Zelle Accused by CFPB of Leaving Customers Vulnerable to Widespread Fraud

Zelle's zeal to compete against payment apps like Venmo and CashApp left hundreds of thousands of its customers vulnerable to widespread fraud, according to a lawsuit filed Friday by the Consumer Financial Protection Bureau.

Operated by Early Warning Services, Zelle is owned by JPMorgan Chase, Bank of America and Wells Fargo. Those companies are accused of failing to install fraud safeguards, which cost customers more than $870 million when fraudsters were able to quickly redirect funds to scam accounts over the years. 

"The nation's largest banks felt threatened by competing payment apps, so they rushed to put out Zelle," CFPB Director Rohit Chopra said in a press release. "By their failing to put in place proper safeguards, Zelle became a gold mine for fraudsters, while often leaving victims to fend for themselves."

Payment apps have grown over the past few years as an alternative to paying in cash or with a credit card. They're especially popular for person-to-person payments since they allow for near-instant money transfers. In the first half of 2024, consumers and small businesses used Zelle to move nearly half a trillion dollars. 

But without proper protections in place, those fast transactions have made it easy for scammers to get their hands on your money. Here's what you need to know about the lawsuit, as well as how to protect yourself from mobile app scams.

Why is the CFPB suing Zelle?

The CFPB says in its lawsuit that Zelle skipped important safety features when developing the payment app so it could get the product to market quickly. Zelle's technology uses tokens that users can link to email addresses or mobile phone numbers. The CFPB claims that users could create multiple tokens and quickly reassign them, leaving consumers more vulnerable to fraudsters. 

The lawsuit claims hundreds of thousands of consumers who filed complaints were denied help recovering that money, with the banks telling some customers to contact the fraudsters themselves to try to get their money back.

Zelle responded to the lawsuit with its own press release, saying that the CFPB's claims were false and politically motivated.

"Zelle leads the fight against scams and fraud and has industry-leading reimbursement policies that go above and beyond the law," the company said. "The CFPB's misguided attacks will embolden criminals, cost consumers more in fees, stifle small businesses and make it harder for thousands of community banks and credit unions to compete." 

The company said it has cooperated with the CFPB and reimburses customers for all instances of fraud as required by the law.

If the CFPB is successful in its lawsuit, Zelle and its owners could potentially be forced to pay civil penalties and money to victims.

How to avoid scams on mobile payment apps

Although anyone can become a victim of a scam, there are ways to help protect yourself from mobile payment scams, including:

• Don't send money to people you don't know. Stick to using payment apps to send money to friends and family only. If you get an unsolicited text asking for money, don't click on the link.
• Be wary of "urgent" requests. Even if you think you're getting a message from someone you know, confirm that it's who they say they are before sending any money.
• Create barriers to keep your bank account safe. To help protect yourself when using a payment app, create a strong password, use multifactor authentication and consider unlinking your bank account from it. Yes, it will take longer to send and receive money, but that can also help protect your money from disappearing quickly. 
• Report any scams. Whether you're a victim of the scam or were simply targeted, it's important to report fraudulent attempts. If you're a victim, contact your bank or credit union immediately to minimize your losses. You can also submit a complaint to the Federal Trade Commission and file a police report.