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A recent lawsuit is targeting Zelle, a popular peer-to-peer payment service, for allegedly failing to provide adequate early warning services to its users.
The lawsuit claims that Zelle's lack of robust security measures has led to a surge in scams and fraudulent activities, with many users falling victim to these schemes.
In 2020, Zelle facilitated over 5 billion transactions, but it's estimated that 1 in 5 of these transactions were scams.
Zelle Lawsuit News
The CFPB has filed a lawsuit against Early Warning Services, the company that operates Zelle, alleging that it failed to protect consumers against fraud. The lawsuit names three banks that own Early Warning: Bank of America, JPMorgan Chase, and Wells Fargo.
The CFPB is seeking to stop the alleged unlawful practices, secure redress and penalties, and obtain other relief. The agency alleges that hundreds of thousands of Zelle customers had filed complaints about Zelle fraud to the banks, but often didn't get any help.
Zelle has become a major U.S. peer-to-peer payment network service, with 2,200 participating banks and credit unions passing funds for 143 million users. The system handled 1.7 billion transactions valued at $481 billion in the first half of this year.
Early Warning Services countered the allegations by calling out the CFPB's fraud losses figure as being inaccurate. The company said that some of the consumer losses included were later disproved.
Some 99.5% of payments were sent on the Zelle network "without a report of scams and fraud" last year, according to Early Warning. The company claims that reports of scams and fraud dropped nearly by half last year, despite a 27% rise in transactions.
The CFPB's lawsuit alleges that Zelle's "shoddy safeguards" and faulty design allowed fraudsters to thrive on the network. The agency also faulted Early Warning and the named banks for not properly investigating complaints and often denying reimbursement for errors and fraud.
Consumer advocates have hailed the federal agency's action, calling it an important step in holding Zelle's operators accountable.
CFPB Lawsuit Against Banks
The Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against Early Warning Services, the company behind Zelle, as well as Bank of America, JPMorgan Chase, and Wells Fargo.
The lawsuit alleges that the defendants failed to protect consumers against fraud, with hundreds of thousands of customers filing complaints about Zelle fraud to the banks. The CFPB claims that the banks didn't properly investigate these complaints, and often denied reimbursement for errors and fraud.
The CFPB is seeking to hold the companies accountable for their role in enabling systemic fraud, and is asking the court to stop the alleged unlawful practices and secure redress and penalties.
Frost Bank Counsel Seeks Extension in Texas
Frost Bank's counsel negotiated an extension to respond in Texas on January 19, 2021. This was to open settlement negotiations and establish an unopposed agreement to a 45-day extension for Early Warning to answer the complaint in Frost Bank.
Judge Albright granted Frost Bank's and Mr. Grecia's request for extension on January 20, 2021, setting an answer date of March 22, 2021. This was after Early Warning's counsel met with Mr. Grecia to discuss the extension.
Early Warning's counsel, as Frost Bank's indemnitor, met with Mr. Grecia on January 19, 2021. However, Attorney Johnson's declaration contradicts this, stating that Early Warning did not agree to indemnify Frost Bank until February 22, 2021.
Mr. Grecia is apparently confusing the names of counsel for Frost Bank and Early Warning, both of which begin with Baker. This confusion led to the incorrect assumption that Early Warning agreed to the extension on January 19, 2021.
CFPB Sues BofA, Chase, Wells Over Zelle Fraud
The Consumer Financial Protection Bureau (CFPB) has taken action against several major banks, including Bank of America, JPMorgan Chase, and Wells Fargo, over their role in enabling Zelle fraud. The CFPB alleges that the banks failed to protect consumers against fraud on the Zelle network.
The CFPB is seeking to stop the alleged unlawful practices, secure redress and penalties, and obtain other relief. This includes holding the companies accountable for their role in enabling systemic fraud and then playing dumb when consumers were exploited.
Zelle has been the subject of controversy for several years over scams in which users allege they were gulled into transferring funds to fraudsters. Some 143 million U.S. consumers and small businesses use Zelle, according to Early Warning Services LLC.
The CFPB notes that hundreds of thousands of Zelle customers had filed complaints about Zelle fraud to the banks, but often didn't get any help. The banks didn't properly investigate the complaints, and often denied legally required reimbursement for errors and fraud.
The Electronic Fund Transfer Act, along with other laws, give consumers rights beyond having unauthorized transfers reimbursed. In certain cases, service providers may also be required to undertake investigations regarding complaints with the outcomes disclosed to the customers who complained.
Consumer advocates, such as the National Consumer Law Center, have hailed the federal agency's action. The CFPB is standing up for people who weren't able to get the big banks to take their claims of fraud seriously and return their hard-earned money.
Reactions to CFPB Lawsuit
The CFPB lawsuit against Early Warning Services has sparked a range of reactions from different parties involved.
Consumer advocates hail the federal agency's action, calling it an important step in holding Zelle's operators accountable for protecting consumers against fraud.
The National Consumer Law Center praised the CFPB for standing up for people who were unable to get their claims of fraud taken seriously by the banks.
The CFPB lawsuit details show that 143 million U.S. consumers and small businesses use Zelle, highlighting the scope of the problem.
Early Warning Services countered the allegations by calling out the CFPB's fraud losses figure as being inaccurate, saying some reported fraud claims were later disproved.
The company also suggested the lawsuit appears to be driven by political factors unrelated to Zelle, although it didn't elaborate on what those factors might be.
JPMorgan Chase echoed this sentiment, stating the CFPB is overreaching its authority by making banks accountable for criminals, including romance scammers.
Consumer advocates disagree, saying the lawsuit is a necessary step in addressing the electronic payments problem and holding service providers accountable for their fraud prevention efforts.
The Electronic Fund Transfer Act gives consumers rights beyond just having unauthorized transfers reimbursed, and service providers may be required to undertake investigations and disclose outcomes to customers who complained.
The CFPB lawsuit's details also highlight the extent of the service providers' fraud prevention efforts, or lack thereof, and the need for more action to address the problem.
Sources
- https://www.paymentsdive.com/news/cfpb-lawsuit-early-warning-services-zelle-payments-fraud-banks/736163/
- https://casetext.com/case/early-warning-servs-llc-v-grecia
- https://www.earlywarning.com/press-release/zelle-responds-cfpbs-meritless-lawsuit
- https://www.digitaltransactions.net/the-cfpb-sues-early-warning-bofa-chase-and-wells-over-zelle-fraud/
- https://www.nbcnews.com/business/business-news/cfpb-sues-bank-of-america-jpmorgan-wells-fargo-over-zelle-fraud-rcna185007
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