency dedicated to ensuring customers are treated fairly by banks, lenders and other financial institutions, claimed Capital One’s actions cost customers more than $2 billion in potential interest payments.
After being elected, President Trump and the Elon Musk-led DOGE gutted the CFPB, closing the agency’s headquarters, firing its director, Rohit Chopra, and approximately 1,500 of the CFPB’s 1,700 employees (although the employees’ firing was later blocked by U.S. District Judge Amy Berman Jackson).
With the turmoil at the agency, the CFPB dropped its lawsuit against Capital One, along with other suits against Rocket Homes and Vanderbilt Mortgage and Finance. It also dismissed its lawsuit against Early Warning Services, the parent company of Zelle, an online payment platform.
EWS is co-owned by Bank of America, Capital One, JPMorgan Chase, PNC Bank, Truist, U.S. Bank and Wells Fargo. The joint venture created the Zelle digital payment network as a “faster, safer way” for people to send and receive payments “within the security of their financial institution.”
The suit was originally brought in December, and also named JPMorgan Chase, Wells Fargo and Bank of America as defendants, for they are the largest financial institutions on the network, accounting for 73% of activity on Zelle in 2023. The CFPB alleged the banks failed to protect hundreds of thousands of customers from rampant fraud on Zelle, in violation of consumer financial laws.
The CFPB asserted that the banks rushed to get the peer-to-peer payments platform to market without implementing effective safeguards against fraud. Then, after consumers complained about being defrauded on the service, the defendants largely denied them relief.
Although the CFPB dropped its lawsuit, New York picked up the baton.
Last year, Attorney General Letitia James sued EWS, similarly alleging that Zelle failed to implement certain safeguards which caused “catastrophic harm to millions of consumers” and allowed swindlers to steal more than $1 billion from when it was launched in 2017 to 2023. According to Zelle’s website, the app had 151 million users as of 2024.
James asserts the rush to launch Zelle led to design oversights that made the network “an obvious conduit for fraudulent activity.” Those alleged flaws include Zelle’s quick registration process and lack of verification, which James claims made it easy for scammers to infiltrate the service.
“EWS knew from the beginning that key features of the Zelle network made it uniquely susceptible to fraud, and yet it failed to adopt basic safeguards to address these glaring flaws or enforce any meaningful anti-fraud rules on its partner banks,” the New York AG’s office claimed in a statement. The lawsuit further alleges that EWS failed to enforce rules to prevent fraud, even though it knew its partner banks were violating them.
The lawsuit seeks restitution and damages for New Yorkers affected by fraud on Zelle, as well as a court order requiring the company to maintain anti-fraud measures.
In response, a Zelle spokesperson told CBS News that the lawsuit was a “political stunt” and said it was a “copycat” of the CFPB’s suit.
Ironically, attorneys for EWS purportedly requested to be strictly paid by check.
Reg Wydeven is a partner with the Appleton-based law firm of McCarty Law LLP. He can be reached at pcbusiness@postcrescent.com.
This article originally appeared on Appleton Post-Crescent: In rush to launch, lawsuit alleges Zelle failed to protect consumers
Reporting by Reg Wydeven, For Appleton Post-Crescent / Appleton Post-Crescent
USA TODAY Network via Reuters Connect
By Reg Wydeven, For Appleton Post-Crescent | USA TODAY Network
