$870 Million in Fraud: The Zelle Story
Big banks profit, customers lose with bank-owned payment app
$870 million in fraud over seven years.
That’s it.
That’s the Zelle story.
But it’s not the whole story.
America’s largest banks own Zelle. And they are not interested in putting in the resources (money) to stop fraud on the platform OR to help customers who have been defrauded.
JPMorgan Chase, Bank of America, and Wells Fargo reimbursed just 38% of fraud claims on the Zelle platform, according to a July Senate report that looked at disputed unauthorized transactions.
Now, these three bad acting big banks face a lawsuit from the Consumer Financial Protection Bureau (CFPB).
Three banking giants who co-own the payment app Zelle are now facing a lawsuit alleging they allowed fraud to persist on their platforms while they profited.
While banks were trying to get in on some of the profits realized by payment app leaders such as Venmo, CashApp, and PayPal, they created Zelle - and then failed to install key fraud protections.
Assuming the 38% reimbursement rate on fraud claims, some $500 million was stolen from consumers and not returned. Banks can stop this by investing in fraud prevention strategies or by working with customers to get money returned.
The CFPB complaint says the big banks did neither. Once banks were made aware of fraud, they often left consumers on their own to attempt to get money back.
Now, there may be some accountability for this big banks who routinely take actions that harm their own customers in the name of higher profits.
Bank of America was recently fined $250 million for charging illegal fees.
The findings of the CFPB investigation indicate that Bank of America failed to credit promised credit card rewards - essentially keeping money promised to customers. The bank also charged overdraft fees ($35 each) multiple times for the same transaction, resulting in millions of dollars in illegally-gained profit at the expense of customers. The bank also opened new accounts for existing customers without informing the customer or receiving their consent.
Wells Fargo will pay $2 billion in refunds to consumers and an additional $1.7 billion fine after the CFPB found the bank’s practices harmed 16 million consumers.
Consumer advocates applaud the possibility of accountability for three of the nation’s biggest banks.
“Payment apps like Zelle should bring safety along with the convenience of transferring funds digitally,” said Christine Chen Zinner, senior policy counsel at Americans for Financial Reform. “As traditional large financial institutions seek to offer advanced technology and so-called fintech products, these banks must meet their obligation to be both sound and meet federal consumer protection standards.”
The senate did a hearing with the banks that own Zelle earlier this year. It was one of the hearings that doesn’t happen very often, but you couldn’t tell the difference between the democrats and the republicans on the committee. They were both outraged at the bank’s failure to protect the consumer. Another example of why the CFPB is so important to consumers. Let’s hope they can get something done before Rohit is booted from the CFPB! (I’ll be very sad when that happens).