Big U.S. banks face regulatory probe over handling of Zelle fraud – report

The U.S. Consumer Financial Protection Bureau is investigating JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), among other big banks, for their handling of customer funds on Zelle, the peer-to-peer payments platform that has drawn attention for its role in scams and fraudulent transactions, according to a Wednesday media report.

The probe is extensive and aims to assess the lenders’ responses to customer disputes involving Zelle transactions, the Wall Street Journal reported, citing people familiar with the matter.

JPMorgan (JPM) disclosed on Friday that it’s considering litigation against the CFPB over inquiries into the Zelle payment app. Do note that JPM, as well as Wells Fargo (WFC), BofA (BAC) and four other banks, own Zelle.

Banks are obligated to reimburse customers for transactions they did not approve, though there is no legal safeguard for customers who initiate the transactions on their own. Are the banks taking sufficient action to shut down accounts managed by scammers? This is a key focus of the CFPB’s broad investigation.

The consumer watchdog is also investigating how thoroughly banks verify the identity and background of deposit-account customers who later engage in fraudulent activities, the WSJ reported.

The Journal reported late in 2022 that the banks that own Zelle, including BAC, JPM and WFC, were in advanced talks for a plan to refund customers and each other when customers are duped into paying scammers using the network. Subsequently, Sen. Elizabeth Warren (D-MA) had called out Wells Fargo (WFC) CEO Charles Scharf for being “evasive and misleading” with her questions regarding increased fraud impacting the bank’s customers on Zelle.