Earlier this week, the Consumer Financial Protection Bureau (CFPB) announced a lawsuit targeting the big banks that launched Zelle.
Zelle was created by big banks in recognition of the rise of peer-to-peer payments and transfers. The banks wanted to keep pace with competitors and decided to launch their own service which is now utilized by millions.
Operated by Early Warning Services, LLC, during the first half of 2024 the platform reported payments for 143 million consumers and small businesses moving nearly half a trillion dollars, up 28% year-over-year in the first half of 2024. The number of transactions hit 1.7 billion – a 27% increase year over year.
The CFPB claims that customers of the three big banks have lost over $870 million during its seven-year existence due to alleged shortcomings. An insider with knowledge of Zelle says this amount is exaggerated and the CFPB is simply posting clickbait with the number being misleading.
The number claimed by the CFPB is said to be calculated using customers’ reported fraud claims, but not every reported fraud claim is actual payments fraud. The insider explains that every reported fraud claim allegedly via Zelle is investigated and often it is determined that fraud was not committed.
Several examples of the CFPB’s accounting not being accurate were shared, including:
- A customer may have mistakenly reported a forgotten purchase as a fraudulent transaction.
- Criminals may try and exploit the network by purposefully filing false claims.
- A customer may make a payment to a contractor who doesn’t adequately complete agreed-upon work. The customer may then file a fraud claim, but this is not payments fraud.
Zelle is said to reimburse customers for all instances of fraud as required by the law under the Electronic Funds Transfer Act and Reg E. Zelle apparently reimburses customers for certain types of scams where the customer authorized the transaction.
The CFPB has been a controversial agency from its beginning. Following the Presidential election, it will be interesting to see how the Trump administration manages the agency – especially with chatter regarding a move to consolidate agencies that overlap – something DOGE is expected to address – and the CFPB could be a target for cost reduction.