According to a report by The Wall Street Journal on Wednesday (August 7th), the federal regulatory agency, the Consumer Financial Protection Bureau (CFPB), is investigating how some of the largest banks in the United States handle customer funds on the peer-to-peer payment platform Zelle, which has been under scrutiny for fraud and fraudulent transactions.
The report cited sources saying that the CFPB is focusing its investigation on several major banks including JPMorgan Chase, Bank of America, and Wells Fargo.
It is reported that the scope of this investigation is extensive and aims to examine how banks respond when customers dispute transactions made through Zelle. JPMorgan Chase disclosed in a document submitted last Friday that it is responding to inquiries from the CFPB regarding Zelle, and other major banks are expected to disclose their interactions with the regulatory agency soon.
Zelle is a popular transfer service platform owned by a consortium of seven of the largest banks in the United States, including JPMorgan Chase. However, with rapid business growth, complaints have also increased, with customers claiming that banks have not taken sufficient measures to help them recover funds lost to scams on the platform.
Sources say that one focus of the CFPB investigation is whether banks are proactive enough in closing accounts controlled by scammers.
Banks have stated that the majority of transfers made through Zelle are legitimate and argue that they cannot reasonably prevent all improper activities conducted through the Zelle service.
In a document submitted last Friday, JPMorgan Chase stated that the CFPB is either preparing to reach a settlement with the bank regarding its investigation or is preparing to take the matter to court.
Wells Fargo had previously disclosed in public documents that government agencies have been investigating how the bank handles customer disputes arising from transfers made through Zelle.
Consumer complaints have also caught the attention of U.S. congressional members. Richard Blumenthal, chairman of the Senate Permanent Subcommittee on Investigations, wrote to CFPB Director Rohit Chopra on August 4th, urging the regulatory agency to investigate the practices of Zelle operator Early Warning Services, as well as JPMorgan Chase, Bank of America, and Wells Fargo in resolving Zelle transaction disputes.
In a press release on August 5th, the senator stated that these three banks collectively account for 73% of Zelle transaction volume.
The Senate Permanent Subcommittee on Investigations held a hearing on July 23, where the CEO of Early Warning Services, Cameron Fowler, and executives from the three aforementioned banks testified. However, in his letter to the CFPB Director on August 4th, Blumenthal wrote that the “evasive responses from these three banks” further heightened concerns among lawmakers about how these banks handle Zelle transaction disputes, thus urging them to take appropriate action to ensure that these institutions handle consumer fraud reports comprehensively and promptly.
In a press release announcing the hearing held on July 16, Blumenthal wrote, “Year after year, Zelle and the banks that own it have failed to adequately protect consumers from the growing threats of fraud and deception,” and stated that these companies will be held accountable for this.
Banks argue that bearing the cost of fraud will encourage more fraudulent activities and could lead to billions of dollars in losses.
A spokesperson for Early Warning Services stated in a statement shared with Dajiyuan that the company “has taken proactive measures and is leading the industry in fraud compensation,” surpassing legal requirements in this area.
“Our measures to stop fraud and scams are highly effective, as evidenced by over 99.95% of completed transactions that have not received any reports of fraud or scams,” the statement said, adding that the company cannot independently prevent fraud, “We encourage lawmakers to intensify their support for law enforcement and consumer education efforts to reduce financial crimes.”