On December 20, 2024, the Consumer Financial Protection Bureau (CFPB) took legal action against Early Warning Services, LLC (EWS), alongside major financial institutions Bank of America, N.A., JPMorgan Chase Bank, N.A., and Wells Fargo Bank, N.A. The lawsuit alleges that these entities failed to adequately protect the Zelle network from fraudulent activities and system defects, resulting in substantial financial losses for consumers, estimated to be in the hundreds of millions of dollars.
Early Warning Services Llc, the central figure in this legal battle, is identified as a financial technology and consumer reporting firm. Headquartered in Scottsdale, Arizona, Early Warning Services LLC is notably co-owned by seven of the nation’s largest banks, including defendants Bank of America, JPMorgan Chase, and Wells Fargo. EWS is responsible for the design and operation of the Zelle network and its associated application. Zelle has become the most prevalent peer-to-peer payment network in the United States, facilitating widespread digital financial transactions.
The CFPB’s complaint details how, in 2017, the defendants prioritized a rapid launch of Zelle to compete in the burgeoning peer-to-peer money transfer market. This rush to market was also intended to capitalize on their existing customer base by directly offering money transfer services. However, the Bureau contends that Early Warning Services LLC and the defendant banks neglected critical consumer protection measures in this rapid rollout.
The core allegation of the lawsuit is that the defendants, including Early Warning Services LLC, violated the Consumer Financial Protection Act’s (CFPA) prohibition against unfair acts or practices. Specifically, they are accused of failing to implement timely, appropriate, and effective strategies to prevent, detect, limit, and resolve fraud incidents within the Zelle Network. This lack of adequate security measures allegedly allowed fraud to proliferate, leading to significant consumer harm.
Furthermore, the complaint asserts that Bank of America, JPMorgan Chase, and Wells Fargo specifically violated the Electronic Fund Transfer Act and its implementing Regulation E. These violations stem from their alleged failure to conduct thorough and reasonable investigations into consumer-reported errors related to Zelle transactions. Additionally, they are accused of improperly classifying incorrect and unauthorized Zelle transfers, failing to treat them as errors as legally mandated under Regulation E.
As a remedy, the CFPB seeks to compel the defendants, including Early Warning Services LLC, to achieve full compliance with consumer financial protection laws. The Bureau is also pursuing consumer redress to compensate those affected by the alleged fraudulent activities and is seeking civil money penalties to hold the defendants accountable for their actions related to the operation of the Zelle network and the alleged failures in fraud prevention and consumer protection.
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CFPB Sues JPMorgan Chase, Bank of America, and Wells Fargo for Allowing Fraud to Fester on Zelle
