Zelle, big banks facing digital fraud lawsuit
By: Antra Johnson
USA today Network
WILMINGTON Delaware - The consumer Financial Protection Bureau has field suit against the operator of the digital payment network Zelle and three major U.S. banks alleging that these institutions failed to adequately protect customers form widespread digital payment fraud.
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The lawsuit names Early Warning Service, Bank of America, JPMorgan Chase and Wells Fargo, accusi9ng them of contributing more than $870 million in scam-related losses on the Zelle network.
..... Early Warning Services, based in Scottsdale, Arizona, developed and operates the Zelle network. It is co-owned by seven major U.S. banks, including PNC Bank. The banks created Zelle as a "fat and easy way" for customers to send money digitally, but regulators claim that this speed has come at a significant cost.
..... CFPB Director Rohit Chopra accused the banks of prioritizing speed over security.
..... "The nation's banks felt threatened by competing payment apps, so they rushed to put out Zelle," he said. "By failing to implement proper safeguards, Zelle became a gold mine for fraudsters."
..... The CFPB detailed alleged critical failures by Early Warning Services and the defendant banks, including:
* Weak identity verification: Zelle's limited methods allowed scammers to easily cerate accounts, rerouting payments intended for victims to fraudulent account.
* Failure to track repeat offenders: Banks did not share information about known fraud cases, enabling bad actors to exploit accounts across multiple institutions.
* Ignoring red flags: Despite reeving hundreds of thousands of fraud complaints, the banks failed to act on this information to prevent future scams.
* Poor customer support after fraud: Banks violated the Electronic Fun Transfer Act by failing to properly investigate complaints and take corrective action.
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The case highlights a growing debate about digital payment safety: As banks promote new technologies like artificial intelligence to protect customers, federal regulators claim they're not doing enough to prevent fraud in the first place.
..... The Consumer Bankers Association, representing the nation's largest banks, pushed back, arguing the CFPB is introducing legal obligations beyond what Congress outlined.
..... According to a statement released by Lindsey Johnson, president of the association, financial institutions are already working hard to protect customers but the industry can;t fight fraud along. "In a time when fraud and scam activity is surging across industries and government alike, the CFPB has chosen to single out a platform own by banks, a platform that experiences far fewer instance of fraud compared to others," he said.
..... The Consumer Bankers Association emphasized banks' efforts to combat fraud through innovation like multi-factor authentication, chip-enabled cards and AI tools to prevent suspicious transactions.